Wall Street’s Painful Lesson: All Politics Is Local

Don’t Quit
When things go wrong, as they sometimes will,
when the road you’re trudging seems all uphill,
when the funds are low and the debts are high,
and you want to smile but you have to sigh,
when care is pressing you down a bit – rest if you must, but don’t you quit.

Success is failure turned inside out – the silver tint of the clouds of doubt,
and when you never can tell how close you are,
it may be near when it seems afar;
so stick to the fight when you’re hardest hit – it’s when things seem worst, you must not quit.
– Albert Guest (1921)

Financial Violence

Think Thursday wasn’t so bad? Think again. Over the weekend, I had four different trader/investor types who do this professionally, tell me that last Thursday was the single worst trading day in terms of their profit/loss ratios of their careers. Those four individuals were not together when they told me this, they all came forth with that information on their own.

All four of these pros are market veterans of the crash of 1987, of the mini-crash of 1989, the 1997 Asian Contagion, the 1998 Long-Term Capital Management collapse, the burst of the dot-com bubble in 2000, the multi-year Great Financial Crisis that started in 2007, the Flash Crash of 2010, the Chinese Market Crash of 2015-16 and the pandemic-related meltdowns of 2020. Still all thought that Thursday was their worst single day ever.

I had a lousy day Thursday. Not my worst ever. I don’t know if that’s good or bad. The thing about Thursday was that it seemingly came out of nowhere. We know that’s not true. That’s how it felt. We told ourselves that the certainty of the electoral results, regardless of outcome, would be a market positive.

On Wednesday we thought we saw confirmation of this. That, we now think we know, was a pre-programmed algorithmic reaction to Election Day. Thursday came the backlash, not to the blue wave nationally, but locally. Certain tech-friendly, business-friendly states where big tech had placed and was still planning to place huge bets, had moved in the opposite direction. The flow of capital would change.

Investors had already become concerned over accelerating debt loads, runaway capital spending, and the day in the future where artificial intelligence would take all of our jobs. That’s something, as a former NYSE floor trader, I do know a thing or two about. Every town in America used to have a blacksmith. Trading floors used to be populated by humans.

The problem for states like Texas is that a turn away from big tech and data centers is a turn away from middle-class job creation and middle class wage growth in the present. Going off the top of my head, I think close to half of all gross domestic product growth in the last report came via investment in AI and data centers. I don’t like the idea of mass layoffs that end certain occupations forever any more than the next guy.

I do know that electricians, iron workers, construction workers and the like need to eat. Certainly not an easy financial environment to navigate, especially as markets appear to be returning to valuing good, old fashioned fundamental analysis over technical analysis for the first time in decades. The bright side of that? While AI-driven, high-speed algorithms have become as good as if not better than humans at interpreting technical analysis, they may have some catching up to do on the fundamental side.

More on Thursday’s Drubbing…

While Friday felt nice for those of us who took a drubbing on Thursday, the breadth was not what I think a lot of us would have liked to see. Only three of the 11 sector SPDR ETFs closed out the session in the green and two of those were tech (XLK) and communication services (XLC), so it was a snapback day. Semiconductors and software stocks had an awful week even with Friday’s rebound.

For the week, the Philadelphia Semiconductor Index was roasted for a loss of 12.2% despite gaining 4.2% on Friday. The Dow Jones U.S. Semiconductor Index lost 11.3% for the week. SanDisk (SNDK) led the group lower, giving up 27.4%. Right behind SanDisk, came Micron (MU), Teradyne (TER), Lam Research (LRCX) and Arm Holdings (ARM). For the five-day period, those names surrendered 22%, 20.5%, 16.2% and 15.2% respectively.

On Friday, winners beat losers by an unimpressive seven-to-six margin at the NYSE and a more impressive three-to-two margin at the Nasdaq. Advancing volume? Took a mere 50.7% share of composite NYSE-listed trade on Friday, but a better 64.7% share of composite Nasdaq-listed activity. More importantly, aggregate trading volume fell off of the map on Friday. Aggregate trade across NYSE-listings was down 25.5% on a day-over-day basis and down 17.2% across Nasdaq-listings.

What does that mean? For one, it means that not every trader who got hurt on Thursday rushed back in on Friday. They’re either not coming back for a while — bearish. Or, they’ll have to chase their way back in later — bullish for the rest of us.

Nvidia Drama

Shares of Nvidia (NVDA) are trading in the hole overnight into Monday morning, after the high-end chip designer’s board announced that it had opened an investigation into reports that CEO and co-founder Jensen Huang had been targeted by a foreign espionage operation. Reports had circulated going into the weekend that Huang had been involved in a romantic relationship with a woman who had been allegedly recruited to spy for China’s Ministry of State security.

The romantic partner has been identified as Alice Huang, who is an executive at Megaspeed, which is a Singapore-based Nvidia client. The CEO has said that he would cooperate with this investigation, which is to be led by Nvidia’s independent board directors and will be assisted by an external law firm.

This presents as damaging to the CEO’s reputation as his admission of having had this affair comes after having previously dismissed suggestions of an improper relationship between himself and Alice Huang. Not that it’s any of my business, but Huang has been married since 1985, so while this comes as potentially scandalous on the national security and corporate levels, I would think that this is at least distracting and maybe worse, on a personal level.

I expect to reduce my exposure to Nvidia later today. Will Nvidia’s loss be a gain for Advanced Micro Devices (AMD)? Perhaps. Readers will be reminded that I went back up to a full exposure to AMD (and beyond) during Thursday’s market carnage.

Catalysts for the Week Ahead…

Wednesday, Nov. 11, is Veterans Day. While U.S. stock markets will remain open, this is a federal holiday. The banks, post office and bond market will be closed. Trading volume should be light. Tuesday, Nov. 10, is the Marine Corps Birthday. It’s not a holiday, but be prepared for the Marines in your life to take over your social media feeds with pictures of themselves as teenagers in dress blues. Your author will be no exception.
Macroeconomic data will be front and center this week for investors as inflation for October will be making the headlines. The consumer price index report is due on Tuesday with Wall Street looking for a 3.7% annual print while the producer price index lands on Friday. Notable improvement is expected to be visible on the producer side. In addition, October Existing Home Sales will hit the tape on Thursday. The U.S. Treasury will also question off 42 billion worth of new Ten-Year Notes on Tuesday and $25 billion worth of new 30-Year Bonds on Thursday.
Pres. Trump has repeatedly claimed that U.S. forces could resume kinetic operations against the regime in Iran after the election. This past weekend, he talked down those expectations while Sec. of State Marco Rubio expressed some frustration with the regime in Iran. U.S. forces have conducted minor strikes against anti-aircraft sites on Iranian soil over the past few days.
Even with the holiday on Wednesday, the Fed will be out in force this week. I am currently tracking 18 public appearances to be made by Fed officials this week despite not a single appearance being scheduled for Wednesday. Vice Chair Philip Jefferson will speak on Friday evening. Ahead of that event, multiple appearances will be made by Fed Governors Michelle Bowman and Christopher Waller.
AI-related stocks will remain under intense scrutiny as investors reassess the results of last week’s election, capital spending plans, regional data-center construction, returns on investment, and the recent news concerning Nvidia’s (NVDA) Jensen Huang.
Earnings will not be a main driver for markets this week. With most of the S&P 500 in the rear-view mirror for the third quarter and most of the retailers still to report, this will be a light week for quarterly results. That said, CoreWeave (CRWV) reports on Tuesday, with both Applied Materials (AMAT) and Cisco (CSCO) set to release their numbers on Thursday afternoon.

The Week That Was…

Equity markets had yet another rough week last week. Despite posting three green candle sessions out of five last week, equities were hit with a horrific market-wide post-election beatdown on Thursday that left many traders wondering just what happened to their portfolios. The Nasdaq Composite posted its fourth consecutive losing week after having posted four straight winning weeks. The S&P 500 also posted its fourth consecutive losing week and seventh losing week in nine. This is how last week went for U.S. equities…

The S&P 500 gained 0.31% on Friday but lost 2.68% for the week.
The Nasdaq Composite added 1.09% on Friday but surrendered 3.37% for the week.
The Nasdaq 100 tacked on 1.35% on Friday but gave back a rough 4.91% for the week.
The Russell 2000 gained 0.89% on Friday but gave up 2.05% for the week.
The S&P Small Cap 600 added just 0.05% on Friday, yielding 1.89% for the week.
The S&P Midcap 400 took back 0.56% on Friday but gave up 1.63% for the week.
The Dow Transports lost 1.56% on Friday and 2.73% for the week.
The Philly Semis roared back 4.21% on Friday but still lost a nasty 12.15% on the week.
The KBW Bank Index gave back 0.53% on Friday and 0.99% for the week.

On Friday, despite the headline rally, just three of the 11 S&P sector SPDR ETFs closed out the session in the green. The winners were led by Technology (XLK), while Staples (XLP) led the losers. Breadth was not nearly as strong as the bulls would have liked to see and trading volume was much lower than it was on Thursday. That could be seen as possibly ominous.

For the week, five of the 11 S&P sector SPDR ETFs finished the period in the green. Defensive sectors clearly outperformed cyclicals. Both tech and Energy were punished severely.

Earnings

As of Nov. 6, according to FactSet, for the third quarter, with 88% of the S&P 500 having reported, 84% of companies have beaten earnings expectations, while 74% have exceeded the consensus view for revenue generation. Wall Street now sees an estimated year-over-year blended (results & expectations) earnings growth rate for the S&P 500 of 31.4%, up from 30.2% last week. Wall Street also sees revenue growth of 14.3% up from 13.4% a week back.

For the full year of 2026, the street now looks for earnings growth of 33.3%, up from 32.9% a week ago. This would come on revenue growth of 13.2%, up from 13% at that time. The outlook for the fourth quarter is also very positive. Fourth quarter S&P 500 earnings growth is now estimated at 28.4% year over year, flat from last week. At the moment, the energy, and technology sectors are projected to have grown Q3 earnings by 149.4%, and 69.2% respectively.

Even More Undervalued?

Still using data provided by FactSet, the S&P 500 ended last week trading at 17.7-times 12 months’ forward-looking earnings, down from 18.7 times a week ago. This is now well below both the five-year average of 19.8 times for the index, and also the 10-year average of 19.1 times.

The S&P 500 also ended last week trading at 24.7-times trailing 12 months’ earnings, down from 25.9 times just last week. This still stands well above both the five-year (24.4 times) and 10-year (23.6 times) averages for the index.

Currently, six of the eleven sectors are now trading below their five-year average valuations. Four sectors, led by the staples (23.7 times) are trading at a premium to their five-year average valuation. The six “undervalued” sectors according to their historical averages over five years, are the discretionaries, technology, utilities, energy, materials, and communication services. The REITs, at 18 times, are trading precisely at their five-year average evaluation.

P/E Ratio Low

According to FactSet, at 17.7-times, the 12-month forward-looking price-to-earnings ratio for the S&P 500 is now at its lowest level since Nov. 1, 2023 (more than three years). Technology as a sector, at 17.3-times forward looking earnings, is trading below its 25-year average of 20 times. Tech is also at its lowest valuation in more than six and a half years and that was due to the pandemic (March 23,202).

Fed Funds Futures

Fed Funds futures trading in Chicago are now pricing in a 79% probability for a hike of quarter point to be made to the FOMC’s target range for the Fed Funds Rate on Dec. 9. Another quarter point hike after that is now priced in (60% likelihood) for April 28 (with a new composition of voting-eligible committee members). There are no changes effectively priced in beyond April for as far as I can see.

Economics (All Times Eastern)

08:30 – Wholesale Inventories (Sep): Expecting 0.6% m/m, Last 0.5% m/m.

The Fed (All Times Eastern)

08:40 – Speaker: Reserve Board Gov. Michelle Bowman.
10:00 – Speaker: Chicago Fed Pres. Austan Goolsbee.
12:15 p.m. – Speaker: Richmond Fed Pres. Tom Barkin.
12:15 – Speaker: Reserve Board Gov. Michelle Bowman.
3:00 – Speaker: Chicago Fed Pres. Austan Goolsbee.

Today’s Earnings Highlights (Consensus EPS Expectations)

Before the Open: OCUL (-.35)
After the Close: ASTS (-.41), OXY (1.47)

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