The Morning Call
10/23/26
The
Market
Technical
Thursday in the
charts.
Note: The S&P
retreated back below its 50 DMA, resuming its function as resistance. More
importantly, investors seem to be struggling right now with their views on the economy,
inflation, and the AI buildout. And they seem unable to make up their minds to
whether to buy/sell Tech (Wednesday) or the rest of the Marlet (yesterday). That
kind of schizophrenia makes me nervous. At the moment, the most positive spin
that I can put on this scenario is that the Market is consolidating at a lofty
level. Which for me means that I sit on my hands until it commits itself one
way or the other.
Thursday in the
technical stats.
https://www.barchart.com/stocks/momentum
https://www.barchart.com/stocks/market-performance
https://www.barchart.com/stocks/sectors/rankings
https://www.barchart.com/stocks/signals/new-recommendations
AI cracks,
volatility explodes.
Gone---all year to date AI stock gains.
Market now
repricing AI growth scare.
Hedge funds pile
into shorts.
Summary:
Hedge funds have loaded up on shorts, pushing bearish bets near a five-year
high and raising the risk of a sharp squeeze if markets rebound. Short sales
have exceeded long purchases by a ratio of roughly five to one across global
equities, with short leverage sitting in the 99th percentile over the past five
years. Global fundamental long/short funds are down 2.5% in October, with funds
focused on technology, media, and telecommunications down 7.4% so far this
month.
This is not the
start of the feared bear.
https://talkmarkets.com/article/this-is-not-the-start-of-the-feared-bear
Fear explodes;
gold implodes.
Friday morning
setup: US futures are lower, erasing a modest overnight bounce, as markets
scramble after Thursday's violent AI liquidation while oil rises again: Brent
hit the highest level since May after the Houthis fired another missile at
Riyadh and an IRGC official declared traffic of "illicit" vessels
through Hormuz "completely stopped" (contradicted by a Bloomberg
headline just minutes prior), while Thursday's haven bid fades; as a result
Treasuries give back part of their biggest rally in more than two years with
the 10Y yield rising back to 4.99%. As of 8:00am ET, S&P futures are down
0.2% at 7,687 while Nasdaq futures are down 0.1% at 29,100; Dow futures
underperform, sliding 0.6%. That follows Thursday's chaotic session, when the
S&P dropped 1.2% and the Nasdaq 100 tumbled almost 3%, its worst day since
June, even as two-thirds of the S&P rose and the hedge fund VIP basket
suffered its worst day since 2011 (as we
detailed last night). In premarket trading, Mag 7 names are mixed with
Nvidia (+0.6%) and Tesla (+0.8%) higher while Meta and Microsoft (both -0.7%)
lag; tower companies jump and wireless carriers slide after SpaceX was said to
be targeting 80,000 or more US cell sites, while Deckers tumbles after cutting
its full-year sales guidance. The day's driver is the AI trade (what else): OpenAI
is now targeting a $1.25 trillion valuation for its $30 billion raise, $150
billion below last month's ask, and SK Hynix scrapped a US
listing of its Solidigm unit, yet chips are modestly higher after the
Kospi erased a 4.1% plunge to close up 0.3%; according to Bloomberg,
"this looks less like capitulation than a repricing of who pays for the
build-out." Bonds are cheaper across the curve in a
bear-flattening move, as the tech rout eases and oil climbs further,
complicating the inflation outlook; French bonds outperform after the OAT-Bund
spread opened at a fresh post-2011 high of 176bps, even as France's flash PMIs
collapsed into contraction ahead of tonight's Moody's review. The Bloomberg
Dollar Spot Index is up 0.1% and the euro slips 0.2% after the dismal French
PMI, while the kiwi outperforms on ANZ calling for three RBNZ hikes. In commodities,
WTI rises 1.8% to $101.22 and Brent 1.4% to $114.80; gold is flat near $4,030
and silver slides 1.1%. Bitcoin rises 0.5% to about $81,600. US economic data
slate includes the October S&P Global flash PMIs (9:45am), the final
October University of Michigan sentiment and inflation expectations (10am) and
the Kansas City Fed services survey (11am). The Fed is in its blackout period
ahead of next Wednesday's FOMC, so there are no Fed speakers.
Fundamental
Headlines
The
Economy
US
The October Kansas
City Fed manufacturing index was reported at 16 versus consensus of 18.
International
September Japanese CPI
was unchanged versus projections of up 0.4%.
September UK retail sales
fell 0.4% versus estimates of -0.1%.
The October EU
flash consumer confidence index was -17.9 versus expectations of -17.0.
The October
Japanese flash manufacturing PMI was 53.3 versus forecasts of 54.4; the flash
services PMI was 52.0 versus 51.3; the flash composite PMI was 52.3 versus 51.9;
the October German flash manufacturing PMI was 54.2 versus 53.5; the flash
services PMI was 51.7 versus 52.5; the flash composite PMI was 52.8 versus 53.3;
the October EU flash manufacturing PMI was 52.4 versus 52.7; the flash services
PMI was 51.7 versus 52.5; the flash composite PMI was 51.9 versus 52.7; the
October UK flash manufacturing PMI was 52.8 versus 51.7; the flash services PMI
was 53.1 versus 51.8; the flash composite PMI was 53.1 versus 51.8.
Other
Resilient growth, sticky inflation.
https://www.advisorperspectives.com/commentaries/2026/10/22/resilient-growth-sticky-inflation
Geopolitical risks back on the radar.
https://www.capitalspectator.com/oil-signals-geopolitical-risk-is-back-on-the-radar/
Iran
Overnight news.
Iran’s message is
stark: If the U.S. and Israel restart their air campaign, Tehran will respond
with strikes not only on American bases and warships but on airports, pipelines,
and other civilian targets in the neighboring countries of the Persian Gulf.
The US is
preparing for a protracted conflict with Iran, even as the Trump administration
hopes its bombing campaigns and economic sanctions will force major concessions
from the Islamic republic. Mike Waltz, Donald Trump’s ambassador to the UN,
acknowledged that a year from now the US could still be mired in a stalemate
with Iran, without a deal on Tehran’s nuclear program or a return to prewar
shipping through the Strait of Hormuz.
Monetary
Policy
Warsh’s quiet Fed.
Fiscal
Policy
Hidden taxes.
https://politicalcalculations.blogspot.com/2026/10/hidden-taxes.html
AI
War gaming the AI crash.
The math of Coreweave’s buildout.
The explosive claim that upended the AI world.
Is
the goal of AI a worthy one?
Tariffs
The
case against protectionism and interventionalism is the same.
The
Financial System
Private credit group says Market fears are
divorced from reality.
Summary: Public sentiment about private credit
has become “divorced from the market-wide reality,” according to a report from
the Alternative Credit Council. The report points to a 17% year-on-year
increase in assets under management to $4.1 trillion as a sign of growth, and
notes that some credit metrics are continuing to improve. Pressures in the
private credit industry remain concentrated rather than indicative of broader
market deterioration, with some lenders arguing that stress is particularly
concentrated among deals struck during the cheap-money era.
Investing
Bonds reclaim
their role.
https://www.advisorperspectives.com/commentaries/2026/10/22/return-income-bonds-reclaim-role
An unusually
divided market.
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