Banks and AI Keep Wall Street Afloat Amid Trade Tensions

It was one of those sessions where good old earnings managed to outshine the political theater.

The Dow Jones finished roughly flat, while the Nasdaq added 0.7%, continuing its AI-fueled advance. The irony wasn’t lost on me, the IMF just warned that inflated tech valuations could trigger a correction if the “AI dream” doesn’t deliver the expected profits. Yet investors didn’t seem to care; they were too busy pressing the buy button again.

AMD Shines Brightest in the AI Universe

Once again, Advanced Micro Devices (AMD | +9.4%) stole the show.

The stock jumped nearly 10% to $238.60 after two brokers lifted their price targets. HSBC’s Frank Lee now sees the stock heading to $310, citing the company’s fresh deal with OpenAI as a game-changer that improves “visibility and pricing power.” For perspective, that’s the highest target on Wall Street and represents about 30% upside from here.

Even Nvidia (NVDA | -0.11%), which Lee also upgraded to a $320 target, couldn’t keep up. Still, with Nvidia already commanding a market cap north of $2 trillion, I can’t really blame investors for catching their breath.

Other chipmakers joined the party: Applied Materials (AMAT | +4.3%), Intel (INTC | +4.27%), and Micron Technology (MU | +2.6%) all traded higher, boosted by an AI consortium led by BlackRock reportedly acquiring Aligned Data Centers in a $20 billion deal. The buyer list? A who’s who of tech heavyweights, including Microsoft and Nvidia.

Here's a direct link to these Microchip Stock Charts in ChartMill

Bank Earnings Keep the Bulls Confident

The financial sector provided another solid foundation for the rally. Morgan Stanley (MS | +4.71%) impressed with a 44% jump in profit to $4.6 billion, driven by equity trading and wealth management. Analysts at JPMorgan even called its trading desk the “best in class” this quarter, high praise in a year full of bank headwinds.

Bank of America (BAC | +4.37%) delivered a strong beat as well, thanks to robust loan growth and record net interest income. CEO Brian Moynihan described the quarter as “broad-based strength,” which, frankly, might be an understatement.

Trade Tensions Simmer Again

Still, the headlines weren’t all rosy. Treasury Secretary Scott Bessent told CNBC the Trump administration plans to impose minimum prices in several sectors to counter what he called “Chinese market manipulation.”

Beijing fired back earlier in the week by threatening export limits on rare earth metals, crucial for chip manufacturing. U.S. trade representative Jamieson Greer didn’t mince words, calling China’s move a “power grab in global supply chains.”

And just to spice things up, gold (GLD| +1.7%) soared past $4,200 per ounce, a clear sign that investors are hedging their bets against escalating trade risks.

The Fed and the Beige Book: More Caution, Less Hiring

On the macro front, the Federal Reserve’s Beige Book painted a mixed picture: companies remain cautious about hiring and are struggling with rising import costs. Inflation data didn’t make it out - courtesy of the ongoing U.S. government shutdown - but traders are already betting that Chair Jerome Powell will back a rate cut at the October 29 meeting.

The Empire State manufacturing index even turned positive again (from -19.6 to +3.7), suggesting the industrial slump might be easing.

Notable Movers Beyond Tech and Banks

A few smaller names caught my eye too.

• First Solar (FSLR | +9.0%) surged after Bank of America Securities raised its price target from $209 to $254.

• Papa John’s (PZZA | +9.39%) extended its rally on speculation Apollo Global Management (APO | +0.05%) might take the company private. Since Monday, the stock is up a staggering 26%, clearly, investors are hungry for more than pizza.

• Meanwhile, Bunge Global (BG | +12.96%) spiked after Donald Trump threatened to curb exports of Chinese-used cooking oil, a key ingredient in renewable fuel production. Politics, it seems, remains the ultimate market catalyst.

My Takeaway

Even with trade risks flaring up again, the combination of strong bank earnings and unrelenting AI optimism kept the bulls in control. Personally, I find the current AI euphoria both fascinating and slightly nerve-racking, it’s like watching a rocket take off without knowing if there’s enough fuel to get back down safely.

Still, as long as earnings keep surprising to the upside, few will dare to bet against it.

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Kristoff - ChartMill

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