In the meantime, due to the coming elections, puts have been pretty much in demand (left tail) vs little calls (right tail).

Key takeaway: Low-volume, slow markets can still be strong performers, but always remain cautious of unexpected shifts.

• U.S. Elections & Their Market Impact

With U.S. elections approaching, the market is pricing in a potential Trump win. This has significantly influenced sector performances, with cryptocurrencies like Bitcoin seeing strong gains, driven by investor sentiment around future regulatory shifts. On the downside, oil services and solar sectors have been struggling, largely due to the political outlook and volatile oil prices.

U.S. Republican Winners vs U.S. Democrat Winners

• Week-to-date performance highlights:
• S&P 500: +0.9%
• NASDAQ: +23% YTD
• Bitcoin: Strong upward momentum
• WTI (Oil): -8% on the week

• Financial Sector: Strong Earnings Boost

As the U.S. economy continues to outperform expectations, financial stocks have been thriving. Strong earnings from JP Morgan and Goldman Sachs reflect this, with financials exceeding forecasts due to the robust economic environment.

GDP growth estimates have increased to 3% for Q4, bringing down recession odds to just 5-10%. Meanwhile, bond yields are on the rise, with the 10-year U.S. Treasury yield crossing 4%, though it’s expected to become problematic only if it reaches 4.2% and higher.

U.S. 10 year

• Volatility Outlook

While the VIX (volatility index) sits at 19, signaling heightened caution, the market’s actual volatility remains low, with small weekly moves of around 0.5-1%. This suggests that, despite some investor nerves, there isn’t significant disruption anticipated in the near term.

Key takeaway: Hedge cautiously, but don’t expect major shifts as long as the economic fundamentals remain strong.

VIX9D last 6 months

• Earnings Season: Key Results & Insights

The U.S. earnings season has kicked off strong, with 79% of companies outperforming expectations. However, the index is also reporting its lowest earnings growth since Q2 2023 (-4.2%) (Source: Factset).

https://insight.factset.com/sp-500-earnings-season-update-october-18-2024

So far in the U.S., stocks that beat expectations had an outlier upside move: JPM, NFLX…

On the contrary, European stocks that missed have been severely punished: ASML, LVMH…

Industrial stocks will be a key focus in the coming week as earnings continue to roll in. The semiconductor sector, led by TSM, remains a solid bet for 2025, thanks to robust demand from AI technologies.

Keep an eye on upcoming earnings reports, especially from industrials and cyclicals, which will provide critical insight into U.S. economic health in 2025.

• What to Watch This Week:
• U.S. Earnings: Industrials are in focus. Many big names.
• Global Macro Data: Key indicators include retail sales, flash PMIs, and the Bank of Canada’s rate decision (expected 50 bps cut).
• Market Trends: Watch for moves in WTI crude, silver, and financials, as these sectors react to macro and geopolitical news.

The episode wraps up with a reminder to stay informed, especially with upcoming elections and continued earnings reports. Despite the low market volatility, opportunities abound for those who remain cautious but engaged.

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Have a great trading week!

Greg

greg@duponttrading.com