Morning in New York: the degree of tension in the market is growing

Daily review and forecast of events on the U.S. stock market from Mikhail Denislamov, Deputy Director of Freedom Capital Markets Research.

The main factor for the markets on October 17 remains the geopolitical background and Beijing's statements: the Chinese Ministry of Commerce accused the U.S. of "deliberately creating panic" around export restrictions on rare earth elements. At the same time, the representative of the Ministry of Commerce He Yongqian said that Beijing is open to dialog with the U.S. side to settle the trade dispute, which threatens to escalate into a new round of tariff war. Amid heightened tensions, China emphasized that the measures are solely aimed at protecting national security and preventing the use of rare earth materials for military purposes. The market will closely follow the possible reaction of the White House and preparations for the meeting of the US and Chinese presidents scheduled for the end of October.

The degree of tension in the market is increasing as a combination of various negative factors begins to influence investor sentiment:

1. a US government shutdown with great uncertainty on the timing of the resumption of funding;

2. escalating trade frictions with China;

3. growing concerns in the segment of regional banks due to the decline in the creditworthiness of borrowers.

President Donald Trump announced an agreement with Germany's Merck KGaA (EMD Serono) to significantly reduce the price of Ek's IVF drugs in exchange for an exemption from tariffs on U.S. pharmaceutical imports. The company will begin direct sales through the government's TrumpRx.gov platform beginning in January 2026. The administration will also make recommendations to employers to allow IVF coverage to be included in health benefits packages. The move is seen as part of a broad White House program to reduce drug costs and bolster political capital ahead of the election, and could provide short-term support for pharma stocks related to the reproductive health segment.

Of the corporate reports before the open, American Express (AXP), Schlumberger (SLB) and a group of regional banks: Regions Financial (RF), Huntington Bancshares (HBAN), Truist Financial (TFC) and Fifth Third Bancorp (FITB) will present their results. These will be the main focus after yesterday's comments from Zions Bancorporation (ZION) management.

US index futures are down more than 1%, and the VIX index has risen above 28 points. We assess the balance of risks as negative, and investors should be prepared for high volatility. We focus on S&P 500 fluctuations in the range of 6450-6610 points (from -2.5% to -0.3% to the previous session's closing level). Global indices are under pressure: German DAX and Chinese benchmarks are down more than 2%.

- Shares of Novo Nordisk (NVO) and Eli Lilly (LLY) are losing about 5% in the premarket after President Trump's comments about plans to cut prices on popular weight loss drugs. The announcements added to investor concerns about possible margin pressure and declining revenues for the companies in the fast-growing GLP-1 segment.

- Disc Medicine (IRON) shares are adding 18% on the premarket after the company received an FDA priority voucher for Bitopertin, a drug used in the treatment of orphan anemias.

- Shares of Hycroft Mining Holding (HYMC) are adding 4% on the premarket on the news that Canadian investor Eric Sprott, a known early stage participant in gold mining projects, has purchased 7.7 million shares. The purchase is seen as a sign of confidence in the Hycroft mine's potential to increase reserves and production.

- Newsmax (NMAX) rose 4% on the announcement of a cryptocurrency project designed to reserve $5 million in assets. The initiative aims to diversify revenue and strengthen the media group's financial strength.

- NextDecade (NEXT) shares are reacting positively to an update on the construction status of the fifth liquefaction module (Train 5) of the Rio Grande LNG project, confirming sustainable infrastructure development for future exports.

- Liberty Energy (LBRT) is down 4.5% after releasing quarterly results: despite record drilling efficiency and a higher dividend, the company reported lower revenue and earnings amid a slowdown in industry activity and continued pricing pressure in its fracking services segment.

- Shares of Bank OZK (OZK) are losing about 3% in the premarket after the release of its quarterly report. Despite record net profit and solid operating performance, investors reacted cautiously to higher loan loss provisions and lower profitability relative to expectations.

Trades on October 16 on American sites ended with decrease. S&P 500 index lost 0.63%, Dow Jones - 0.65%, Nasdaq 100 - 0.36%, and Russell 2000 fell by 2.09%. The key driver of the day was rising credit risk concerns in the regional bank sector, which outweighed positive news from the technology sector. Shares from the "Magnificent Seven" were mostly declining, with Tesla (TSLA: -1.5%) showing a noticeable drop. The energy sector (XLE: +0.12%) was the growth leader, while the financial segment (XLF: -2.78%) was the outsider amid banking problems.

The main event of the day that pressurized the market was news from Zions Bancorporation (ZION: -13.1%). The bank announced about writing off $50 mln and creating reserves for $60 mln on two commercial loans due to "material misrepresentations" on the part of borrowers. This news provoked a sell-off in shares of regional banks and increased investors' fears about "cracks" in the credit market, which had previously manifested themselves in bankruptcies in the auto lending sector. Against this negative background, even strong news from the technology sector could not keep the market from falling. Thus, TSMC (TSM: -1.6%), despite another increase in its annual revenue forecast on the back of the AI "megatrend", was unable to hold its morning growth and closed in the negative.

Macroeconomic statistics were mixed: the business activity index from FRB Philadelphia was weaker than expected, falling to the lowest level since April, while the homebuilder sentiment index, on the contrary, exceeded forecasts and rose to the highest level since April. At the same time, the market continues to experience information hunger due to the "shutdown" of the government, which delayed the publication of data on PPI, retail sales and applications for unemployment benefits. Against this background, Fed representatives Waller and Miran again spoke in favor of easing monetary policy.

- Shares of Western Alliance Regional Bank (WAL: -10.9%) collapsed following Zions Bancorp after the company confirmed its exposure to the same troubled borrower (Cantor Group V) and said there may not be adequate collateral for the loan.

- StreetInsider reports that Datadog (DDOG: -5.5%) is exploring a takeover led to a surge in Gitlab (GTLB: +10.6%) stock price and a simultaneous drop in shares of the potential buyer itself, as investors took a negative view of the potential costs of a large M&A deal.

- The positive outcome of the analyst day, where management allayed concerns about the low profitability of AI projects, was a growth driver for Oracle stock (ORCL: +3.1%).

- American Battery Technology (ABAT: -36.7%) shares were pressured by news that the U.S. Department of Energy revoked an earlier grant to build a lithium plant, citing audit findings.

- Despite a strong third-quarter report in which the company beat revenue and profit forecasts, Marsh & McLennan (MMC: -8.5%) shares declined. Investors were disappointed by weaker-than-expected growth in the key insurance segment, as well as management's comments about continued challenging market conditions in 2026.

This article was AI-translated and verified by a human editor