As of 4:26 p.m.:

Breadth

S&P 500 Sectors

Nasdaq 100 Heat Map

At 2:30 p.m. the S&P Index is -19 handles.

Today's "things":

* I shorted  (NVDA)  today at an average cost of about $140.

* I covered a portion of my homebuilder shorts late in the session on today's schmeissing:  (TOL)  at $154.02,  (KBH) at $81.75,  (GRBK)  at $79.83,  (DHI)  at $187.41 and  (LEN)  at $181.58.

* I added to my  (XLF)  short at $47.64.

* I covered my  (TLT)  short at $92.47.

* Shorted more  (DJT)  calls.

* Added to my  (PG)  long at $169.45.

* I day traded  (SPY)  and  (QQQ)  calls (from the short side) three times — all profitably.

With the thrashing of homebuilder stocks (on average, 4% with losses of between -$4 and -$8/share) I have taken in some of my shorts:

*  (TOL)  $154.02.

*  (KBH)  $81.75.

*  (GRBK)  $79.83.

*  (DHI)  $187.41.

*  (LEN)  $181.58.

From my pal Larry:

NASD Advance-Decline intraday for past 10 days shows today's real deterioration:

I have covered my  (TLT)  short at $92.47 for a profit.

At 12:45 p.m.:

With the decline in the S&P Index more than halving from the day's lows (and down by only -17 handles) I am slowly back shorting Index calls.

Shorting more  (DJT)  (in the money) calls.

This is a good way to avoid prohibitive borrowing costs/rates.

I just super sized  (MSOS)  at $7.08 and added to  (GTBIF)  $10.24:

With the 40-handle reversal lower in the S&P Index I have taken off the Index call shorts I sold this morning for a profit.

- New York Stock Exchange volume is 10% below its one-month average;

- Nasdaq volume is 3% above its one-month average

- Volatility Index: up 4.27% to 18.80

I added to  (PG)  at $169.85.

I added to  (NVDA)  short at $140.62.

Pressing financial shorts -  (XLF) ,  (MS)  and  (JPM) .

Pressing homebuilder shorts. (See  (TLT)  weakness)

Adding to  (SPY) and  (QQQ)  call shorts with S&P cash -3 handles.

Bidding for more  (MSOS) .

With S&P futures rallying from the early morning lows and S&P cash down by only -5 handles, I am adding to my short Index calls.

From Peter Boockvar:

If she wins..., If he wins.../Have you seen silver?/FITB talks private credit competition

I get asked just about every day, and ahead of each election, by our financial advisors and clients whether we will alter our investment strategy depending on who wins the election. The answer is always no as I’ve learned over my 30 years in this business that investing based on your politics is never a good idea.

Could there be outlier situations based on specific policies, sure, but overall we won’t change one thing. And I don't pay attention to the Wall Street sellside lists that go around on which stocks to buy or sell depending on the outcome.

That said, I still need to have thoughts and opinions on how things might play out and as a bleeding heart free market believer I have plenty of criticism with both candidates policies but do my best to focus on exactly what will directly impact economic activity and earnings and try to be as objective as possible. I never thought though I'd have to look to Argentina and Javier Milei in search of the goal of free markets and away from two candidates in the US preaching protectionism and industrial policy.

I’ve stated many times since 2017, I have a big problem with tariff wars and while Trump raised the use and profile to a new level back then and wants to continue on if elected, Biden did nothing to reverse it and in fact added to them. I get the economic belief and theories that there is no such thing as truly free trade and tariffs are an effective tool to even the playing field. But, I’d prefer we do our best to make American companies the most competitive they can be via low corporate taxes and light handed regulatory burdens. Also, I don’t believe that those who believe in the stick of tariffs fully analyze the hidden damage it does throughout the economic chain and the retaliatory impact of those applied to us. Also, it is American companies that physically pay the tariffs and then we hope and pray that they somehow benefit on the back end via higher prices or something else.

I needed this weekend to search YouTube for Milton Friedman videos talking about tariffs to keep my mind sane on this and the unintended consequences and this was the best one.

https://youtu.be/zv5SiQpG6sg

Let’s remind ourselves that the US manufacturing index within industrial production is still below its 2018 peak when the tariff battle reached its apex.

To the point about lowering the costs of doing business, if Trump wins, at best I believe the corporate tax rate will likely stay the same notwithstanding his comments to lower them further (although even lower is better than tariffs). So no change likely here to earnings and capital investments. The Harris proposal to raise the rate to 28% which would make US business less competitive makes little sense.

The other big question is the expiration of the Trump tax cuts. At best they stay the same. If Harris wins but if we have a mixed Congress, unlikely all of them get extended but most will I believe.

On the regulatory side, it’s easy to say Trump will ease the burden and Harris will continue to ramp it up but I do wonder if the Supreme Court decision that overturned the Chevron case will make the president less influential and instead Congress will be entrusted to make better, more explicitly stated laws and judges will have to handle the questionable legacy regulations, not the agencies and executive branch. The most obvious difference will be at the FTC as if it were up to Lina Khan, the US private sector would be stuck in place with a break up here and a break up there.

Regardless of who wins, I believe the bond bear market will continue on and long rates will move higher in fits and starts. Interest rates will matter for stocks in that while stocks will initially react to whoever wins, with perception that they rally further if Trump wins and don’t if Harris does, rates will mostly drive the equity bus if they continue higher from here I think. We have a spending problem, not a tax problem. Tax revenues as a % of GDP are around 17%, its historic average. Spending is at about 23% of GDP vs its long term average of around 20% or less.

It’s hard to not to think that US debts and deficit now matter when looking at the price of gold and now silver which is trading at an 11 year high, which we remain bullish and long of.

With US Treasuries, I went through the August Treasury International Capital flow data and the biggest foreign buying is coming from hedge funds via the Cayman Islands and the UK as the Treasury basis trade continues to increase in size (buying cash Treasuries and shorting futures). The conventional central bank foreign buyer would now rather own gold and hat tip to my friend Luke Gromen for pointing out this chart on Friday.

US Manufacturing within Industrial Production figure

Silver

Ahead of another flood of earnings this week, this is what FactSet said on Friday about them so far. "At this early stage, the third quarter earnings season for the S&P 500 is off to a mixed start. While the percentage of S&P 500 companies reporting positive earnings surprises is above recent averages, the magnitude of earnings surprises is below recent averages. In addition, analysts have continued to lower EPS estimates significantly for companies in three sectors since September 30." Those would be industrials, health care and energy.

79% of companies that have reported have exceeded expectations vs the 5 yr average of 77% and 10 yr average of 74%. Also, "In aggregate, companies are reporting earnings that are 6.1% above estimates, which is below the 5 yr average of 8.5% and below the 10 yr average of 6.8%."

On the revenue side, 64% are beating forecasts which compares with the 5 yr average of 69% but equal to the 10 yr average.

On the earnings front, from American Express:

"Billed business grew 6% on an FX adjusted basis, continuing the trend of stable volume growth that we've been seeing over the past several quarters. And while T&E growth rates are now more in line with what we're seeing on goods and services spending, the picture hasn't changed very much since last quarter."

"I think when you look at the overall spending, organic spending in our customer base is not as robust as it was in a more robust environment. And that's what our cardholders do. What our cardholders will do is pull back slightly if they lose any confidence, see any sorts of signs of their own stress, but they will continue to pay their bills and that's why our credit numbers are so good."

"I think when you look at the organic piece of this, you see this especially within our small business. Our small business has been hit from a macro perspective. I think just like a lot of other companies, small business in that organic spend or the same store sales spend that is occurring on the card in small businesses is certainly not as robust as it was coming out of the pandemic. In fact, it is negative...It is that organic spend that's down."

"Delinquency rates remain very low and in line with our prior quarters, especially taking into account the seasonal downtick we saw in Q2 and write off rates declined to 1.9% this quarter. Looking forward, I still expect modest upward bias to these rates as we continue to acquire new customers at elevated levels and increase our share of lending from existing customers."

From Ally Financial:

"We continue to navigate a dynamic operating environment that includes volatility in interest rates and a consumer that has been strained by cumulative inflationary pressures. The unique environment has contributed to more volatility in our near term outlook, particularly on credit costs and margins."

Specifically on auto loans, "Provision expense of $645 million increased from the prior year, driven by higher net charge offs and a 15 bp reserve build in Retail Auto to reflect our outlook on net charge offs going forward, including potential losses from Hurricane Helene...net charge offs continue to be elevated in the quarter, driven by pressure and late stage delinquent accounts."

From Fifth Third Bank:

"For the commercial portfolio, average loans decreased 1%, primarily due to increased paydowns and softness in revolver utilization, which declined 1% during the quarter to 35%. Average total consumer portfolio loans and leases were up 1% from the prior quarter, primarily reflecting an increase in indirect auto originations, which continued to be a significant contributor to our fixed rate asset repricing."

On credit quality, net charge offs and delinquency rates did tick down sequentially. They said, "Overall, we are not seeing any broad credit weakening across industries or geographies."

Finally with FITB and I'm following private credit more and more closely, this was an interesting Q&A, "are you seeing any competition from non-bank, direct lenders, private credit that looks different today than it would have 3, 4, 5 years ago?

The answer from the CEO, "we do see it at the margins, principally in the leveraged lending space. What I would tell you has happened is their focus on less structure, faster execution that has a little bit of a bleed over in other areas. And there is no question that things that some of the private lenders are willing to do are not in line with the way that we want to run our portfolio. I think it was the Financial Times, the Journal, but there was a piece about a week ago in the paper that talked about 'payment in kind' or where I come from, negative amortization lending, was between a quarter and a third of the portfolios at most of the major private credit shops. That is definitely not something you would ever see at Fifth Third in an environment where the economic backdrop is benign and where you don't have a large percentage of your companies operating at distressed levels. It's just odd to see that amount of PIK lending going on. So if they're willing to do those things and we're not, by definition, they're going to scrape the most indebted companies out of the banking sector."

The China news and the cut of 25 bps in the 1 yr and 5 yr loan prime rates by banks were telegraphed last week. Stocks their were mixed.

Upside:

-SAVE +38% (affirms expect to end year with over $1B in liquidity; modifies card processing agreement)

-DRUG +21% (confirms Bright Minds Biosciences and Firefly Neuroscience to Collaborate after Phase 2 BREAKTHROUGH Study evaluating safety, tolerability, and efficacy of BMB-101 in adult patients with classic Absence Epilepsy and Developmental Epileptic Encephalopathy (DEE))

-VVI +17% (to transform into pure-play attractions and hospitality leader through sale of GES business to Truelink Capital for $535M)

-LUMN +15% (partners with Meta to drive AI network expansion)

-FEAM +14% (reports steady state operations and obtains tax exclusion for lithium capex; agreement could potentially save ~$889K in capital costs)

-KVUE +8.7% (Starboard Value said to have 'sizable' position, seeking changes to raise the value of the company shares)

-HUM +4.6% (reportedly managed-care providers Cigna and Humana have resumed informal merger talks)

-ROAD +4.1% (acquires Texas-based Asphalt Inc., LLC d/b/a Lone Star Paving for $654M in cash; earnings, guidance)

-TARA +3.7% (granted FDA Fast Track Designation for Intravenous Choline Chloride for Patients Receiving Parenteral Support; remain on track to initiate registrational THRIVE-3 trial in 1Q25)

-BA +3.0% (closed deal to sell Digital Receiver Technology to Thales; Emirates SkyCargo orders five more Boeing 777 Freighters)

-INO +2.8% (announces new data at Scientific Conferences for INO-3107, as a potential treatment for RRP)

-SASR +2.3% (to be acquired by Atlantic Union in ~$1.6B all-stock transaction)

-DAN +2.0% (said to consider sale of off highway business)

-ERJ +2.0% (reports Q3 aircraft deliveries 57 v 43 y/y)

-SIRI +1.9% (Berkshire Hathaway raises stake to ~32% of company)

Downside:

-PEGY -8.7% (files to sell up to $10M of shares)

-JBLU -4.5% (lower following SAVE business update)

-CI -3.7% (reportedly managed-care providers Cigna and Humana have resumed informal merger talks)

-TPC -2.2% (withdraws FY24 guidance; expects in Q3 to record a non-cash, pre-tax charge from construction operations of ~$102M)

-UPS -1.7% (Barclays Cuts UPS to Underweight from Equal Weight, price target: $120)

-LUV -1.2% (Southwest and activist Elliott have begun settlement discussions to avoid a proxy fight)

8:55 a.m. ET: Fed Bank of Dallas President Logan (Non-Voter) speaks and participates in a moderated question-and-answer session before the 2024 SIFMA (Securities Industry and Financial Markets Association) Annual Meeting, Intercontinental New York Barclay, NYC

1:00 p.m.: Fed Bank of Minneapolis President Kashkari (Non-Voter) participates in Chippewa Falls Chamber of Commerce town hall, Chippewa Falls, Wis. 

5:05 p.m.; Fed Bank of Kansas City President Schmid (Non-Voter) speaks on the economic and monetary policy outlook before hybrid event hosted by the Chartered Financial Analyst Society, Kansas City, Kansas City, Mo.

6:40 p.m.: Fed Bank of San Francisco President Daly (Voter) participates in a moderated question-and-answer session at the 2024 WSJ Tech Live (No prepared remarks expected. Audience Q&A expected. No group media interview. Livestream at x.com

From 8:14 a.m. ET:

Chart from 8:35 a.m.:

More on this tomorrow -- in my market outlook post:

In less than two weeks  (BABA)  shares have declined from about $120 to under $100 and  (PDD)  shares have dropped from close to $160 to $122.

Lesson: Don't follow the whales like a sheep. Ignore the business media that pumps these ideas and fails to follow up. Do your own homework.

I added to my  (XLF)  short at $47.64.

This table is a valuable resource for momentum-based short-term traders:

From JPMorgan:

US: Futures are flat. MegaCap Tech are mostly lower: TSLA -0.7%, AMZN -0.3%, AAPL -0.3% pre-market. Bond yields are largely unchanged: 2-, 10-year yields are 3bp and 2bp higher, respectively. Commodities are higher led by oil and base metals amid bigger-than-expected China LPR rate cut announcement. Over the weekend, BA achieved a tentative settlement of the strike; BA is up +3.8% pre-market. This week, key catalyst will be PMIs on Thursday. On earnings, ~40% and 30% of Industrials (including GE, LMT, MMM, BA, UPS, HON, UNP) and Materials companies will report. In addition, VRT (Wed pre-mkt; focus on data center), IBM and TXN will provide further color on tech and semis. In addition, keep an eye on DHR (Tue pre-mkt; housing), KO (Wed pre-mkt; consumer trends), TSLA (Wed aft-mkt; first Mag 7 earnings).

and...

EQUITY AND MACRO NARRATIVE: Last week, the SPX finished the week with an 86bp gain and closed the week at another record high. NDX and RTY also rallied 2.0% and 22bp, respectively. 9 out of 11 SPX sectors finished higher, led by Utilities (+3.4%), Real Estate (+3.0%) and Financials (+2.4%), while Energy underperformed amid a -8.4% decline in oil prices. The Mag 7 added 82bp: AAPL and NVDA posted a strong 3.3% and 2.4% gain, while META fell 2.3%. Semis underperformed amid underwhelming ASML earnings, but TSMC’s positive comments on AI demand helped offset negative sentiment. On macro data, Core Retail Sales showed a robust MoM growth of +0.7% vs. 0.3% survey vs. 0.3% prior. The yield curve flattened over the week with the 10Y largely unchanged and 2s/10s flattening 8bps. HG Credit was largely unchanged last week: JULIS index remains at 95bp, just 6bp wide to its record tight back in 2005. HY Credit spread tightened 4.9bps. DXY added 60bp.

· FINANCIALS: With ~45% of the sector reported so far, the sector has an upside surprise of +10% in earnings and 2% in revenue, per FactSet data (here, as of October 18, 2024). XLF rallied +6.1% since the beginning of banks earnings (October 4), outperforming SPX’s +2.9% gain. Given the favorable read throughs on credit and NII from large-cap banks earnings, regional banks had a robust 6.8% rally since October 4. Where from here? With the major banks earnings already released, the next catalyst for the sector will be the US election as investors will focus on banks’ regulatory outlook. The macro environment continues to surprise to the upside: Feroli upgraded 24Q3 and 24Q4 GDP forecast to 3.2% and 1.75%, from 2.75% and 1.25%, respectively. The improved macro outlook supports credit quality, along with yield curve remaining un-inverted and steepening from here, pressure on regional banks will be eased further. This week, we will have a busy calendar for regional banks earnings (ZION, COLB, FCNCA, VLY, FHB). JPM analyst Anthony Elian sees tailwinds into 24Q3 earnings for regional banks, driven by positive fundamental trends. Overall, improved credit metrics should continue to support banks rally into YE, with election and rate volatility being the wild card to this view.

o ELECTION IMPACTS ON REGIONAL BANKS (ANTHONY ELIAN) - With the US Presidential Election less than one month away on Tuesday, November 5, the result of this election is likely to result in very different outcomes for the banking sector in terms of proposed regulations as well as the backdrop for M&A activity. At its core, should the Democratic party prevail under current Vice President Kamala Harris, this outcome is largely expected to continue much of the current Biden administration regulations as well as proposals including the recent Basel III Endgame reproposal by Fed Vice Chair for Supervision Michael Barr. Moreover, a Harris administration is likely to continue the ongoing backdrop for limited M&A activity which has been running at the slowest pace since the Global Financial Crisis. Under a potential Trump administration, however, a handful of tailwinds could occur including on deregulation as well as a more favorable backdrop for M&A which could spur additional activity after having largely been dormant for the past few years.

· AI AND SEMIs: SOX fell -2.4% last week amid a -5.3% intraday decline post ASML earnings but was offset by TSMC’s positive comments on AI demand. Was ASML an idiosyncratic case on AI/Semis outlook? TMT specialist Josh Meyers notes that TSMC sees strength for several years with tangible use cases emerging. Given TSMC’ s strong visibility on the AI chain, Josh thinks its comments should easily offset idiosyncratic ASML issues at the leading-edge. Next week, VRT’s earnings Wednesday morning will be critical to assess the momentum in data center constructions. We will receive the bulk of MegaCap Tech earnings during the week of October 29: comments around AI demand and related CapEx spending will help shape the narrative towards YE. Within the Semis group, JPM analyst Harlan Sur points out that we start to see a diverging end market demand trends with continued strength in AI/Datacenter offsetting slower end market recovery in industrial, auto, enterprise, PC, and consumer. Despite this slower recovery in the cyclical segments, Harlan believes the bottom is in and remains constructive on the fundamental setup (here).

· SHORT SQUEEZING: Last week, High Short Interest (JPTASHTE) and Crowded Shorts rallied 6.9% and 4.9%, respectively. Since 2015, November is the second best performing month for the High Short Interest basket, averaging 5.7% return with 5 out of 9 years showing positive returns. With improvement in the macro environment, we may see positive earnings surprise continue to fuel short squeeze into year end.

· VIX: VIX closed at 18 last week, lower than the October high of 23, but still remains elevated comparing to the rest of this year. Our colleague Craig Cohen notes that “Outside of the new highs post COVID, the VIX has never been this high when the S&P 500 is at all-time highs.” Will we see this elevated level continue? Possibly, given that we are getting close to the US election. VIX ranged from 25-40 and 13-20 one month ahead of the 2020 and 2016 election, respectively. Craig added that “the ratio of the VIX relative to the one-month S&P 500 realized vol is at the highest level since at least 1992. This ratio has tended to increase in the leadup to the election so we could expect short-dated implied vol to still remain elevated for the next few weeks.”

· US MKT INTEL VIEW: Last week’s robust retail sales reaffirm our hypothesis that the US Consumer is in a position of significant strength. Given this strong consumer spending, we are seeing multiple upward revisions in GDP growth throughout this year. Atlanta Fed estimates 24Q3 GDP to be 3.4%, representing a +1% upward revision since August (here). Recent macro data indicates that the labor market slowness seems to be temporary and with inflation cooling, the real wages growth will continue to support US consumers. The next few weeks will be catalyst-heavy: (i) Mag 7 earnings will kick off this week with TSLA: the key here remains whether we will see a decline on either QoQ or YoY basis, in which cases we may see another pullback. (ii) Macro data including Oct 24 PMIs, Nov 1 NFP and Nov 1/5 ISMs: with recent data all pointing to in/above trend growth, one downside surprise will be less likely to shift the entire narrative, but keep an eye on labor market data, especially if we see an increase in U-3 or a NFP below 100k, that could lead to the repricing in recession risks. With a 25bp cut already being priced by the market, bond market reactions to modest upside growth surprise should be less pronounced compared to a few weeks ago. (iii) US election on Nov 5. With the election being the largest source of uncertainty, we may see some choppiness into the Election. However, with macro fundamental remaining positive, we are inclined to buy the dip.

o MONETIZATION MENU – we will remain in favor of the barbell trade with bullish views on both TMT and Cyclicals. On the Cyclicals side, we remain bullish on Banks, Homebuilders, Autos, Retailers, Transports ex-Airlines, Regional Banks, and RTY. On the Tech side, we continue to favor Mag 7 and Semis. On hedges, we like factor hedges like Beta and Momentum.

Roth/MKM maintains (long-term short) Winnebago  (WGO)  as neutral with $59/share price target.

I recently re-shorted financials:

“The only way to win is to not be afraid of losing.”

- Ratan Tata

Bonus — Here are some great charts:

Alpha Trends 

The Best Three Names in the DJIA

The Envy of the World

Are Cracks Appearing in the Bull Market? 

Tomorrow I will update my equity market view.

That said, over on fixed income, interest rates continue higher (and stock market participants continue to ignore this).

Here is a morning bond market update:

* The yield on the one-year Treasury bill is +3 basis points tp 4.23%.

* The yield on the three-year Treasury note is +4 bps to 3.91%.

* The yield on the 10-year Treasury note is +5 bps to 4.12%.

* The yield on the long bond is +4 bps to 4.25%.

I remain short bonds.

"The biggest and best are just now breaking out, bears are in shambles.

- Larry Thompson

"Baseball, it is said, is only a game. True. And the Grand Canyon is only a hole in Arizona."

- George Will

Humphrey Bogart once said that, "a hot dog at the game beats roast beef at the Ritz."

And Yogi Berra once exclaimed that "love is the most important thing in the world, but baseball is pretty good, too."

I second those emotions.

I recently wrote about the romance of baseball recently and how the sport compares to investing.

After two amazing divisional playoffs, we ready for the World Series next weekend.

To celebrate baseball, again, I give you this classic Abbott and Costello routine.

Yesterday Boeing  (BA)  announced that it is considering asset sales and that it is close to a labor agreement.

The shares are trading +4% in early premarket trading (over $160).

BA was a recent long purchase.

I am adding to my Nvidia  (NVDA)  short at $138.68.