U.S. shares look set to rise on Friday, which would reverse a two-day selloff that sparked fears of a.
Dow Jones Industrial Average futures rose 246 points before the open of trading, indicating shares are likely to rise when trading begins at 9:30 a.m. Eastern time. Futures for the S&P 500 and the tech-heavy Nasdaq also rose, indicating the gains are likely to be widespread following an uptick in global stock indexes.
Investors are hoping that President Donald Trump and his Chinese counterpart, Xi Jinping, will meet at the Group of 20 summit next month, potentially easing trade tensions between the two economic powers. At the same time, investors are watching key earnings reports from banks such as J.P. Morgan Chase, which on Friday said earnings jumped 24 percent, driven by a lower tax rate and higher income from a boost in interest rates.
Around 10 percent of the companies on the broader S&P 500 index, including Citibank and Morgan Stanley, will report their third-quarter performances soon, which could tip sentiment either way.
The two-day swoon wiped more than 1,300 points from the Dow Jones Industrial Average over two days and dragged the benchmark S&P 500 index down more than 5 percent. The VIX index, which measures how worried traders are about a decline in stocks, climbed Thursday to its highest level since February, when the S&P last had a correction, or a 10 percent drop.
Return of market volatility
Experts say this new eruption of market volatility should not be surprising, especially after the long stretch of relative calm investors have enjoyed.
"Volatility is back and it may require more active strategies on the part of investors to pursue their long-term goals," said John Lynch, chief investment strategist at LPL Research. "Volatility is also not to be feared, but embraced, as varying data points will cause bouts of market anxiety. But remember that fundamentals are still strong."
Over the summer, traders set aside worries about the escalating U.S.-China trade dispute and instead focused on more encouraging developments: solid economic growth and record corporate earnings. It helped that stocks were on the rise — the S&P 500 hit an all-time high just four weeks ago.
China's surplus defies tariffs
The country's trade surplus with the United States grew to a record $34.1 billion in September, customs data showed. It marked a jump of 13 percent over a year earlier, defying rising U.S. tariffs on Chinese goods.
"China's trade has yet to feel the brunt of tariffs," Freya Beamish, chief Asia economist with Pantheon Macroeconomics, said in a note.
Chinese exports to the U.S. increased, although the growth was slower than in August. Imports of U.S. goods grew too, but at a slower pace. Overall, the data was a healthy snapshot in the face of punitive tariffs.
Separately, the U.S. Treasury is due to release a currency report that some analysts suggest might change the official stance on China's exchange rate policy.
Interest rates spook investors
The economy is indeed quite strong by many measures — consumer spending is growing, unemployment is low and manufacturing surveys are near record levels. And many experts say that is more important than the market's daily ups and downs.
So what's behind this week's market freefall?
Investors have grown concerned about a recent, steep drop in U.S. government bond prices and an ensuing upward move in bond yields, which makes bonds more attractive relative to stocks. The market is also worried about rising interest rates, which tend to climb on expectations of future economic growth and inflation and can increase costs for business — slowing growth and dampening corporate profits.
"There's some concern that third-quarter earnings could be maybe a little bit less robust than they were in the second quarter and there could be more pressure on profit margins," said Willie Delwiche, investment strategist at Baird.