Call Me Foolish, But I See Some Potential Market Catalysts Emerging

Don’t Stop Me Now

I’m a shooting star leaping through the sky like a tiger
Defying the laws of gravity
I’m a racing car, passing by like Lady Godiva
I’m gonna go, go, go, there’s no stopping me
I’m burnin’ through the sky, yeah
200 degrees, that’s why they call me Mister Fahrenheit
I’m travelling at the speed of light
I wanna make a supersonic man out of you
I’m having such a good time
I’m having a ball
(Don’t stop me now) if you wanna have a good time
Just give me a call
– David Paich, Steven Lukather (Queen), 1979

All Priced In?

The Fed increased its target range for its benchmark overnight rate last Wednesday afternoon and signaled that perhaps that was the start of a cycle of tighter monetary policy. Maybe it was. Financial markets fell out of bed that afternoon. Treasury yields spiked. The U.S. Two-Year Note would trade at its highest yield in more than two years. The Ten-Year Note would pay more than 5% just ahead and just after that announcement. WTI Crude traded above $106.50 per barrel going into Wednesday. Then it happened. Suddenly, when all seemed as gloomy as could be… the sun came out, the birds sang their happy little songs and the flowers grew.

Was it all priced in? To a degree, perhaps. Surely, rising short-term interest rates will put a damper on demand for labor. Surely, higher short-term rates will put a crimp on economic activity as for smaller and more credit-reliant businesses, the servicing of existing and future debt loads will command a greater focus in budgeting operations. Surely, a flatter yield curve means that traditional bankers will enter into a more difficult environment, less profitable environment and will show a reduced willingness to extend that credit.

Yet, markets rallied quite aggressively on Thursday. Markets, except for the small caps, held those gains, for the most part on Friday. Markets are showing some life again overnight into Monday morning. The sun indeed shines. The birds indeed sing. The flowers indeed grow. Priced in? Or renewed optimism for a reason? You be the judge?

It was Only a Week Ago…

That some of the biggest names in artificial intelligence had us thinking about the potential for an A.I.-driven human race extinction event. This morning, we bask in the glow of the Atlanta Fed’s GDPNow model that shows, based on already reported data, Q3 economic growth humming along at what would be an almost incredible 5.1% annualized pace.

As we bask in that glow, we ponder a number of catalysts that appear, at least for the moment, to be setting up for what would be “best case” results. Is that foolish? It feels foolish, but Mr. Market has fooled me once or twice before. Some say that my longevity and moderate success in playing this game was born of my ability to project the future.

I would counter that with the fact that my ability to see the future is probably about the same as everyone else’s. Where I think I have done well, has been in my ability to manage risk once it already exists and my ability to recognize trends and get what I might out of them as they run. On that note, let’s consider the catalysts afoot, shall we?

Play The Game Tonight

You think that something’s happening
And it’s bigger than your life
But it’s only what you’re hearing
Will you still remember
When the morning light has come?
Will the songs be playing over and over
‘Til you do it all over again?
Play (play), play the game tonight
Can you tell me if it’s wrong or right?
Is it worth the time? Is it worth the price?
Do you see yourself in a white spotlight?
Then play the game tonight

– Ehart, Williams, Frazier, Livgren, Flower (Kansas), 1982

Red Light, Green Light 1,2,3…

This Thursday, U.S. Pres. Trump is set to meet with Pres. Xi of Mainland China at the White House in D.C. This meeting will come after the U.S. president addresses the United Nations General Assembly in New York City on Tuesday. The president is expected to touch on the economy, border security and the situation in Iran on Tuesday.

On Thursday, the presidents of the two most important economies on earth are expected to discuss trade and tariffs, Taiwan, the future of A.I. and safeguarding the human race against rogue models, the war in Iran, fentanyl, critical minerals / rare earths, and high-end semiconductor design. Nvidia (NVDA) CEO Jensen Huang, a Taiwanese-born American, is expected to attend the summit. OpenAI CEO Sam Altman and Qualcomm (QCOM) CEO Cristiano Amon have also been invited to the dinner that evening.

These crucial talks are believed to have already gotten off to a good start as U.S. Treasury Sec. Scott Bessent and Li Chenggang, China’s lead trade negotiator, met in New York City on Sunday. Bessent referred to the discussion as “very successful” while state-run Chinese media outlet Xinhua called the exchange “candid, in-depth and constructive.”

Giving Peace Another Chance?

Anyone else notice that WTI Crude oil prices are trading with a $98 handle this morning and are down 7.5% since last week’s highs? Overnight, the U.S. military’s CENTCOM (Central Command) released a statement that shipments through the Strait of Hormuz had hit a six-month high.

At the same time., the state-run IRNA news agency is reporting that Iranian Pres. Masoud Pezeshkian will fly to New York City for the U.N. General Assembly meeting. This has some speculating that a meeting with Pres. Trump could happen.

Over the weekend, Pres. Trump told Fox News that he would “probably be open” to such a meeting. It is important to note that in Iran’s system, the president is the head of the government, not the head of state. That would be the “Supreme Leader.” Iran’s current supreme leader, Mojtaba Khamenei, has not been seen nor heard in public since the war began.

Other Catalysts…

Meta Connect will kick off at the Meta Platforms (META) campus in Menlo Park, California this Wednesday evening. The two-day show will focus on the firm’s latest work in the worlds of artificial intelligence and mixed reality.
McDonald’s (MCD) will hold a highly anticipated Investor Day this Wednesday in Chicago, Illinois.
Qualcomm will hold its two-day Snapdragon event this Tuesday in Maui, Hawaii.
Later today (Monday), the Wells Fargo (WFC) Consumer Conference in Dana Point, California will kick off and run through Wednesday. Competing for attention will be the JPMorgan (JPM) U.S. All Stars Conference in London (not a misprint). That conference kicks off today and runs into Tuesday.
Now that the Fed has acted, Fed speakers will be unleashed this week to make sure the economic / policy narrative is fine-tuned in an acceptable (to them) way. I am currently tracking at least 11 public appearances by Fed officials this week. At the moment, Vice Chair Philip Jefferson would be the headliner. Beware that NY Fed Pres John Williams is currently set to speak at least three times this week. Readers well know that to put it politely, I do not see him as one of the brighter bulbs at our nation’s central bank.
There are close to no publicly traded companies set to report quarterly financial results this week. That said, there are some headliners out there. Cintas (CTAS), and General Mills (GIS) will both report on Wednesday, while Darden Restaurants (DRI) and Costco (COST) go to the tape on Thursday.

The Week That Was…

Equity markets, for the most part rallied on Thursday, and then held Friday. That said, the week closed in mixed fashion. The S&P 500 closed in the red (ever so slightly) for a second straight week and for a third week in five. The Nasdaq Composite, however, finished the week in the green for a third week in four. This is how last week went for U.S. equities…

The S&P 500 gained 0.17% on Friday but lost 0.08% for the week.
The Nasdaq Composite added 0.39% on Friday and 0.72% for the week.
The Nasdaq 100 tacked on 0.67% on Friday and 0.94% for the week.
The Russell 2000 lost 0.5% on Friday and a gnarly 1.5% hit for the week.
The S&P Small Cap 600 moved 0.47% lower on Friday, giving up 2.04% for the week.
The S&P Midcap 400 gave up 0.29% on Friday and 1.71% for the week.
The Dow Transports surrendered 0.52% on Friday and an ugly 2.66% for the week.
The Philly Semis ran 2.78% higher on Friday, gaining 0.83% for the week.
The KBW Bank Index lost 0.25% on Friday and was down 4.93% for the week.

On Friday, nine of the 11 S&P sector SPDR ETFs closed out the session in the red, led lower by the utilities (XLU), the materials (XLB), and communication services (XLC). Technology (XLK) led the winners.

For the week, just two of the 11 S&P sector SPDR ETFs finished the period in the green. Health care (XLV) and tech were the sole winners, while the utilities and financials (XLF) suffered a beating. Small caps performed notably poorly for the week.

Earnings

As of Sept. 18, according to FactSet, for the third quarter, Wall Street now sees an estimated year-over-year earnings growth rate for the S&P 500 of 28.9%, up from 28.7% last week. Wall Street also sees revenue growth of 11.9%, flat from a week ago.

For the full year of 2026, Wall Street now looks for earnings growth of 31.8%, up from 31.6% last week. This would come on revenue growth of 12.1%, flat from last week. The outlook for the fourth quarter is also very positive. Fourth quarter S&P 500 earnings growth is now estimated at 26.5% year over year, up from 26.3% last week. At the moment, the energy, technology, and communication services sectors are projected to have grown earnings by 109.6%, 63.3% and 51% respectively for the third quarter.

Valuation

Still using data provided by FactSet, the S&P 500 ended last week trading at 19.1-times 12 months’ forward-looking earnings, in line with the week prior. This is still below the five-year average of 19.8-times for the index, but also just above its 10-year average of 19 times.

The S&P 500 also ended last week trading at 25.5 times trailing twelve months’ earnings, down from 25.9 times a week ago. This still stands well above the five-year (24.4 times) and ten-year (23.6 times) averages for the index.

Currently, five of the 11 sectors are now trading below their five-year average valuations. Six sectors, led by the Industrials (22.6 times) are trading at a premium to their five-year average valuation. The five “undervalued” sectors according to their historical averages over five years are the discretionaries, technology, the utilities, the REITs, and the materials. Communication services managed to escape this group last week.

Fed Funds Futures

Fed Funds futures trading in Chicago are now pricing in a 57% probability for a second straight quarter-percentage point rate hike to be made to the current target range (3.75% to 4%) for the Fed Funds Rate at the culmination of their Oct. 28 FOMC policy meeting. There is now a 62% likelihood priced in for a third quarter-percentage point rate hike as soon as Jan. 27 and a 56% probability priced in for a fourth quarter point rate hike of the cycle as soon as April 28.

Economics (All Times Eastern)

No significant domestic macroeconomic datapoints scheduled for release.

The Fed (All Times Eastern)

06:30 – Speaker: Chicago Fed Pres. Austan Goolsbee.

Today’s Earnings Highlights (Consensus EPS Expectations)

No significant quarterly earnings scheduled.

At the time of publication, Guilfoyle was long NVDA, JPM equity.