The Morning Call
10/1/26
The
Market
Technical
Q3 in the charts.
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
Frustration grows
daily.
So does the number
of stocks in a bear market.
Thursday morning setup:
The disconnect continues. With 10Y yields rising as high as 5.34% - a new 24
year high - before easing back US equities remain completely oblivious of
the tightening in financial conditions and instead are obsessing with the
memory bubble, and pushing higher on the first day of Q4 as strength in
technology shares held up against volatility in bond markets and a renewed
climb in oil. As of 8:00am ET, S&P 500 futures were up 0.4%, erasing an
earlier loss; Nasdaq 100 contracts rose 0.7% with memory and semis
providing support following an upbeat forecast from chipmaker Micron.
Mag 7 and software firms were also stronger as the Nasdaq remains in
a debt-funded world of its own. The AI theme is boosting Indu / Utils while the
most other sectors are lagging as usual. In the near-term, with yields and the
dollar higher, the market seems comfortable reverting to portions of the Q2
playbook which was dominated by Tech / Semis. Meanwhile, Russell 2000 small
caps struggles in the face of the highest bond yields in a generation; JPM
points out that "more than 40% of the index are unprofitable companies
though squeeze risk exists with a MidEast deal." Tempering
sentiment were swings in global yields, with the yield on 10-year
Treasuries briefly touching the highest since 2002 before pulling back; it was
trading at 5.27% last. JPMorgan's market intel suggests that bonds are oversold
but may take some time to find a support level. USD continues its bull run,
setting a new 52-wk high this morning before erasing gains. Commodities are
mixed but higher with crude and Ags leading; Base over Precious with
gold/silver flat. The US economic data slate includes weekly jobless claims
(8:30 a.m.), September final S&P Global US manufacturing PMI (9:45 a.m.),
September ISM manufacturing and August construction spending (10 a.m.) ahead of
the NFP tomorrow, which may have an upside surprise given the ADP print
yesterday.
Fundamental
Headlines
The
Economy
US
Weekly initial
jobless claims totaled 197,000 versus expectations of 200,000.
The September
Chicago PMI was 58.8 versus consensus of 51.2.
International
The August EU unemployment rate was 6.4%, in
line.
The September
Japanese manufacturing PMI was 54.1, in line; the September German manufacturing
PMI was 53.9 versus 53.8; the September EU manufacturing PMI was 52.9 versus
52.7; the September UK manufacturing PMI was 51.9 versus 52.0.
The Q3 Japanese
large manufacturers index was 24 versus predictions of 25; the Q3
nonmanufacturers index was 35 versus 36; the Q3 small manufacturers index was
14 versus 12.
Other
Strategic petroleum reserves thru 9/18.
https://econbrowser.com/archives/2026/09/strategic-petroleum-reserves-through-9-18
Treasury yields keep rising; can the economy
keep up?
https://www.capitalspectator.com/treasury-yields-keep-rising-can-the-economy-keep-up/
With
the revisions in the personal income stat, the consumer is looking much stronger.
https://bonddad.blogspot.com/2026/09/august-personal-income-and-spending.html
With revision, core PCE looked cooler than
expected.
Iran
Gulf exports back to pre-war levels.
Fiscal
Policy
WSJ poll shows Americans are increasingly in
favor of populist policies.
National debt is a
growing threat.
https://www.advisorperspectives.com/commentaries/2026/09/30/national-debt-growing-threat
Inflation
Inflation
remains a problem no matter how you slice it.
AI
Solving the AI ‘doomsday’ scenario.
Hyperscalers
are repricing long term debt but not displacing corporate date.
https://www.advisorperspectives.com/commentaries/2026/09/30/hyperscalers-repricing-not-displacing
KKR warns of growing credit risk from AI borrowing
spree.
https://www.ft.com/content/33449ea5-428b-4080-bdf6-ff5843bbd3cd?syn-25a6b1a6=1
Summary:
Global credit markets could face significant volatility if there is a downturn
in the booming AI sector, as rising debt levels among tech borrowers leave investors exposed to “an
unusually concentrated investment cycle”, KKR warned in a report on Wednesday. It
added that the true extent of AI exposure could be much bigger because of the
growing use of off-balance-sheet financing, meaning that many portfolios could
have a greater weighting in the sector once credit guarantees, leases and other
future commitments are included. Please use the sharing
tools found via the share button at the top or side of articles. AI-linked debt
currently amounts to about $600bn, or around 6.3 per cent of the US
investment-grade market. In comparison, the highest sector exposure in the
index was only 2.6 per cent on average over the past 29 years, KKR found. Even
if the largest hyperscalers, including Oracle, Amazon, Meta, Google, Microsoft
and SpaceX, each hit a maximum index weighting of 3 per cent — the typical
single-issuer limit for a bond portfolio — they could only raise up to $1.7tn
from the high-grade bond market, leaving more than $6tn of expected capital
expenditure unfunded, it added.
Investing
Everything is fine except everything.
What is normal for long term interest rates?
https://ritholtz.com/2026/09/the-aberrational-century/
The bull case:
resilient growth.
https://talkmarkets.com/article/resilient-growth-should-underpin-equity-gains
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