Morning Digest 10/01

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Good morning partner,

Few things to cover this morning:

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Yesterday’s Session

Not a great look on the stability of the market, as the semis/memory AI complex was hit with mixed downward pressure, while other names in the economy also were selectively hit.

To simplify this take I will point you to the data that made markets move yesterday, especially 2Q26 GDP.

Despite being a lagging indicator, data shows that price action tends to adjust 1-3 months after each GDP is released, as it truly shows where the levers of economic growth are being pulled (or not pulled.)

It turns out,

The economy has already moved on from AI, and is now starting to show supporting evidence for outperforming growth in other areas like housing and the consumer.

This is why the session was so mixed yesterday, as opposed to the typical tug-of-war we’ve been experiencing lately.

I suspect we’ll continue to see more of these rotations as the final stretch of 2026 ends, rotations which I will be ready to take advantage of.

Click here to see where GDP is pointing to for opportunities.

Let’s take a look at yesterday’s leaders and laggards:

Communications, Technology, Utilities.

If AI is truly going to slow down from here, as showed by GDP, then it would make sense to see the companies relying on that AI capex flow get hit the most.

That’s the story behind basic materials.

It’s also why semis/memory and hyperscalers managed to go up together on the day, the market is now deciding which factor to begin supporting from here:

This is quite the opposite of the materials story, which were 100% relying on that capex flow to report better earnings and future backlogs alike.

Then you have the financials as the second-most laggard, which is quite alarming given the sudden correlation to materials and data centers.

If you’ve been keeping up, you know that NVIDIA recruited some insurance companies to cover its underwater GPU-backed loans, so perhaps the sour view on data centers is beginning to have an effect on banks.

Sell one, sell everything.

Click here to read how AI loans are about to go underwater and bring the system down with them.

This Time is Different?

Throughout history, volatility in the bond market tends to lead volatility in the stock market.

That’s because the law of capital itself will never stop being a thing, even in an AI and crypto world.

Unstable yields (cost of capital) make future outlooks for businesses just as unstable, therefore fear (volatility) is introduced and lower valuations come as a result.

That simple.

Bulls will argue, correctly, that this time yields don’t matter and that it is different. I say correctly because the S&P 500 is NVIDIA and NVIDIA is the S&P 500.

NVIDIA is no longer a chipmaking company, as it has turned its balance sheet into a portfolio of loans and investment stakes in over 100 AI companies.

And, just as any bank, rising yields benefit the interest income they make from all these loans.

It’s a great thing!

Until the companies making payments on these loans begin to get affected by these rising yields and uncertainties, then yields start to matter again and the AI bulls will have another shiny object to chase (like robotics.)

This creates two scenarios:

I have reason to believe scenario #2 is soon approaching as discussed earlier this week.

Which is why I am even more interested in the coiled springs identified in yesterday’s GDP report.

But,

None of these pay until bond yields come way down.

Click here to read the one catalyst we need to see bond yields move from here.

News

Movers & ES Levels

Now let’s get into some ES levels for today.

The same range has been whipsawing all week, where we now sit near the $7,700-$7,725 range of support to decide the trend for the rest of the week and next week.

You could argue there’s a falling wedge/triangle forming up in the index as aggressive buyers are forced to protect the level I’ve discussed for weeks now at $7,700.

This could result in accumulation that’s strong enough to get us back toward the $7,780-$7,800 mark, but I believe a stronger force is at play right now.

With GDP clearly showing the rotation out of AI and back into unrepresented real economy sectors, roughly 60% of the S&P will have to rotate out of its biggest names and put these other areas back on the field.

Whether this is an orderly rotation or a sudden vacuum is unknown, but I will be leaning bearish if we close the week within this $7,700-$7,725 range without the proper follow through from aggressive buyers.

Sellers have not even showed up yet, which gives me even more reason to turn bearish in this range should aggressive sellers show up.

If you’re a buyer, this is a great level to be starting positions, but know a sudden ram below $7,700 could take you out quickly.

Portfolio

If you want any sort of confirmation to the above claims about AI losing its grip, look no further than our long/short data center cooling plays.

Yesterday, even after a solid GDP print, this trade took a hit on the long end to demonstrate just how bad things are getting for data centers.

On the other end, a stabilized oil price below $95 a barrel helped the diesel spreads go back into profit.

One warning is coming from my Japanese vs American carmaker play, as the consumer comeback from yesterday was seemingly centered around buying cars.

May have to close that trade if it loses an important structure level, but in any case that would mean it’s probably time to let the OPENLANE (OPLN) thesis have its place in the portfolio.

Stay tuned in the Telegram community for these trade alerts, a lot more ideas will be pitched and added to the pipeline as I digest the coming PMI reports.

Here’s the positioning update for today’s premium members: