Markets Edge Lower as China Standoff Clouds U.S. Earnings Outlook

U.S. stock futures retreated early Tuesday as geopolitical tensions and earnings uncertainty weighed on sentiment following a brief market rebound. The Chinese Ministry of Commerce confirmed ongoing technical discussions with Washington but criticized U.S. pressure tactics, amplifying market caution. The unresolved government shutdown, now in its second week, further added to investor unease as political gridlock persisted.

According to FactSet, S&P 500 companies are expected to post an 8% year-over-year earnings increase, marking a continuation of their eight-quarter growth trend. Financial firms are projected to deliver the fourth-strongest sector performance, with consumer finance and insurance leading gains.

As of early trading, Nasdaq 100 and Russell 2000 futures fell over 0.7%, the S&P 500 slipped 0.5%, and the Dow Jones dipped 0.36%. Monday’s market strength—driven by a calmer tone from President Donald Trump on China and optimism around new artificial intelligence partnerships—proved short-lived. Most major S&P sectors advanced earlier in the week, led by technology, consumer discretionary, and communication services, while defensive stocks lagged.

In Monday’s session, SPY gained 1.53%, QQQ jumped 2.12%, IWM surged 2.79%, and DIA added 1.28%. However, renewed anxiety around tariffs and trade reemerged after Trump hinted at 100% tariffs on Chinese goods, which WisdomTree economist Jeremy Siegel interpreted as a negotiating tactic aimed at securing a rare earths agreement. Siegel warned of U.S. dependence on China’s near-total dominance in rare earth refining, calling it a “greater strategic threat than OPEC ever was.”

Attention now turns to upcoming economic indicators and central bank commentary. The NFIB small business optimism index is set for release Tuesday morning, followed by Federal Reserve Chair Jerome Powell’s speech on the economic outlook at the NABE annual meeting. Additional remarks are expected from Fed Governors Michelle Bowman and Christopher Waller, along with Boston Fed’s Susan Collins.

Earnings reports from major financial institutions including JPMorgan, Citigroup, Goldman Sachs, Wells Fargo, and BlackRock are scheduled throughout the day, alongside updates from Domino’s Pizza and Albertsons.

Siegel reiterated his preference for equities as the foundation of long-term investment portfolios, suggesting only a small allocation—no more than 10%—to gold or cryptocurrency. Meanwhile, crude oil futures slipped below $60, gold prices extended gains, and the 10-year Treasury yield drifted near 4%. Asian markets also traded lower, with Japan leading declines as investors awaited Powell’s remarks and monitored the evolving U.S.-China dynamics.