In partnership with
Join Anthropic, Kalshi, and Clay at Pioneer on October 7th
Pioneer, the summit where CX leaders redefine what’s possible, is on October 7th.
Join leaders from Fin, Anthropic, Clay, and Kalshi for an insightful conversation on the state of AI transformation.
You’ll discover how some of the most innovative minds in CX have transformed their organizations, learn how they think about CX, and hear how they're planning for what's next.
Join the conversation in San Francisco, or tune in virtually.
Good morning partner,
Few things to cover this morning:
** PREMIUM MEMBER REMINDER (If you haven’t yet) ‼
You can now access the Telegram Community to receive our live trade desk alerts in real time (no more waiting on emails to hit), and a dedicated Q&A space with access to Gabriel for anything you’d like to discuss
Yesterday’s Session
It’s impressive how the S&P 500 managed to close lower even though most sectors pushed a decent amount into the green.
Yet, because semis/memory names went the other way, current levels of concentration and correlation will make the index pay for it.
Notice one thing as well, and it is the fact that NVIDIA had a failed breakout in the all-time highs, despite a recent record quarter and 70% revenue guidance for next year…
NVIDIA itself has been channeling since May, and that is a direct showcase of uncertainty building up around the company (and by extension, the AI trade as a whole.)
Which is exactly why I’m having a harder time filtering signal from noise in this market, since it seems nothing is inherently working outside of irresponsible gambling around NVIDIA’s next acquisition target or overly aggressive guidance updates.
This earnings season has demonstrated that very well, especially in the tug-of-war we’ve been covering this quarter.
Let’s take a look at Yesterday’s leaders and laggers:
Energy, Healthcare, Communications.
A pretty good bounce back from the broader equity de-risking theme we had spotted earlier in the week.
Notice that these leaders have everything to do with Brent’s $100 crossing (energy), the positive inflation effects on healthcare services, and lastly the hyperscalers winning as a direct result of semis/memory selling off.
These are also the three main themes driving the entire market nowadays, so we can let those extremes fight it out for now.
What I want you to focus on is everything outside of that, especially during a day when AI lost ground.
Industrials, defensives, utilities.
That tells me the market still expects inflation to be higher (even if we remove the Iran war), and it also expects a rotation of capital away from AI-related buildouts and back into other infrastructure/commercial projects.
Because of these inflation and industrial dynamics, utilities are also moving higher with the theme.
Makes sense, as inflation boosts utility earnings, while industrial activity in the broader economy (not just AI) will also help utility companies gain further market share and footprint.
Click here to read how the latest PMI data begins to confirm the rotation out of AI-related activity.
Fooled by Data
One of the reasons why Jordi Visser (one of the biggest retail AI bulls) remains blindly supportive of the AI trade is this:
Profit margins on the S&P
Yet, as I have pointed out to you time and time again, you can no longer approach the market with the tools you would have ordinarily used before.
Things like P/E ratios, Earnings, High-yield spreads… They no longer represent the stock market.
Because the stock market has become a dozen - or couple dozen - companies all tied to the AI trade by default.
Remove non-cash items from P/Es and EPS for AI players, and multiples go to ~60x on average and 6% growth on EPS.
Remove technology from the mix, and profit margins have gone nowhere, hell, remove AI from every equation mix you want to consider and you’ll find this market is heavily deceitful to the untrained investor.
News
“I am the House Now” will probably be one of the statements to haunt Bessent forever, just like “Subprime losses are contained” or “Inflation is transitory” before it. The house is the bond ecosystem itself, and Bessent owes the ecosystem $40 trillion.
Supertanker Daily Rates hit a new all-time high amid the continued Hormuz escalations, combined with record diesel spreads, this is setting up for a potential energy crisis hitting the global economy.
Another Anthropic Worker Leaves quoting that the technology they are working on is now out of control and dangerous. I don’t care about those claims as much as the 30+ people that have left OpenAI and Anthropic this past month, people don’t usually do this before a record-setting IPO.
Trump Promises $5,000 to every American citizen if republicans win the election, that’s roughly $1.2 trillion in payouts. If this actually goes through, expect a risk asset rally like none other in history.
Movers & ES Levels
Signet Jewelers 📈 Spiked over 23% after raising guidance in a strong quarter, amplifying the effects of a K-shaped consumer economy across the United States right now.
Academy Sports & Outdoors 📈 Gained 14% on a strong earnings beat despite an overall weaker consumer space, which could now act as a signal that the bottom of this K isn’t doing as bad as markets think.
Chewy 📉 Slipped 10.8% after liquidity concerns were unveiled in its recent quarter, I would think of this as another hit to the growth trade, as several growth companies have now fell double-digits this season.
Braze 📉 Lost 21% after investors were disappointed on AI-related revenue in this software company, perhaps a foreshadowing fact ahead of today’s Adobe earnings.
Now let’s get into some ES levels for today.
Yesterday I told you unless $7,625 was taken out, I wouldn’t be turning bearish on the market.
Lo and behold, we scratched $7,628 and ended the day with a ~40-point rally off this level.
A new balancing level has come up in the overnight session now, that of $7,665 calling in some aggressive sellers to react and make their offers lower.
It is also the right shoulder to the inverse head that sits around $7,620.
That makes me tighten the range for today at $7,675 to $7,625 and see how the balance goes.
If the balance is broken on inflation data, or some other outside event coming from Iran or the bond market, I think we quickly see through $7,590-$7,550.
Wouldn’t take a direction on either extreme unless we take out the 50-point range given above.
Portfolio
A broader market decline has dragged most of our holdings with it, despite being of less than 5-7% weighting each.
As Druckenmiller says about portfolio management, your job is to know when you are hot or going cold.
After a massive run in June, July, and most of August, I think our table has now gone a bit cold again.
Which is why I spent most of last night reviewing all our correlation, volatility, and beta drivers in each name of the portfolio and see where the needed changes will be made.
I will send an entire post on this portfolio review mechanism and the tools you need to do so for your own portfolio, if anything, take it as a learning experience nobody else will teach you.
Reserved for Premium members only.
Here’s the positioning update for today’s premium members:
Subscribe to our premium content to read the rest.
Become a paying subscriber to get access to this post and other subscriber-only content.
Upgrade