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While the broad outline of a negotiating period was a positive takeaway from the trade agreement between Presidents Donald Trump and Xi Jinping at the G-20 summit, details remain elusive. Headlines following the meeting signaled a meaningful cooling of tensions as the Trump administration put a hold on further tariff increases during the negotiating period, and both sides raised their commitment to making progress on key issues. However, conflicting details contained in official statements and administration comments from both sides reminded markets of the potential challenges to finding common ground. Both sides continued to express optimism that a deal can be reached, and we remain optimistic as well; however, a number of tricky hurdles remain, and negotiations, even if successful, are likely to go through rough patches as both sides push for the best possible deal.

Last week, dovish language from the Federal Reserve (Fed) fueled one of the strongest rallies in U.S. stocks this year. On November 28, the S&P 500 Index posted its biggest daily gain since March and the U.S. dollar dropped the most in two weeks after Fed Chair Jerome Powell said current interest rates are “just below neutral,” referring to the point where monetary policy is neither accommodative nor restrictive for the economy.

Corporate America produced another outstanding earnings season. We expected another quarter of strong earnings growth, and corporate America delivered even more than we anticipated. Third quarter numbers were excellent, even if the boost from the new tax law is excluded, as has been the case throughout this year. Revenue and earnings upside compared with expectations was particularly impressive, making prior assertions of an earnings growth peak premature. We’re also impressed by the resilience of companies’ outlooks in the face of tariffs and ongoing trade policy uncertainty.

The U.S.-China trade dispute has carried on for about eight months, with no agreement in sight. To date, the U.S. has imposed tariffs on about $250 billion in Chinese goods, representing about half of what the U.S. imported from China last year. In turn, China has retaliated with its own tariffs on $100 billion in imported U.S. goods. So far, the global economy has avoided a trade breakdown, as exports and imports are growing steadily for both the U.S. and China. However, small cracks are forming in the global economy due to the indirect impact of trade tensions, and leading trends show a prolonged dispute or more severe tariffs could exacerbate these effects.

The quote above is better known today as “It is always the darkest just before dawn.” Well, October was one of the worst months we’ve seen in years for stocks, but we see a much brighter future. The next two months could have a nice year-end rally thanks to historically bullish seasonal patterns during midterm years and the extreme buying strength we saw last week.

It was another tough week for stocks. The S&P 500 Index was down just shy of 4% last week, briefly dipping intraday into correction territory (more than 10% off the all-time high) and putting October on track to be the weakest month for stocks since the financial crisis. Concern about an earnings slowdown and a potentially overly aggressive Federal Reserve (Fed) seemed to be the primary drivers, but market participants saw little, if anything, encouraging out of the other “bricks” in the stock market’s wall of worry.