The S&P 500 Index and its ETFs, like SPY and VOO suffered a harsh reversal on Friday as the Fear and Greed Index moved to the fear zone after Donald Trump unveiled new tariffs on China. It plunged to a low of $6,552, its lowest level since September 11 and 3% below the highest level this year. This article looks at the top catalysts for the index this week.

US and China trade war 

The main catalyst for the S&P 500 Index and its ETFs, like VOO and SPY is the ongoing trade war between the US and China, which escalated on Friday.

This crisis has been simmering in the past few weeks as China made major announcements targeting US companies. For example, after the US allowed Nvidia to start shipping the H20 chips to China, Beijing launched an investigation, and ultimately asked companies not to use those chips.

China has insisted that its companies should use local semiconductors, which authorities believe are equally good. Its goal is to become self-reliant as the US has used chips as a trade weapon before.

The country launched an investigation into Qualcomm last week and then announced some tariff measures, including on ships docking from the United States. Most importantly, China is no longer buying soybeans from the US and put measures to reduce export of rare earth materials.

As a result, Donald Trump announced a 130% tariff on goods brought from China and export controls on crucial software, leading to the stock market crash on Friday. Therefore,  the S&P 500 Index will react to more trade news from the US and China.

US earnings season 

The other major catalyst for the S&P 500 Index will be the second quarter earnings season, which will start on Tuesday when companies like JPMorgan, Johnson & Johnson, Wells Fargo, Goldman Sachs, and Citigroup publish their results.

A report by FactSet notes that the estimated growth rate for the S&P 500 Index is about 8%, which will mark the ninth consecutive quarter of earnings growth. However, the report also predicted that the real earnings growth will be above 13%, which will mark the fourth straight quarter of double-digit growth. It noted:

“The actual earnings growth rate has exceeded the estimated earnings growth rate at the end of the quarter in 37 of the past 40 quarters for the S&P 500. The only exceptions were Q1 2020, Q3 2022, and Q4 2022.”

US government shutdown news

The other notable catalyst for the S&P 500 Index and its ETFs, like VOO, IVV, and SPY this week will be the government shutdown, which has now entered the third week.

This shutdown was triggered by the disagreements between Democrats and Republicans on how to fund the government. Republicans prefer a clean spending bill, while Democrats want to attach healthcare and Medicare to the spending package.

Analysts believe that the continued shutdown will have an impact on the economy since the government is a major spender in the US. It will also worsen the labor market, which has been deteriorating in the past few months. 

This shutdown could, therefore, be a good thing for the S&P 500 Index because it will lead to more interest rate cuts by the Federal Reserve, which has already been slashed in the last meeting. This is one reason why US bond yields tumbled, with the 10-year falling to 4%.

AI news to move the S&P 500 Index 

Meanwhile, the stock market will react to the latest news on artificial intelligence (AI), which has driven the gains in the past few months. 

One of the key AI news to watch will come from ASML and TSMC, which will publish their financial results on Tuesday and Wednesday.

Traders will also react to any major announcements from companies like OpenAI, Microsoft, and Google as there are lingering fears that we are in an AI bubble.

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