October 31, 2024 | VIX

MARKETS

S&P 500: Down -81 points to 5733, VIX: 22.68

Asia: Japan -0.50%, China +0.42%, Hong Kong -0.31%

Europe: Euro Stoxx 50 -1.44%, FTSE -0.90%, DAX -1.19%

FX: USD (DXY) up 0.12%, EUR up 0.03%, GBP down 0.63%, JPY up 0.74%, CNY down 0.03%

Energy: WTI Crude up 0.86% to $69.22, Brent up 0.85% to $73.17

Cross markets: Terminal rate unch at 4.83, Implied rate cuts 2-years from terminal down ~4bp at 127bp, 2/10 yield spread +12bp

Treasuries: 2-year yields down ~2bp at 4.158%, 10-year yields down ~2 at 4.28%, 30-year yields down ~2bp at 4.48%

WHAT WE'RE THINKING

Snapshot: US equities are lower in a global risk-off trade.??Tech is the notable drag on the S&P 500 (SPX) and Nasdaq 100 (NDX) after underwhelming results from MSFT and META.??Semis are weakest after a gross margin miss from MPWR generates a few valuation-based downgrades.??AVGO is lower on reports that AAPL is planning to use its own Wi-Fi chips in iPhones next year and SMCI headlines continue to weigh on the broader Tech tape. Bond proxies and Staples lift as defensive plays, while Energy rebounds from oversold levels.??There’s also relative outperformance in banks, Health Care and pockets of travel/leisure with NCLH and BNKG higher on earnings.??Treasury yields are slightly lower after data.??The dollar is firmer vs. sterling, but weaker against the yen after hawkish BOJ forward guidance.??Gold is off ~1.6%, while WTI crude gains on reports that OPEC+ could delay its planned production hike in December. Today’s risk-off tone followed a spike in UK Gilt yields after the Labour Party’s proposed budget contained plans for substantial borrowing and a ￡40B tax hike.??Treasury yields are lower despite looming US fiscal challenges after mixed data and position squaring into next week’s election.

• September core PCE inflation was inline at +0.3% MoM, while the YoY rate remained steady at +2.7% vs. consensus for +2.6%. Headline PCE was inline with expectations falling to +2.1% from +2.3% in August thanks to a decrease in gasoline and energy.?
• Employment compensation costs (ECI) increased +0.8% in Q3, which was cooler than expectations for +0.9%.??
• October Chicago PMI fell to a 5-month low at 41.6 vs. consensus for 47.0 and marks the 11th straight month of contraction.??
• Weekly jobless claims fell to +216,000 mostly due to post-hurricane related declines in North Carolina and Florida. Continuing claims also ticked lower but remain near highs from December ’22.?
• Tomorrow brings the October Jobs Report, ISM manufacturing and construction spending.??Most expect a noisy jobs report given the impact from hurricanes and labor strikes.??Consensus is looking for non-farm payrolls of +120,000 after an outsized +245,000 gain in September.??The Unemployment Rate is expected to remain unchanged at 4.1% with wage gains of +0.3% vs. +0.4% in September.?
• China NBS manufacturing PMI for October improved to 50.1 vs. consensus for 49.9. The move back into expansion territory after six straight months of contraction is the first notable improvement in activity since the government started recent stimulus efforts.??
• Overnight earnings/guidance from AMGN, BMY, CFLT, CI, CLX, CMCSA, COP, CVNA, ETR, IP, PAYC, SO and TWLO beat the sell-side bar, while results from AFL, APTV, CHRW, COIN, EG, EL, ETN, ICE, INVH, IQV, KLAC, LIN, MET, MGM, MRK, PWR, REGN and UBER missed/disappointed.??The 24-hour period that started after yesterday’s close is the peak in Q3 earnings volume.??There are 24 S&P 500 companies reporting this afternoon with AAPL, AMZN and INTC among the most consequential

Vol: The CBOE Volatility Index (VIX) is higher this morning to ~23.??VIX levels above 20 are generally considered ‘elevated’ and become a headwind for rally attempts.??Investors demand a higher risk premia during prolonged periods of elevated volatility.??The term risk premia refers to the required expected return above the risk-free rate (10-year Treasury).??Valuation isn’t a good market timing tool, but is one of the most important considerations when estimating expected future returns.??The current ~21x forward multiple on the SPX was earned during a prolonged period of subdued volatility and periods of elevated volatility will lead to multiple contraction.??VIX levels above ~30 usually deliver rapid multiple contraction and sustained bearish momentum that takes months to unwind.??

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Bond yields: Thirty-year Treasury yields pullback after prices flashed reversal indicators last Thursday and again on Tuesday from deeply oversold levels.??We use a Treasury put/call ratio to measure extreme sentiment with last week’s reading matching those from last October, just before yields peaked.??Now at 4.46%, we see the move gaining traction on a sustained break below ~4.38%.?

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Chartist: Key near-term support for the SPX sits at the simple 50-day moving average at ~5698 only because CTAs often use moving averages as buy/sell triggers.??A break below ~5698 could result in increased selling pressure but the index keeps its bullish trend above ~5610.??Closing levels below ~5610 would likely find first level support in the 5455-5543 range.

FACT OF THE DAY

Veterinarians used to believe that dogs saw only in black and white, but studies suggest that they actually do have some color vision. Dogs see the colors of the world as yellow, blue, and gray. Many common colors used for dog toys are actually hard for a dog to see.

JSC IN THE MEDIA

The Close on Bloomberg:??Andrew discusses AMDs downbeat earnings report and its challenges gaining meaningful market share in AI training. He also highlights a potential opportunity for AMD and others when the majority of AI workloads transition from the training to inferencing. Watch Now

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American Express Earnings: Andrew discusses AXP as a relative safe haven and fully-valued stock, while shifting attention to the opportunity in regional banks. Watch Now

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Markets react as tensions rise in the Middle East: Andrew comments on recent events in the context of a market that is richly valued and therefore more sensitive to shocks of all kinds. Read on Reuters

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See more of JSC in the Media.

THIS DAY IN HISTORY

October 31, 2008: Satoshi Nakamoto releases the Bitcoin white paper, introducing the cryptocurrency to the world and how it could be used. Titled ‘Bitcoin: A Peer-to-Peer Electronic Cash System,’ the nine-page thesis paper presented the idea of a decentralized cryptocurrency and established the basic structure for the Bitcoin network. And for the first time ever, Inside Markets is revealing the real identity of Satoshi Nakamoto…

CATALYST CALENDAR

Tomorrow: 1) China April Industrial Production, retail sales, Fixed Asset Investment and jobless rate; 2) India imports/exports for April; 3) Germany’s Q1 GDP; 4) Eurozone Q1 GDP; 4) Eurozone trade balance for March; 5) US retail sales for April; 6) US Empire Manufacturing Index for May; 7) US Industrial Production for April; 8) US Michigan Confidence for May and; 9) earnings before the open from DKNG, JD and VFC.

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Next week: 1) China NPC meeting Mon – Fri; 2) US election Tuesday; 3) US services ISM for October Tuesday; 4) Japan’s wage numbers for September Wednesday; 5) China’s import/export numbers for October Wednesday; 6) Policy decision for Riksbank, Norges Bank, BOE and FOMC Thursday; 7) China CPI/PPI for October Friday. Earnings highlights: 1) Monday am: BEN, CEG, FIS, FOX, MAR, YUMC; 2) Monday pm: AIG, AVB, NXPI, PLTR; 3) Tuesday am: APO, CMI, DD, EMR, GFS, MPC, YUM; 4) Tuesday pm: LUMN, MCHP, SPG; 5) Wednesday am: CVS, HWM, JCI; 6) Wednesday pm: ARM, BMBL, BROS, GILD, HUBS, LYFT, MTCH, NTR, QCOM, TTWO; 7) Thursday am: APD, CG, DDOG, HAL, KVUE, RL, ROK, TAP, TPR, UAA, USFD, VST, WBD; 8) Thursday pm: ABNB, AFRM, AKAM, ANET, CPRI, DKNG, EXPE, FTNT, PINS, SOLV, SQ, TTD; 9) Friday am: BAX, FLR, NRG, PARA; 10) EU earnings: Ryanair, Hugo Boss, BMW, Novo Nordisk, BT Group Richemont.

Jackson Square Capital produces Inside Markets. We also offer financial planning and investment management services. Learn more here and catch up on our recent media appearances.

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This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor.