TQ Morning Briefing

Markets Consolidate Ahead of Tariff Test

From the T&Q Desk

Stocks slipped Tuesday as the market took a healthy pause after months of relentless gains.

The Nasdaq fell 2%, the S&P 500 dropped 1.2%, and the Dow lost 0.5%, led lower by profit-taking in tech after a six-month rally that left valuations stretched. 

Palantir sank 9% despite strong earnings, a sign that enthusiasm for AI names may be giving way to discipline.

Their tone framed the selloff as a reset rather than a retreat. Earnings strength continues to underpin sentiment, with 83% of S&P 500 companies beating forecasts so far.

With the government shutdown now entering a record 36th day, traders are still flying partially blind, lacking the official data that would normally shape expectations. 

Even so, this consolidation phase looks like a healthy part of the uptrend, a market catching its breath, not losing its way.

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Word Around the Street

Traders are focused on two catalysts: the Supreme Court’s hearing on the legality of President Trump’s tariffs and the Treasury’s quarterly debt issuance announcement. Both carry the potential to sway yields, currencies, and risk appetite.

If the Court signals skepticism toward the tariffs, analysts expect volatility in the dollar and a possible rally in long-dated Treasuries. 

The ADP employment report, expected to show a modest 37,500-job rebound, will also test how the labor market is holding up without official government data. 

Overnight, Asian and European markets followed Wall Street lower, the dollar held firm, and Bitcoin dipped below $100,000. Caution reigns, not panic, investors are trimming risk, not abandoning it.

Global Policy Watch

Central banks are settling into a holding pattern as limited visibility constrains their next moves.

Federal Reserve officials remain divided, with market odds of a December rate cut falling to roughly two-thirds from more than 90% last week. Yields near 4.1% and a stronger dollar reflect the shift toward patience.

Overseas, the Reserve Bank of Australia kept its cash rate steady at 3.60% and warned against easing prematurely, while the European Central Bank’s Christine Lagarde reiterated that inflation remains “persistent” even as growth slows. 

The result is a cautious global consensus: rate-cut momentum has stalled, and monetary strategy has shifted from reaction to reflection.

Trade Winds & Global Shifts

China confirmed it will suspend retaliatory tariffs on certain U.S. farm goods but retain a 10% levy on all American imports, leaving soybeans still burdened by cost. The move follows last week’s Trump-Xi truce, which paused new restrictions but left core disputes unresolved. 

Meanwhile, the Supreme Court begins hearings on Trump’s use of emergency powers to impose tariffs under the International Emergency Economic Powers Act. 

Treasury desks are preparing for the possibility that the tariffs could be ruled illegal, forcing refunds of as much as $195 billion and widening the fiscal gap. 

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D.C. in the Driver’s Seat

Democrats swept Tuesday’s off-year elections, capturing the governorships in New Jersey and Virginia, the mayoralty in New York City, and passage of California’s Proposition 50, which redraws congressional maps in their favor. 

It was a symbolic rebuke of Trump-era politics amid the ongoing shutdown.

Senate Majority Leader John Thune and Minority Leader Chuck Schumer both struck a tentative tone about progress toward reopening the government, suggesting a short-term deal could take shape before the weekend. 

Markets read the election results as a modest positive for gridlock relief but also a sign of possible fiscal expansion ahead. Voters sent a message, now Congress has to decode it.

Economic Data

  • MBA 30-Year Mortgage Rate

  • ADP Employment Change

  • ISM Services PMI

Earnings Reports

MCD, QCOM, APP, HOOD, DASH, MCK, JCI, EMR, FTNT, SRE, MET, ALL, FICO, FIS

Overnight Markets

Asia: Nikkei -2.50%, Shanghai +0.23%
Europe: FTSE 0.00%, DAX -0.51%

U.S. Pre-Market

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Opening Outlook

Markets enter Wednesday steady but wary after the sharp pullback in technology shares. 

The ADP private payrolls report is expected to show a mild rebound in hiring after September’s contraction, providing one of the few labor readings available during the ongoing shutdown. 

After weeks of momentum, the market feels like it’s catching its breath. Futures are calm, but positioning has turned more defensive, with traders looking for balance rather than bargains. 

What happens next will depend less on headlines and more on how investors interpret this pause, as exhaustion, or as strength gathering itself again.

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