Weekly Trader's Outlook

If you read last week's blog you might recall that my forecast for this week was "near-term cautious on tech" along with the "potential for higher volatility," citing last Friday's 14-year high RSI reading on the PHLX Semiconductor Index (SOX). The SOX gapped up to fresh all-time highs on Monday following news of a deal between AMD and Open AI, but then sold off 2% on Tuesday, only to then make a fresh all-time closing high on Wednesday following more deal news between xAI and Nvidia (more context in the "Technical Take" section below). The Nasdaq also saw some profit taking on Tuesday but continued to notch fresh highs later in the week. Early this morning the Nasdaq was trading at a fresh all-time high, but stocks got hit with a mid-morning sell-off after U.S. President Donald Trump posted that he is considering a "massive increase in tariffs" on China products imported into the United States. Trump said that China was acting hostile and that higher tariffs are meant to "financially counter" new export controls that China imposed on rare earth minerals. China controls roughly 70% of the global supply of rare earth minerals, and they are critical inputs for many high-tech and electronic products. China added five new minerals to its export control list this week and said that foreign companies will need to obtain a special approval if the wish to export rare-earth magnets and certain semiconductor materials that have at least 0.1% heavy rare-earth metals from China. Additionally, China announced that it will charge U.S. ships for docking at Chinese ports starting October 14th, the same day that similar U.S. port fees on Chinese ships are set to take place. Lastly, China announced that it is tightening import restrictions on U.S. chips and opened an antitrust probe into Qualcomm's purchase of Israel's Autotalks. President Trump and Chinese President Xi Jinping were set to met at the Asia-Pacific Economic Cooperation summit at the end of this month, but Trump added in today's post that there now "seems to be no reason to do so" following China's trade restrictions. To what extent these new restrictions from China are trade bargaining chips remains to be seen, but the news appears to be giving stock investors a reason to book profits today, especially given the extent of the rally which the bulls have enjoyed up until this point.

According to the AAII Investor Sentiment Survey, for the week ending October 8th, bullish sentiment rose to 45.9% from 42.9% in the prior week while bearish sentiment dropped to 35.6% from 39.2%. For reference, the historical average is 37.5% bullish and 31.0% bearish (31.5% neutral) and the one-year high for bullishness is 49.8% (the week ending Nov. 14, 2024).

The government shutdown continues, now going on for 10 days, and appears like it will extend into next week as a resolution has yet to be reached. White House budget chief Russell Vought said that the government has started firing federal workers, mostly within the Departments of Education and Health and Human Services. The U.S. House of Representatives will remain in recess until at least October 19th, according to House Speaker Mike Johnson, but the Senate may hold a vote on Tuesday.

At the time of this writing (2:55 p.m. ET), stocks are at the lows of the day (DJI - 665, SPX - 140, COMPX - 636) as investors appear to be both booking profits and reluctant to hold heavy long exposure through the weekend in case there are any negative trade-related surprises early next week. In my view, while China's elevated trade restrictions are not good news for stocks, investors have largely been forgiving of any trade-related headlines during this near-six-month rally. Why are markets reacting so negatively to today's headlines? In part, perhaps a smooth trade relationship between the U.S. and China was priced in, but more likely, traders are using the news as an excuse to finally book some meaningful profits after a very long win streak of gains. The S&P 500 had been climbing higher into record territory for multiple months without even a 2% pullback, so some might say stocks were overdue for a normal consolidation phase. Third-quarter earnings season unofficially starts next Tuesday with the big banks, which is likely welcomed by investors since economic data has been scant due to the government shutdown. The FactSet year-over-year earnings per share (EPS) growth rate is currently 8.0%, though corporations delivered 11% EPS growth last quarter which handily beat analyst estimates. While we don't know whether there will be a repeat this time around, expectations are high given the rally in stocks, so results will need to justify current valuation. While I'm not sure how deep this current pullback will last in stocks, I would expect the dip buyers to show up at some point given the backdrop of the AI secular growth story, a firm economy, and a relatively accommodative Federal Reserve policy. It is this backdrop, in my view, that has reinforced the resilient uptrend in stocks and unless any of those three factors get meaningfully challenged, I would expect that investor behavior to continue. Therefore, my overall forecast for next week is "moderately bullish", as I believe stocks will close higher next Friday from today." However, I acknowledge the uncertainty around trade headlines next week, the potential for higher volatility and therefore the potential for the pullback to extend further than expected in the first half of the week. Should that occur, I'm assuming that dip buying will begin to emerge, but of course there are no guarantees here.

• Monday (Oct. 13): -no reports-
• Tuesday (Oct. 14): -no reports-
• Wednesday (Oct. 15): Consumer Price Index (CPI), EIA Crude Oil Inventories, Empire State Manufacturing, MBA Mortgage Applications Index
• Thursday (Oct. 16): Retail Sales, Producer Price Index (PPI), Business Inventories, Continuing Claims, EIA Natural Gas Inventories, Initial Claims, NAHB Housing Market Index, Philadelphia Fed Index
• Friday (Oct. 17): Building Permits, Capacity Utilization, Export Prices, Housing Starts, Import Prices, Industrial Production, Net Long-Term TIC Flows

• Monday (Oct. 13): Fastenal Co. (FAST), Lifecore Biomedical Inc. (LFCR), Spire Global Inc. (SPIR)
• Tuesday (Oct. 14): Albertsons Companies Inc. (ACI), America Movil SAB de CV (AMX), BlackRock Inc. (BLK), Citigroup Inc. (C), Domino's Pizza Inc. (DPZ), Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM), Wells Fargo & Co. (WFC)
• Wednesday (Oct. 15): Abbott Laboratories (ABT), ASML Holding NV (ASML), Bank of America Corp. (BAC), Citizens Financial Corp. (CFG), J.B. Hunt Transport Services Inc. (JGHT), Morgan Stanley (MS), PNC Financial Services (PNC), United Airlines Holdings (UAL)
• Thursday (Oct. 16): Bank of New York Mellon Corp. (BK), Charles Schwab Corp. (SCHW), CSX Corp. (CSX), Interactive Brokers Group Inc. (IBKR), KeyCorp (KEY), Taiwan Semiconductor Manufacturing (TSM), Travelers Companies Inc. (TRV), US Bancorp (USB)
• Friday (Oct. 17): Ally financial Inc. (ALLY), American Express Co. (AXP), Autoliv Inc. (ALV), Comerica Inc. (CMA), Fifth Third Bancorp (FITB), Huntington Bancshares Inc. (HBAN), Regions Financial Corp. (RF), Schlumberger NV (SLB), State Street Corp. (STT), Truist Financial Corp. (TFC)

This week's release of economic data was restricted due to the government shutdown. However, we did get the survey of consumer expectations from the NY Fed, and the results weren't bullish. In sum, inflation and unemployment expectations ticked up while earnings growth expectations softened. Here's the breakdown from this week's reports:

• Survey of Consumer Expectations (Federal Reserve Bank of NY): from the report: "…shows that households' inflation expectations increased at the short- and longer-term horizons and were unchanged at the medium-term horizon. Despite a small rebound in the expected job finding rate, labor market expectations continued to deteriorate with consumers reporting lower expected earnings growth, greater likelihoods of losing jobs, and a higher likelihood of a rise in overall unemployment. The survey was fielded from September 1 through September 30, 2025."
  • One-year median inflation expectations increased to 3.4% from 3.2% while five-year expectations ticked up to 3.0% from 2.9%.
  • Median unemployment expectations (mean probability that U.S. unemployment rate will be higher one year from now) increased 2.0% to 41.1%.
  • Median one-year-ahead earnings growth expectations decreased 0.1% to 2.4%, representing the lowest reading since April 2021.
     
• University of Michigan Consumer Sentiment: Ticked down from 55.1 in September to 55.0 in October, which represents a five-month low.
• Consumer Credit: $0.4B vs. $9.0B est.
• EIA Crude Oil Inventories: +3.72M barrels
• EIA Natural Gas Inventories: +80 bcf
• MBA Mortgage Applications Index: - 4.7%
• The Atlanta Fed's GDPNow "nowcast" for Q3 GDP is unchanged this week at +3.8%.

Treasury yields are down across the curve this week, mostly driven by today's "flight to safety" buying following President Trump's post on China. Compared to last Friday, two-year Treasury yields are down ~5 basis points (3.529% vs. 3.572%), 10-year yields slipped ~4 basis points (4.075% vs. 4.119%) and 30-year yields are lower by ~5 basis points (4.665% vs. 4.714%).

Expectations around potential rate cuts from the Fed in 2025 are little changed from last week, but they saw a little lift midday today following Trump's post on China. Per Bloomberg, markets are currently expecting two more 25-basis-point cuts this year, and two more in 2026. For reference, the Fed's dot plot pencils in two 25-basis-point cuts in 2025 and one more 25-basis-point cut in 2026.

Last week I noted that the RSI on the S&P 500 (SPX) was pushing back above the key 70 level and therefore some near-term caution is warranted, and there was some moderate selling/healthy consolidation on Tuesday which helped slow down momentum. Following President's midday China post, the SPX is down nearly 2% at the time of this writing, which would be the largest one-day drop since April. Today's drop is putting the SPX below key support at the 20-day Simple Moving Average (SMA), and the question for traders is whether this will represent another "buy the dip" moment in time, or the start of a larger pullback. As you can see from the green arrows marked in the chart below, there have been multiple instances where the SPX bounced off the 20-day SMA on this six-month uptrend. Additionally, the index has only closed below this moving average four times since April and has yet to log two consecutive closes below this indicator. It's too early to know for sure but given the history of the consistency of the "dip buying" on this six-month rally, today could represent another one of those short-term pullbacks. If we get consecutive closes below the 20-day SMA next week this could alter the technical outlook to a more near-term cautious stance.

Technical translation: Intermediate-term bullish, near-term neutral (no bullish confirmation, or recovery above 20-day SMA, yet)

Last week I noted the 14-year high in the SOX's Relative Strength Index (RSI), and although the index "gapped up" to a fresh all-time high on Monday following AMD's deal announcement with Open AI, the fever finally broke, so to speak, and the index dropped 2% on Tuesday. RSI is not a timing tool but when you get into nosebleed overbought territory like the SOX did last week, this type of consolidation is natural and healthy. The SOX rallied back on Wednesday following news that Elon Musk's AI startup xAI raised financing plans to purchase more Nvidia chips. However, the index has been unable to make new highs since Monday and has exhibited elevated day-to-day volatility. Today's bearish engulfing candle also creates overhead supply, which represents the group of shareholders that bought at higher prices who now may look to get back to even, that is they are potential sellers, on subsequent rally attempts. This suggests to me that some more consolidation, either sideways or lower, may be needed next week, before a rally can be mustered and resistance at 6,860 can be tested. Additionally, chip restrictions being in the middle of the U.S,/China trade debacle may temper trader enthusiasm until there is more clarity on policy from the nations.

Technical translation: Intermediate-term bullish; near-term cautious

On Monday U.S. spot bitcoin ETFs saw $1.8B in inflows, which represents the second-largest single-day inflow for the 11 U.S.-based spot bitcoin ETFs since November 7th, 2024, the day after Donald Trump won the U.S. presidential election. The money flow coincided with the price of bitcoin registering a fresh all-time high above $126,000 per coin. Although a fresh all-time high is technically bullish, and seasonality has been bullish for crypto prices over the past five years in October (or "Uptober" as it is sometimes referred to in the crypto community), the subsequent price action since Monday hasn't been bullish technically. Bitcoin is down ~3.3% today to $117.700, perhaps related to the sell-off in stocks, but this represents the third time over the past three months that bitcoin has failed to sustain upward momentum after eclipsing the $122K area. The longer-term trend is still technically bullish, but the price action in bitcoin over the past three months appears to be more of a period of consolidation, at least as the technical snapshot currently stands.

The Bloomberg chart below shows the current percentage of members within the S&P 500 (SPX), Nasdaq Composite (CCMP), and Russell 2000 (RTY) that are trading above their respective 200-day Simple Moving Averages (SMA). In short, the S&P 500 and Nasdaq are both up on the week, but market breadth only improved for the Nasdaq. On a week-over-week basis, the SPX (white line) breadth moved down to 64.40% from 66.80%, the CCMP (blue line) is lifted to 54.45% vs. 53.54%, and the RTY (red line) eased to 58.42% from 60.88%.

Market breadth attempts to capture individual stock participation within an overall index, which can help convey underlying strength or weakness of a move or trend. Typically, broader participation suggests healthy investor sentiment and supportive technicals. There are many data points to help convey market breadth, such as advancing vs. declining issues, percentage of stocks within an index that are above or below a longer-term moving average, or new highs vs. new lows.

This Week's Notable 52-week Highs (117 today): Advanced Micro Devices Inc. (AMD - $4.34 to $282.55), BWX Technologies Inc. (BWXT - $0.94 to $194.65), Constellation Energy Corp. (CEG + $6.77 to $390.00), First Solar Corp. (FSLR - $2.71 to $231.59), Johnson & Johnson Inc. (JNJ - $0.10 to $190.98), Nvidia Corp. (NVDA + $2.21 to $194.78)

This Week's Notable 52-week Lows (73 today): Atlassian Corp. (TEAM - $0.71 to $147.03), Camden Property Trust (CPT + $0.15 to $102.09), Comcast Corp. (CMCSA - $0.10 to $29.98), Kimberly-Clark Corp. (KMB + $0.79 to $120.34), Procter & Gamble Company (PG - $0.24 to $150.34), Thomson Reuters Corp. (TRI + $0.80 to $150.90)