Weekly Trader's Outlook

If you read Rachel's blog from last Friday, you might recall that she had a "cautious" outlook for stocks this week, citing negative momentum divergences in the majors, relative strength in defensive areas of the market, failed breakouts in tech and high beta stocks, and a potential near-term trough in oil prices (from a technical perspective). Stocks are on track to be down across the board this week, so caution was warranted. There were several bearish catalysts working against Wall Street this week: artificial intelligence (AI) concerns, warm/hot inflation data, rising oil prices:

1. AI concerns – following last week's Financial Times report that OpenAI's revenue was not tracking as strongly as expected, memory stocks were hit by both a report that CXMT is closer to making a denser DRAM cell architecture, which could have long-term memory supply implications and the Korea Composite Stock Price Index (KOSPI) dropped 14% this week. Then, GPU rental cloud services provider CoreWeave's five-year credit default swaps (CDS) hit a record high this week, all of which generated a sell-off across the entire AI complex. The PHLX Semiconductor Index (SOX) is on track to be down for its eighth consecutive day today (more on the SOX in the "Technical Take" section below).
2. The monthly Consumer Price Index (CPI) and Producer Price Index (PPI) reports both came in warmer than expected. Oddly enough, Treasury yields dropped across the curve, which was seen as a "flight to safety trade" (due to the sell-off in tech/AI), and a patient tone from Federal Reserve Chair Kevin Warsh (more on this in the "Economic Data, Rates & the Fed" section below).
3. WTI crude is on track to be up over 10% this week (last seen trading +3.13% to $101.04/barrel), on additional attacks in the Middle East and reports that Iran-backed Houthis are tightening an encirclement around Yemen's Taiz.

Elsewhere, the big banks unofficially kicked off Q3 earnings season and the results, along with the post-earnings reactions, were mixed. Out of the 45 S&P 500 (SPX) companies that have reported, 55% have beat on the top line and 80% have beat on the bottom line. So far, the year-over-year revenue growth rate is 13.82% while the earnings-per-share (EPS) growth rate is 47.26%, though it's early so please don't extrapolate these figures yet.

At the time of this writing (2:32 p.m. ET) stocks are lower across the board and near the lows of the session (Dow Jones Industrial Average, or DJI - 291, SPX - 92, Nasdaq Composite Index, or $COMP - 608, Russel 2000 Index, or RUT - 47). The progressive sell-off appears to be due to the rise in oil prices over the last four to five hours (WTI last seen up 3.60% to $101.50/barrel), and perhaps today's monthly options expiration is impacting positioning and the late-day selloff. I'm not a military or energy analyst, but I'm guessing that oil prices have been rising throughout the week on concerns over the siege on Taiz by the Houthis. And although this week's pullback in Treasury yields would normally be an encouraging development for stocks, it appears that the bond buying is done as a "risk-off" move. I'm concerned that the leading inflationary indicators–rising tension in the Middle East -> rising/elevated oil prices -> higher diesel prices -> higher transportation costs -> higher cost of goods (this week's PPI conveyed this)–could potentially cause yields to rise again, which would not be bullish for stocks. On the bullish side, the economic data and the consumer appear to be holding up in the face of higher inflation/higher yields, and the earnings growth forecasts for the S&P 500 are in the 25-30% for Q3 and Q4. As for next week, it appears like today's session is an inflection point for stocks–the SPX is essentially testing support around 7,620 today, the SOX is the most oversold since the "Situational Awareness" low from the summer, and sentiment around the AI cohort seems excessively bearish. Having said that, if oil prices and/or Treasury yields push higher next week this could result in technical damage (SPX moving below 7,600, or SOX moving below 11,000 for example), which could increase selling pressure on stocks. Therefore, I am going to provide a "breakout" forecast for next week. By "breakout," I am suggesting a higher volatile environment in which the Nasdaq Composite (I'm using the $COMP instead of SPX since AI is in the crosshairs of traders currently) is expected to close higher or lower (non-directional) by 2% or more by next Friday's close.

• Monday (Oct. 19): NAHB Housing Market Index
• Tuesday (Oct. 20): Building Permits, Housing Starts, Pending Home Sales
• Wednesday (Oct. 21): EIA Crude Oil Inventories, MBA Mortgage Applications Index
• Thursday (Oct. 22): Continuing Claims, EIA Natural Gas Inventories, Initial Claims
• Friday (Oct. 23): University of Michigan consumer Sentiment - Final

• Monday (Oct. 19): AGNC Investment Corp. (AGNC), Cleveland-Cliffs Inc. (CLF), Crown Holdings Inc. (CCK), Dynex Capital Inc. (DX), Fifth Third Bancorp (FITB), Grupo Aeroportuario del Pacific SAB de CV (PAC), Steel Dynamics Inc. (STLD), Summitt Therapeutics Inc. (SMMT), Western Alliance Bancorporation (WAL), W.R. Berkley Corp. (WRB)
• Tuesday (Oct. 20): America Movil SAB de CV (AMX), Capital One Financial Corp. (COF), Chubb Ltd. (CB), East West Bancorp, Inc. (EWBC), GE Aerospace (GE), General Motors Co. (GM), Genuine Parts Co. (GPC), Haliburton Company (HAL), Intuitive Surgical Inc. (ISRG), 3M Company (MMM), Netflix Inc. (NFLX), Northrop Grumman Corp. (NOC), RTX Corp. (RTX), United Airlines Holdings Inc. (UAL)
• Wednesday (Oct. 21): Abbott Laboratories (ABT), AT&T Inc. (T), CME Group Inc. (CME), CSX Corp (CSX), Danaher Corporation (DHR), Elevance Health Inc. (ELV), International Business Machines Corp. (IBM), Lam Research Corp. (LRCX), Meta Platforms Inc. (META), Tesla Inc. (TSLA), Texas Instruments Inc. (TXN)
• Thursday (Oct. 22): Barclays PLC (BCS), Blackstone Inc. (BX), Bloom Energy Corp. (BE), Comcast Corporation (CMCSA), Comfort Systems Inc. (FX), Deckers Outdoor Corp. (DECK), Honeywell International Inc. (HON), Lockheed Marting Corp. (LMT), Newmont Corporation (NEM), Norfolk Southern Corp. (NSC), the Procter & Gamble Company (PG), Valero Energy Corp. (VLO), Western Digital Corp. (WDC)
• Friday (Oct. 23): American Express Company (AXP), Autoliv Inc. (ALV), Booz Allen Hamilton Holding Corp. (BAH), Dr. Reddy's Laboratories Ltd. (RDY), First Citizens Bancshares Inc. (FCNCA), Illinois Tool Works Inc. (ITW), Infosys Ltd. (INFY)

There was a healthy dose of economic data this week, which was highlighted by the monthly inflation and retail sales reports. On the inflation front, both reports were warmer than expected, and the PPI report could be described as hot. Furthermore, since PPI is a more "leading indicator," since higher input prices at the wholesale level tend to bleed into end-user prices, this doesn't necessarily bode well for the upcoming CPI reports. Regarding the consumer, I'd describe the retail sales as "firm," but most of the headline beat was due to gas station receipts. The Bloomberg probabilities of a potential rate hike from the Fed saw some volatility this week, first rising on the warm CPI report, but then subsequently falling following a patient tone from Fed Chair Kevin Warsh at the annual International Monetary Fund (IMF) meeting. Here's a breakdown of the reports:

• Consumer Price Index (CPI): The headline CPI increased a seasonally adjusted 0.6% in September (in line with estimates), after rising 0.4% in August, which puts the annual inflation rate at +3.7% (above the +3.6% expected). Core CPI rose 0.3% in September (above the 0.2% expected), which translates into a +2.6% annual inflation rate (above the +2.5% expected). Core goods inflation (sans energy) rose 0.25% month-over-month, which represents the largest increase since January 2025, while core services inflation increased 0.37%, marking the third straight month of re-acceleration.
• Producer Price Index (PPI): The headline PPI surged 1.3% in September, up from 0.5% in August and well above the 0.6% economists had expected. Core PPI rose 0.7% in September, up from 0;2% in August and well above the 0.2% estimate. On an annual basis, headline PPI increased 6.3%, which represents the largest annual increase in more than four years. Core PPI rose 5.0% on an annual basis, which was above the 4.4% expected.
• Retail Sales: Headline retail sales increased 0.8% in September, down from the (upwardly revised) 1.3% gain in August, but above the 0.3% economists were expecting. Excluding autos retail sales were up 0.9%, but when removing gasoline sales, retail sales rose just 0.2%. The Control Group, which feeds directly into GDP, rose 0.1%, which was below the 0.3% economists were forecasting.
• NFIB Small Business Optimism Index: Fell by 0.8 points from the prior month to 97.9 in September, which represents a three-month low. Labor quality or availability was ranked as the single most important problem for the third straight month (reported by 26% of owners), followed by inflation (reported by 20% of owners).
• Existing Home Sales: 3.99M vs. 3.93M est.
• Philadelphia Fed Index: 20.9 vs. 30.0 est.
• Empire State Manufacturing: 25.5 vs. 6.5 est.
• Business Inventories: 0.4% vs. 0.4% est.
• Capacity Utilization: 76.9% vs. 76.5% est.
• EIA Crude Oil Inventories: -8.557M barrels.
• EIA Natural Gas Inventories: +67 bcf.
• Initial Jobless Claims: Initial applications for U.S. jobless benefits edged up 1K from last week to 199K, but 1K below the 200K economists were expecting. Continuing Claims fell by 4K from the prior week to a seasonally adjusted 1.71M.
• The Atlanta Fed's GDPNow initial "nowcast" for Q3 GDP was revised up slightly to 3.64% yesterday from 3.56% on Wednesday, primarily driven by an uptick in the consumer spending estimate (Retail Sales report).

U.S. Treasury yields saw meaningful drops across the yield curve this week despite the warm inflation data out of the CPI/PPI. Part of the reason for the drop could have been money flow towards the "safety trade" since the AI complex was under fire this week. Compared to last Friday, two-year Treasury yields are down ~7 basis points (4.727% vs. 4.791%), 10-year yields decreased ~14 basis points (5.098% vs. 5.244%) while 30-year yields dropped ~17 basis points (5.433% vs. 5.599%).

Market expectations around potential rate hikes from the Federal Reserve saw some intra-week volatility. Per Bloomberg, market participants were putting a 17% probability of a Fed rate hike at the October Federal Open Market Committee (FOMC) heading into the week, which then jumped up to nearly 40% following the CPI report, but have round tripped back to 17% at the time of this writing following Kevin Warsh's comments out of the annual IMF meeting. Longer term, market expectations are for 2.98 25-basis-point cuts between now and December 2027, down from 3.22 last Friday.

The S&P 500 Index (SPX) is on track to be down roughly 1.7% on the week, and close below its 50-day SMA for the first time in a month. In terms of near-term support, the 50-day simple moving average (SMA) is one potential line in the sand, but just below is that at 7,620 (the June high) or 7,600, where the index bounced a couple times over the past month. Several mega-cap tech stocks have been the pillars in this index, but there appears to be some "risk-off" price action within the Mag 7 cohort today (AAPL is holding on to a 0.20% gain at the time of this writing). The SPX likely needs sentiment around tech stocks and the AI complex to improve in order to hold ground above 7,600 in the near-term, and next week should help provide clues where investors stand.

Near-term technical translation: slightly bearish (assuming close below 50-day SMA)

It has been a rough week for chips stocks as the PHLX Semiconductor index (SOX) is on track to be down 10% this week and register its 8th consecutive down day. Concerns around the longer-term state of the AI infrastructure buildout and rising borrowing costs (AI datacenters are a long-duration asset) have caused investors to "sell first and ask questions later." From a contrarian view, perhaps sentiment has gotten "too negative" in the near-term, which could lead to a near-term oversold bounce from a technical perspective. While the Relative Strength Index (RSI) isn't quite yet at the traditional oversold level of 30, it is down to the lowest levels since July 29th (32.80 at that time), which is where the SOX bottomed back in the summer. If the 11,000 intermediate-term support level is breached, longer-term support at the 200-day SMA is not far below at 10,598 (the red line in the chart).

Near-term technical translation: on watch for a potential oversold bounce

The Bitwise 10 Large Crypto Index is down 1% since last Friday, with bitcoin and ether each down 1% at the time of writing. Midterms are just around the corner, and early voting has started in many states. With the current administration widely perceived as supportive of the crypto industry, a change in control of Congress could raise questions about the outlook for crypto policy. To test that view, we analyzed whether changing expectations for a "blue sweep" have coincided with crypto-market performance.

Comparing the Blue Sweep Index with the Bloomberg Galaxy Crypto Index (BGCI) suggests a modest negative relationship, though not a statistically significant one. Rising odds of a blue sweep have generally coincided with weaker crypto returns, but the relationship is small and inconsistent across daily and weekly periods.

Large swings in the odds have not coincided with consistent moves in crypto prices either. In weeks when the Blue Sweep Index rose or fell by two points or more, the BGCI did not move consistently in either direction. During the two largest weekly increases in the odds, the BGCI fell 8.7% in one case and rose 5.0% in the other.

One argument is that not all changes in prediction markets are created equal. Low-volume trades can push the odds higher or lower without much conviction, while bigger bets may carry more information. To test this, each day's change in the House and Senate odds was adjusted by each contract's trading volume relative to its 30-day median.

The volume-adjusted index showed a modest negative relationship with the BGCI, but nearly all of that came from a single day, November 4, 2025. Amid off-year elections in several states, the odds of a Democratic sweep in the 2026 midterms jumped six points, while the BGCI fell 7.8%. Excluding that day, the relationship was no longer statistically significant. On high-volume days, the BGCI rose 0.67% on average when the odds fell and declined 0.34% when the odds rose, a small difference relative to the index's average daily volatility of roughly 3.6%.

While the data suggests a modest negative relationship between rising odds of a blue sweep and crypto returns, the relationship has not been statistically significant or consistent enough to suggest that expectations for congressional control are an important driver of crypto prices. That said, should the market experience a reaction similar to that following the November 2025 elections, the resulting weakness could potentially present an opportunity. Investors should also remember that there is bipartisan support in Congress for crypto, as evidenced by the GENIUS Act passing on a bipartisan basis and the CLARITY Act passing the House of Representatives with bipartisan support. At the same time, the CLARITY Act has encountered bipartisan opposition in the Senate, highlighting the challenges of advancing crypto legislation. Historically, other asset classes have tended to benefit from congressional gridlock, suggesting that a continuation of the status quo may not necessarily be negative for crypto, particularly as existing regulatory agencies continue working toward greater regulatory clarity in the absence of new legislation. Past performance, however, is no guarantee of future results.

Jim Ferraioli, Director of Digital Currencies Research and Strategy, authored this report.

The Bloomberg chart below shows the current percentage of members within the S&P 500 (SPX), Nasdaq Composite (CCMP), and Russell 2000 (RTY) that are trading above their respective 200-day Simple Moving Averages (SMA). In short, market breadth continued to improve in the SPX but continued to deteriorate in both the RTY and CCMP. Market breadth on both the Russell 2000 and Nasdaq Composite indices are essentially at the lows seen back in late March/early April. Compared to last week, the SPX (white line) breadth moved up to 54.60% from 50.20%, the CCMP (blue line) fell to 36.59% from 39.14%, and the RUT (red line) dropped to 45.87% from 48.00%.

Market breadth attempts to capture individual stock participation within an overall index, which can help convey underlying strength or weakness of a move or trend. Typically, broader participation suggests healthy investor sentiment and supportive technicals. There are many data points to help convey market breadth, such as advancing vs. declining issues, percentage of stocks within an index that are above or below a longer-term moving average, or new highs vs. new lows.

This Week's Notable 52-week Highs (78 today): Abbvie Inc. (ABBV + $2.90 to $286.30), Chevron Corp. (CVX + $2.57 to $221.89), MasterCard Inc. (MA + $2.90 to $619.22), Pfizer Inc. (PFE + $0.22 to $29.66), Suncor Energy Inc. (SU + $1.05 to $76.69), Valero Energy Corp. (VLO - $1.19 to $442.86)

This Week's Notable 52-week Lows (129 today): AutoNation Inc. (AN + $4.24 to $164.04), Builders FirstSource Inc. (BLDR + $1.64 to $55.32), D.R. Horton Inc. (DHI + $1.89 to $141.44), Eagle Materials Inc. (EXP + $2.22 to $172.80), Oklo Inc. (OKLO - $1.02 to $28.99), Whirlpool Corp. (WHR + $0.64 to $28.68)