Weekly Trader's Outlook

If you read last week's blog you might recall that my forecast for this called for "higher volatility," citing several potential market moving catalysts (mega-cap tech earnings reports, Federal Open Market Committee (FOMC) meeting and President Donald Trump/President Xi Jinping meeting regarding trade policy), coupled with elevated investor expectations. Stocks started the week in record territory but encountered some mid-week volatility after Chairman Powell threw some cold water on market expectations for a December rate cut (more on this in the "Economic Data, Rates & the Fed" section below), and some mixed reactions to mega-cap tech earnings. To be clear, the earnings reports from the "Fab 5" were strong across the board, but lofty expectations sent shares of MSFT down and significant increases in planned CapEx spending for META resulted in a 12% post-earnings drop in the stock.    

Speaking of earnings, 317 out of the S&P 500 companies have reported results. So far, 67% have beat on the top line while 82% have beat on the bottom line. Revenue growth has been 8.44% and earnings per share (EPS) growth has been 10.34% thus far.

On the trade front, this week's Trump/Xi meeting resulted in some incremental constructive developments, but it lacked any positive surprises in my view. In short, President Trump said that the U.S. will halve its fentanyl-related tariffs on Chinese goods while China said that it will suspend its recently announced restrictions on rare minerals for a year. China also agreed to increase purchases of U.S. soybeans, take more action on the issue of fentanyl and suspend some shipping fees. President Trump said that additional details on the framework of the deal will be forthcoming and there is another meeting between Trump and Xi tentatively scheduled for next April.

At the time of this writing (1:20 p.m. ET), stocks are trading near the lows of the day (DJI - 156, SPX - 5, COMPX + 53) after a relatively strong open and the Cboe Volatility Index (VIX) is up nearly 10% to 18.50. The sharp rise in the VIX is unusual and suggests increasing institutional demand for protection via SPX put options. Next week we'll continue to get Q3 earnings reports and the ADP Employment Change report next Wednesday. The government shutdown is on day 31 so unless that changes, we will once again be without the monthly Nonfarm Payrolls report. Technically, most of the majors hit record highs this week, but the price action has been tentative over the past 48 hours. I'm also concerned that the SOX may be due for a pullback (more on this in the "Technical Take" section below), and should that occur, wonder whether that will dampen overall investor sentiment or simply result in rotation into other areas of the market. Lastly, with the FOMC meeting, mega-cap tech earnings and U.S./China trade meeting behind us, we at least run the risk of a bit of a "catalyst air pocket" in my view and see the setup as more cautious heading into next week. Therefore, my forecast for next week is for "moderately bearish," defined as the SPX closing 0.5% or more below today's close by next Friday. What could challenge my forecast? There are several high-profile earnings reports (PLTR, AMD, ANET, UBER, APP, ARM, etc.) next week, or a resolution to the government shutdown, which could provide markets with that catalyst and send stocks higher.

• Monday (Nov. 3): Construction Spending, ISM Manufacturing Index
• Tuesday (Nov. 4): Factory Orders, Trade Balance
• Wednesday (Nov. 5): ADP Employment Change, EIA Crude Oil Inventories, ISM Services, MBA Mortgage Applications Index
• Thursday (Nov. 6): Continuing Claims, EIA Natural Gas Inventories, Initial Claims, Productivity-Preliminary, Unit Labor Costs, Wholesale Inventories
• Friday (Nov. 7): Average Workweek, Average Hourly Earnings, Consumer Credit, Nonfarm Payrolls, Unemployment Rate, University of Michigan Consumer Sentiment

• Monday (Nov. 3): Ares Management Corp. (ARES), BioNTech SE (BNTX), BWX Technologies Inc. (BWXT), Palantir Technologies Inc. (PLTR), Simon Property Group Inc. (SPG), Vertex Pharmaceuticals (VRTX), Williams Companies Inc. (WMB)
• Tuesday (Nov. 4): Advanced Micro Devices (AMD), Amgen Inc. (AMGN), Arista Networks Inc. (ANET), Coupang Inc. (CPNG), Eaton Corporation PLC (ETN), Pfizer Inc. (PFE), Shopify Inc. (SHOP), Spotify Technology SA (SPOT), Uber Technologies Inc. (UBER)
• Wednesday (Nov. 5): AppLovin Corp. (APP), Arm Holding PLC (ARM), Cameco Corp. (CCJ), Cencora Inc. (COR), DoorDash Inc. (DASH), Humana Inc. (HUM), Johnson Controls International PLC (JCI), McDonald's Corp. (MCD), Novo Nordisk A/S (NVO), Qualcomm Inc. (QCOM), Robinhood Markets Inc. (HOOD)
• Thursday (Nov. 6): Airbnb Inc. (ABNB), AstraZeneca PLC (AZN), ConocoPhillips (COP), Cummins Inc. (CMI), EOG Resources Inc. (EOG), Expedia Group Inc. (EXPE), Trade Desk Inc. (TTD), TransDigm Group Inc. (TDG), Vistra Corp. (VST)
• Friday (Nov. 7): Brookfield Asset Management (BAM), Constellation Energy Corp. (CEG), Duke Energy Corp. (DUK), Enbridge Inc. (ENB), Franklin Resources Inc. (BEN), KKR & Co. (KKR), Ubiquiti Inc. (UI), YPF SA (YPF)

Once again, economic data was restricted this week due to the continued government shutdown. The highlight of the week was the FOMC meeting, which delivered a hawkish surprise to investors who were penciling in another rate cut at the December FOMC meeting. Kansas City Fed President Jeff Schmidt dissented in favor of not cutting at this most recent meeting and Fed Chair Powell said that there were "strongly differing views" about how to proceed at the December FOMC meeting. Dallas Fed President Lorie Logan, who is not currently a voting FOMC member but will be in 2026, said the cut was a mistake as she is not convinced that inflation is on track to fall toward the Fed's 2.0% target. Outside of the FOMC meeting, October Consumer Confidence fell for a third straight month to a six-month low of 94.6. Here's the breakdown from this week's reports:

• FOMC Meeting: As expected, the Fed lowered the target range for the benchmark rate by 25 basis points (bps) to a new target range of 3.75-4.00%, but there were two dissents among members. Stephen Miran wanted a 50 bps cut while Jeff Schmid did not feel that any cut was warranted. Regarding forward guidance, Fed Chair Jerome Powell stated, "There are strongly differing views about how to proceed in December. A further reduction in rates in December is not a foregone conclusion. Far from it."
• Consumer Confidence: Fell 1.0 point to 94.6 in October, which represents a six-month low and was below the 95.0 expected.
• FHFA Housing Price Index: Rose by 0.4% in August, which puts the year-over-year gain at 2.3%.
• Existing Home Sales: 4.06M vs. 3.95M est
• Pending Home Sales: Was flat from the prior month, which was below the +1.0% economists had expected.
• EIA Crude Oil Inventories: -6.86M barrels
• EIA Natural Gas Inventories: +74 bcf
• The Atlanta Fed's GDPNow "nowcast" for Q3 GDP is unchanged at +3.9% from last week.

Treasury yields are higher across the board this week, largely driven by the Fed's hawkish tone towards a potential rate cut at the December FOMC meeting. Compared to last Friday, two-year Treasury yields are up over 10 basis points (3.596% vs. 3.484%), 10-year yields are up nearly 10 basis points (4.091% vs. 3.997%) and 30-year yields are higher by ~8 basis points (4.661% vs. 4.586%).

Expectations around potential rate cuts from the Fed in 2025 underwent a downward "reset" following this week's FOMC meeting. According to Bloomberg, the probability of a 25 bps cut at the December FOMC meeting dropped from 95% to the current level of 63%, and the total number of cuts between now and the end of 2026 dropped from four to three.

Chip stocks have been a significant attractor of money flow over the past four months as semis are seen as a prime beneficiary from the ongoing AI infrastructure/datacenter buildout. Several prominent semiconductor stocks, such as Nvidia, Broadcom, and AMD, hit fresh all-time highs this week, but has price moved too far too fast? The PHLX Semiconductor (SOX) hasn't been this far above its 200-day Simple Moving Average (the gold line in the chart below) in over a decade. Additionally, this week's fresh all-time high in the SOX was met with a negative divergence in the Relative Strength Index (RSI). A negative divergence occurs when a subsequent high in price coincides with a relatively lower reading in the RSI. This type of occurrence is not a timing tool (since the RSI could theoretically continue to move higher with price in the future), but it is a potential bearish indicator, and I believe some near-term caution is warranted from my technical view.

Technical translation: near-term cautious

Out of all the majors, the Russell 2000 Index (RUT) looks the weakest technically speaking. Yes, the index hit a fresh all-time high (2,541) back on October 16th, but the price action has been tentative since then, even as the other three majors registered fresh all-time highs this week. The intermediate-term uptrend is still intact, but near-term keep an eye on the 50-day SMA as potential support should the index fall there. It's also worth noting the rise in Treasury yields this week following hawkish Fed commentary, and at least some of the fuel behind the rally in small caps has been built on the premise of lower rates.

Technical translation: intermediate-term bullish, near-term cautious

During Visa's follow-up conference call to its quarterly earnings release, CEO Ryan McInerney said that it is adding support for four stablecoins. McInerney stated, "We are adding support for four stablecoins, running on four unique blockchains, representing two currencies, that we can accept and convert to over 25 traditional fiat currencies. McInerney added that the company has more than 130 stablecoin-linked card issuing programs in over 40 countries and that stablecoin-linked Visa card spend quadrupled during the quarter versus a year ago. Mizuho analyst Dan Dolev (who has an Outperform rating and $425.00 price target on the stock) believes Visa could emerge as one of the biggest beneficiaries of stablecoin adoption, calling Visa the "network of networks" or "stablecoin of stablecoins," noting that the company's network of stablecoin-linked card programs has grown to over 130 in more than 40 countries.

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). There was a lot of buzz on Wall Street this week over the S&P 500 registering its worst day of market breadth ever on Monday. The index closed at a fresh all-time high that day yet 80% of its constituent stocks declined. In any event, the divergence in breadth is notable as SPX market breadth slid to a two-month low this week. The "bad breadth" was also seen on both the Nasdaq Composite and Russell 2000 this week. On a week-over-week basis, the SPX (white line) breadth dropped to 55.69% from 66.67%, the CCMP (blue line) decreased to 50.10% from 53.21%, and the RTY (red line) slid to 55.38% from 59.98%.

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 (48 today): Apple Inc. (AAPL - $1.20 to $720.20), Cameco Corp. (CCJ - $0.25 to $104.47), Nvidia Corp. (NVDA + $2.31 to $205.20), Rio Tinto PLC (RIO - $0.06 to $72.14), Southern Copper Corp. (SCCO - $0.51 to $139.60), Vertiv Holdings Co. (VRT + $1.68 to $195.44)

This Week's Notable 52-week Lows (151 today): Charter Communications Inc. (CHTR - $3.85 to $227.06), Clorox Company (CLX - $0.23 to $112.23), Decker's Outdoor Corp. (DECK + $0.75 to $81.64), Ingredion Inc. (INGR + $0.04 to $115.27), Progressive Corp. (PGR - $0.37 to $206.60), Wyndham Hotels & Resorts Inc. (WH - $0.41 to $72.68)