Trading Places. Friday’s dour mood gave way to new hope and optimism today.

Stocks sank on Friday on an apparent escalation of the trade war between Washington and Beijing. On Monday, they bounced much of the way back after President Donald Trump said over the weekend, “Don’t worry about China.” Wall Street listened. The Dow Jones Industrial Average added 588 points, or 1.3%, while the S&P 500 rose 1.6% and the Nasdaq Composite climbed 2.2%. Gold closed at another new high and silver logged its first record since 1980.

This may be another iteration of the TACO trade ahead of a potential U.S.-China meeting at the Asia-Pacific Economic Cooperation Forum at the end of this month. Raymond James Washington Policy Analyst Ed Mills thinks that meeting will still happen “but only after further escalatory rhetoric. That’s the bad news. The good news is that “if previous patterns hold, this could prove an opportunity for market-positive negotiations to develop between now and the end of APEC (Nov. 1).”

As indexes climbed, Wall Street’s fear gauge came back down from Friday’s spike: The Cboe Volatility Index, or VIX, closed Monday at 19.03, down 12% on the day.

Still, investors shouldn’t get too complacent, warns SentimenTrader. When the rare combination of a market high, a volatility spike, and a momentum breakdown happens, the S&P 500 tends to follow “distinct and potentially deceptive pattern,” the firm notes. First comes a buy-the-dip rebound, with the index typically higher a month later, but “that strength has historically proven to be a bull trap. By the two-month mark, the win rate plummeted to 62%, barely better than a coin flip, and the three-month win rate was only 69%.”

Certainly there are factors that could spook the market, including the on-again, off-again trade war, which threatens future interest rate cuts. “The task confronting the Federal Reserve is precarious as tariff-induced inflation remains a real risk,” writes Oak Associates Chief Financial Officer Robert Stimpson. “Threading the needle to support employment, while avoiding stagflation (rising prices and unemployment) will be difficult.”

The ongoing government shutdown could also spoil the mood. Although markets usually shrug these off, the current one is only the fourth “full” shutdown since 1980. Longer shutdowns can have an impact on gross domestic product, and Vice President J.D. Vance warned of “painful” job cuts to the federal workforce to come.

Still, “even the longest government shutdowns have had little lasting effect as economic activity rebounded quickly and missed spending was largely recouped in the weeks that followed each shutdown,” notes Glenmede Chief of Investment Strategy & Research Jason Pride. And it looks like the third quarter is shaping up to be another strong one for corporate earnings, which begin in earnest tomorrow morning.

The quarterly results could push trade concerns to the back burner once again.

The Hot Stock: Best Buy +10.0%
The Biggest Loser: Fastenal -7.5%

Best Sector: Technology +2.4%
Worst Sector: Consumer Staples -0.3%

On Sunday the bull market turned three.

The S&P 500 rose more than 21% during its first year (less than the average 40%) but quickly picked up speed, piling on a 32.2% gain in its second year and a roughly 16% gain in its third year, some three times the average. Overall, the S&P 500 is up about 89% during this bull run, well ahead of the median three-year rallies dating back to 1950, notes LPL Financial Chief Equity Strategist Jeff Buchbinder.

Artificial intelligence enthusiasm has been the main driver of the rally—one look at the Magnificent Seven stocks shows that—but a resilient economy and strong earnings growth have also helped.

Of course the trillion dollar question is where stocks go from here.

The good news is that bull markets tend to last about five years, and other factors are still moving in the right direction. Buchbinder writes:

Read more from my colleague Martin Baccardax here.

BlackRock, Citigroup, Domino’s Pizza, Goldman Sachs Group, Johnson & Johnson, JPMorgan Chase, and Wells Fargo report earnings tomorrow.

The National Federation of Independent Business releases its Small Business Optimism Index for September. The consensus estimate is for a 100.5 reading, roughly even with the August figure.

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