10/5/26
The
Market
Technical
The S&P was up
on the week, all of it coming on Friday following the nonfarm payrolls number. While
it remains above all DMAs and in uptrends across all time frames, there are
some minor negatives. (1) the rise Friday was on a gap up open which needs to
be filled, (2) breadth remains horrible and (3) despite the stock boys getting
jiggy with the aforementioned payrolls report, the guys in the bond pits weren’t
buying it [see below]. Overall, the index is in a trading range of sorts with
the short term techincals tilted negative and the longer term technicals quite
positive. Hence, I see no reason to get to get beared up. On the other hand,
the bond market’s pin action makes me nervous as do the fundamentals (fiscal
policy, monetary policy, war, oil, tariffs). So until I see more convincing
upside momentum, I will continue to sit on my hands.
Which way will the breadth spread narrow?
https://www.marketwatch.com/story/the-stock-market-is-anything-but-normal-right-now-and-these-charts-show-it-91ea187d?st=dHsibE
As I said above,
despite the enthusiasm of stock investors over the jobs report, there was no
joy in bond land. TLT continues to trade down across all timeframes and is
below all three DMAs. It says that the bond boys are not nearly as sanguine about
rates and inflation as their stock counterparts. I don’t see anything that would
suggest a reversal… for the long bond to rise enough to even
challenge the upper boundary of its very short term downtrend is going to take
a series of very positive developments.
https://mishtalk.com/economics/in-big-warning-to-the-fed-bond-yields-rise-despite-weak-jobs/
Gold made a gap
down open on Monday and later negated its short term uptrend. Then it responded
to the payroll number by following the bond market’s take. While the gap down
open offers some short upside draw, longer term it remains below all three
DMAs. There is likely more downside to come.
https://talkmarkets.com/article/gold-fails-at-4200-despite-nfp-miss-as-us-yields-climb
The dollars pin action was a bit confusing. Of late
it has been taking its lead from yields---rising long with them. Yet Friday it
fell in the face of higher yields. Perhaps it was just noise or it was
responding to Thursday gap up open. Overall, it still remains in an extremely
wide trading range. On a very short term basis, it is in a clear uptrend that
will likely continue if interest rates continue to move higher.
Friday in the charts.
Friday in the technical stats.
The
latest from Citadel.
https://www.zerohedge.com/markets/lockd-and-re-load-rubner-flips-bullish-buyers-are-coming-back?gift=eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJuaWQiOiIxMTI2OTkwIiwic2VuZGVyVWlkIjoiUUhnc3BaZVVFS2E3RHhXM216eFlKbjhaWEFoMiIsImlhdCI6MTc5MDk3MDk5NSwiZXhwIjoxNzkzNTYyOTk1LCJhdWQiOiJ6aC1naWZ0In0.SMSD8FCit12khIuw4WPrI53DgwYOqzme8bjwrICyejw
The latest from
Goldman.
https://www.zerohedge.com/markets/correlated-almost-nothing-itself-goldmans-top-derivs-trader-says-sp-no-longer-clearing?gift=eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJuaWQiOiIxMTI3MjEwIiwic2VuZGVyVWlkIjoiUUhnc3BaZVVFS2E3RHhXM216eFlKbjhaWEFoMiIsImlhdCI6MTc5MTIwNDQyOSwiZXhwIjoxNzkzNzk2NDI5LCJhdWQiOiJ6aC1naWZ0In0.Pp1Y1K9K-D6tBIHtn6_YS258YvdYUN5UhWbXGtKhnCA
Monday morning
setup: Futures are lower to start the week and global markets struggle for
direction, as political upheaval and mounting concern over Europe’s public
finances dampened risk sentiment and sent the euro to a 17-month low against
the dollar while the US yield curve twists steeper and USD appreciates. As
of 8:00am ET S&P futures are down 0.1% and Nasdaq futures slip 0.2% from
their record close on Friday, as most Mag 7 stocks are lower although Nvidia
climbs another 0.6% after partner Hon Hai Precision Industry reported
better-than-expected quarterly revenue, pointing to sustained and elevated
spending on AI infrastructure. In premarket trading, tech is lower with Semis /
Memory lagging, Mag7 and Software flat. Intel tumbles 4% after a report on
discussions of a potential collaboration between Taiwanese chip giant TSMC and
Elon Musk’s Terafab, which Intel joined in April. Cyclicals ex-Energy are
flat to Defensives with the market looking to broadening if yields stabilize.
Brazil-related names are higher following preliminary election results which
show Bolsonaro defeating Lula, and EWZ +11.9% pre-market. The CAC
40 in Paris was the main weak spot in Europe. Asian stocks
played catch-up with Friday’s US rally. US bond yields fluctuated, with
the short end leading as the selloff in Treasuries showing few signs of
abating, and traders on alert for signs of bond market contagion in
Europe. German bunds affirmed their haven appeal as they outperformed in
Europe. French bonds were mixed, while Spanish debt lagged. Currency markets
showed the biggest reaction as the euro dropped 0.5% against the dollar.
Commodities are higher led by Ags and Metals with Precious leading Base; crude
is lower despite unconfirmed, opposing headlines that the Saudi East/West
pipeline has been shut. US economic data slate includes September services
PMI (9:45am) and ISM services index (10am). Fed speaker slate empty
for the session.
Fundamental
Headlines
The
Economy
Lots
of stats last week. In the US, they were mixed with four positive and three
negative primary indicators and two positive, one neutral and one negative inflation
number. Overseas, the data was very downbeat, including three negative price
measures.
These
reports keep both my forecasts for growth (muddle through) and inflation (good
as it is going to get but not any worse) on track. They don’t, however, resolve
one of the major economic issues facing us right now: what is the appropriate monetary
response to inflation that is being driven largely by supply shortages versus demand
pull?
Many
saw the answer in Friday’s nonfarm payroll report (quite disappointing if you
remember). My first thoughts when I saw that datapoint was (1) politics [i.e.,
midterm elections] played a role and/or (2) it was a one off number. What I failed
to consider were the seasonal factors which appear to be the real culprit.
https://www.zerohedge.com/markets/inside-jobs-rollercoaster-how-augusts-seasonal-gift-came-due-september-and-squeezed-bond?gift=eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJuaWQiOiIxMTI3MDU0Iiwic2VuZGVyVWlkIjoiUUhnc3BaZVVFS2E3RHhXM216eFlKbjhaWEFoMiIsImlhdCI6MTc5MTAzNzIzMiwiZXhwIjoxNzkzNjI5MjMyLCJhdWQiOiJ6aC1naWZ0In0.r6_RraPnfhyvE9hULwHfbGnebs1FiMDsxGVg2Shf0As
Which
the household survey gave credence to. Leaving me questioning how much attention
anyone should have paid to the number.
https://www.zerohedge.com/markets/jobs-huge-miss-sept-payrolls-plunge-just-29k-below-all-estimates-july-revised-negative
Nonfarm
payrolls in the charts.
https://econbrowser.com/archives/2026/10/employment-release-and-business-cycle-indicators-3
The
quantitative analysis.
https://bonddad.blogspot.com/2026/10/september-jobs-report-weakly-positive.html
As
an aside:
(1)
if it is a true reflection of the current labor market and it is starting to
weaken, that would suggest that the current bout with inflation is supply
driven hence a lesser need to raise rates further. And if that is so, then as I
noted in Friday’s Morning Call, we may have seen a peak in interest rates. That
is the good news.
(2)
on the other hand, if inflation is supply driven, then [a] given the lack of
visibility of an end to the Iranian and Ukrainian wars, that problem is not
going to be resolved anytime soon and [b] if the payroll number is a sign of the
economy weakening, then [a] plus [b] equals stagflation---something that I have
expressed my concern about numerous times in these pages. That is the bad news.
Bottom
line: I think that the payroll report was much ado about nothing. Though I will
be paying closer attention to additional data, including reactions from Fed members.
Going
back to the issue of whether or not the current pulse of inflation is supply driven,
it appears that the kinetic war in the middle East picked up as Iran upped its
attacks on shipping through the Strait of Hormuz and Trump ordered a third
carrier fleet to the area. That certainly suggests little relief on oil
prices/supply.
This
doesn’t help.
https://www.zerohedge.com/geopolitical/putin-ready-use-all-weapons-including-nuclear-if-kaliningrad-attacked
Nor
does the outrageous level of government debt worldwide.
https://www.wsj.com/finance/investing/high-government-debt-is-adding-fuel-to-the-global-bond-market-selloff-a93fa0fe?st=WnDtt4&reflink=desktopwebshare_permalink
Finally,
I continue to stew over the health of the AI buildout and the economic
implications of a significant over investment. Though I am not yet bailing out
of my AI related holdings. I continue to hold positions in both the chip
manufacturers and the hyperscalers---although their performances has been such
that I have Sold Half of virtually every stock. That said, I have my finger on
the trigger for several holdings. And should the negative case appear the more
likely outcome, I will take some more money off the table.
https://www.nytimes.com/2026/10/02/business/ai-stocks-bonds-economy.html?unlocked_article_code=1.FlE.TvnH.klDwVgpxOLwE&smid=url-share
Toshiba breaks ‘supply
discipline’ pact.
https://www.zerohedge.com/markets/seagate-western-digital-crater-after-toshiba-breaks-hard-drive-supply-discipline-pact
AI circular
financings increasing
https://www.zerohedge.com/markets/amazon-broadcom-pile-balance-sheet-spvs-ai-circularity-undeniably-increasing?gift=eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJuaWQiOiIxMTI3MDYyIiwic2VuZGVyVWlkIjoiUUhnc3BaZVVFS2E3RHhXM216eFlKbjhaWEFoMiIsImlhdCI6MTc5MDk3NDg0MiwiZXhwIjoxNzkzNTY2ODQyLCJhdWQiOiJ6aC1naWZ0In0.-FTlxn1ekmzBsToNJLvSZvMCPZ-cwhx2NFYsPBI2_f0
I want to emphasize that the issue that I am focused on is the economics
of the AI buildout not the doomsday ‘we will all be dead in ten years’ variety.
I made clear …. that I am quite cynical about the motivations of the doomsayers
whether they are from the industry (who want the government to impose
regulations that would squash potential competition) or government (who never
lets a crisis go to waste in order to impose further on our collective liberties)
https://www.realclearmarkets.com/articles/2026/10/02/we_need_a_serious_discussion_about_ai_risks_1209080.html
My
bottom line remains unchanged: my doubts on the trajectory of the
economy/inflation/AI buildout are increasing and Friday’s nonfarm payroll
number doesn’t help. However, as long as earnings growth remains strong, I can’t
see a major Market sell off. Higher inflation is another matter.
https://www.axios.com/2026/10/02/bond-market-zig-zags-threaten-sp-500s-smooth-ride
US
International
August EU PPI came in at 1.9%, in line.
The September
Japanese services PMI was 51.3 versus forecasts of 51.6; the composite PMI was
52.3 versus 52.5; the September German services PMI was 52.9, in line; the
composite PMI was 53.8, in line; the September EU services PMI was 53.0, in
line; the composite PMI was 53.1, in line: the September UK services PMI was
52.1 versus 52.7; the composite PMI was 52.0 versus 51.7.
Other
Iran
Overnight news.
https://www.zerohedge.com/energy/saudi-east-west-pipeline-hit-new-attack-still-flowing-normal
‘Decision
week’.
https://www.zerohedge.com/geopolitical/iran-decision-week-trump-teases-easy-way-or-hard-way-tankers-burn-rial-craters-and
Investing
What
if interest rates keep rising into the 2040’s?
https://trendlabs.com/what-if-interest-rates-keep-rising-into-the-2040s/
Capitalizing on dispersion.
https://www.advisorperspectives.com/commentaries/2026/10/02/four-ways-capitalize-dispersion
What is driving crypto?
https://www.zerohedge.com/crypto/amid-debasement-dc-doubts-drive-citi-hike-crypto-price-targets?gift=eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJuaWQiOiIxMTI3MDMzIiwic2VuZGVyVWlkIjoiUUhnc3BaZVVFS2E3RHhXM216eFlKbjhaWEFoMiIsImlhdCI6MTc5MTAzNzE1MCwiZXhwIjoxNzkzNjI5MTUwLCJhdWQiOiJ6aC1naWZ0In0.NZwL6yX7B3nIT_RaHsP3ckeSQBJlwnTb-UBGDzRK-M8
The latest from BofA.
https://www.zerohedge.com/markets/tail-two-cities-hartnett-says-start-adding-some-bonds?gift=eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJuaWQiOiIxMTI3MTU0Iiwic2VuZGVyVWlkIjoiUUhnc3BaZVVFS2E3RHhXM216eFlKbjhaWEFoMiIsImlhdCI6MTc5MTEyNzE3NywiZXhwIjoxNzkzNzE5MTc3LCJhdWQiOiJ6aC1naWZ0In0.bTJtlSQ6Bzm4GEGpSJ7eVGlHEyE-Ttr7KLPYGYo9VSw
News (but not a Buy recommendation) on Stocks
in Our Portfolios
What
I am reading today
The twelfth century military disaster that
changed global finance.
https://bigthink.com/books/a-fabulous-debt/
The tyranny of one man’s
opinion.
https://www.zerohedge.com/political/tyranny-one-mans-opinion
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