The Morning Call
10/22/26
The
Market
Technical
Wednesday in the
charts.
Note: the S&P
continued to rally, resetting its 50 DMA to support despite the continuing flow
of unfavorable AI/Iran news. That adds credence to my observation yesterday
that the bad news is already in the price of stocks. My other comment, not so
much, i.e., tech drove much of the yesterday’s rally not the rest of the Market.
So, instead of the tech falling behind the rest of the Market, it may be
resuming the lead. After only two days of modestly upbeat pin action, this is
still speculation on my part. Indeed, the real test of duration comes when the
S&P tests its all-time high which it has already unsuccessfully challenged
twice. I continue to sit on my hands but with a glimmer of hope.
Wednesday 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
Thursday morning
setup: US futures are lower as the AI trade discovered that there is no right
answer on capex: Meta spent more, Tesla spent less, and the market slammed both
(after an initial kneejerk bounce), while a fresh wave of deadly attacks on
Saudi Arabia, a US-ordered departure of diplomats from the kingdom and an NYT
report that the US and Israel have drawn up plans for renewed strikes on Iran
after the midterms sent Brent back above $112; as a result the flight to
quality is back on, with 10Y yields sliding 9bps to 5.03% even as
oil jumps and French bond yields soar. As of 8:00am ET, S&P futures are
1.0% lower at 7,720.75 while Nasdaq futures are down 1.7% at 29,507.50 and Dow
futures are 0.6% lower. Wednesday's session closed near its highs, with the
S&P rising 0.6% to 7,757 for a third straight gain and closing within 1% of
its record high, as the SpaceX blowout revived
the AI trade. In premarket trading, all Mag 7 names are red led by Tesla,
which drops 4.4% after cutting its 2026 capex target to about $20 billion from
more than $25 billion, while Meta reversed an after-hours gain of as much as 5%
to trade down about 1.5% as investors focused on its hedged 2027 spending
commentary (as
we noted last night, the stock erased most of its gains after the CFO
warned "significant investment" will raise serving costs); Lam
Research tumbles 8% on a soft forecast, dragging chipmakers including AMD,
Broadcom and Intel. The day's driver is oil (again): Brent rose
as much as 3.3% to $112.43 and WTI briefly topped $100 after two attacks on an
Aramco oil field and an airport in Saudi Arabia's Eastern Province killed at
least three people, Aramco told staff to evacuate its Dhahran headquarters, and
the IRGC Navy warned US bases could be targeted if Washington keeps
"encouraging" ships through the Strait of Hormuz. Treasuries are bid
across the curve in a bull steepener as AI doubts and another spike in French
yields drive a haven bid; the OAT-Bund spread blew out by as much as 18bps to
177bps, the widest since 2011. The yen and Swiss franc lead G10 FX, with
EUR/JPY at the lowest in almost a year, while the Bloomberg dollar index is
little changed. Gold is down 1.3% near $4,085 and silver is down more than 3%,
refusing to play haven, copper slides with the AI trade, and Bitcoin slipped
below $82,000. US economic data slate includes weekly initial jobless claims
(8:30am), the September leading index (10am) and the October Kansas City Fed
manufacturing index (11am), and Treasury auctions resume with a $26 billion
5-year TIPS new issue (1pm). The Fed is in its blackout period ahead of next
Wednesday's decision.
Fundamental
Headlines
The
Economy
US
Weekly initial jobless claims totaled 194,000 versus
estimates of 200,000.
International
The Q4
UK business optimism index came in at -27 versus expectations of -38; the Q4 industrial trends index was -32 versus -20.
Other
How long
can consumers continue to spend?
Housing is weak
but (so far) its impact on the economy has been muted. (see Counterpoint below)
https://www.capitalspectator.com/housing-is-weak-but-its-impact-on-the-business-cycle-is-muted/
The economy
continues to expand, inflation continues to rise; but there are potential
warning signs.
https://bonddad.blogspot.com/2026/10/the-inflationary-expansion-is-still.html
Oil slides as Russia is ready to resume
Ukraine talks.
Iran
Overnight news:
For most of the
war, Iran had an invaluable cushion: dozens of oil tankers holding millions of
barrels of crude sitting safely in waters in Asia. Tehran steadily sold the oil
to China, bringing in billions of much-needed cash. Now that floating storage
is gone. By mid-October, the reserves were fully depleted, according to
analysts at Kepler, as a U.S. naval blockade prevented Iran from replacing the
crude it normally sells to Chinese refineries.
The US ordered
some diplomats and their families to leave Saudi Arabia because of the threat
from Houthi militants, as the Iran-backed group carried out more strikes from
Yemen; four people were killed in two attacks on an Aramco oil field and an
airport in Saudi Arabia's Eastern Province.
The US and Israel
have drawn up plans for renewed strikes on Iran after the midterm elections,
with targets likely to include Iran's energy infrastructure, nuclear facilities
and missile and drone arsenals.
Aramco told staff
to leave its headquarters in Dhahran and work remotely.
Iran's IRGC
threatened US bases in the region if Washington keeps escorting ships through
what it calls an “illegal” Hormuz route. BBG
Monetary
Policy
The
case for raising rates.
https://stayathomemacro.substack.com/p/what-will-it-take-to-be-confident
Counterpoint.
The AI boom is setting the Fed up for a rate
see saw.
Summary:
The artificial-intelligence investment boom is pushing US interest rates up by
boosting economic growth and straining the nation's financing capacity, and by
lifting household wealth and bolstering consumer spending. The impact of the AI
boom on interest rates is likely to be more nuanced in 2027, with less upward
pressure from economic growth but more from the pressure on savings. The upward
pressure on interest rates will likely reverse in the longer term as the AI
investment boom peaks and then declines, causing interest rates to fall as the
economy slows and the Fed cuts short-term rates.
Inflation
Inflation can’t solve the national debt
problem.
https://www.cato.org/blog/inflation-cant-solve-americas-debt-problem-president-trump
AI
The cost of insurance for hyperscaler debt.
https://econbrowser.com/archives/2026/10/insurance-for-ai-hyperscaler-debt-et-al
Ken Griffin says AI is almost certainly a
bubble.
AI spending stalling.
Music publishers sue Anthropic.
https://www.zerohedge.com/ai/music-publishers-sue-anthropic-copyright-infringement
Investing
Remembering the crash
of 1987.
https://www.carsongroup.com/insights/blog/remembering-the-crash-of-1987-2/
Q3 in three
charts.
https://chartkidmatt.com/p/q3-in-three-charts
Not an earnings
bubble.
https://acrobat.adobe.com/id/urn:aaid:sc:VA6C2:a780f71b-012f-440f-9a3a-1850a24ba24d
US Treasuries: a market in transition.
https://www.advisorperspectives.com/commentaries/2026/10/21/us-treasuries-market-transition
News on Stocks in Our Portfolios
What
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