Michael Reinking:

Hello. I'm Michael Reinking, Senior Market Strategist at the New York Stock Exchange. And this is Market Storylines. Every week we're here to keep you up to date on the key trends and events driving global markets. We are recording on Thursday afternoon, so let's dive into this week's Market Storylines.

Now, when Eric left you last week, markets continued to grind higher, hitting fresh record highs, extending the unabated rally that had been ongoing since the spring. Now, we've highlighted in our written work that the max drawdown on intraday basis during Q3 was only slightly higher than 3% happening in a two-day window. Well, at the end of last week, there was a fresh injection of volatility. Now, on Thursday, China instituted new rare earth export controls and added more companies to its unreliable entities list. Now, mid-morning Friday, President Trump expressed his displeasure, threatening retaliation and suggesting that there was no need to meet with President Xi later this month.

Now, the response in markets was swift with most major U.S. indices closing down around 3%, the single biggest sell-off since April at the height of the tariff turmoil. Now, heading into what was kind of a holiday weekend, though equity markets would be open on Monday, the S&P 500 closed pretty much on the lows, around 6,550, trading within a half a percent of its 50-day moving average, a level that hasn't been tested since it was reclaimed in May. Now, the VIX had jumped over 50 and there was a scramble for protection.

Now, Eric had talked about records being the theme of last week. While keeping with that, Friday was a record day of options trading with over a hundred million options contracts trading, and volumes in equity markets were also very heavy, ranking as the fourth-heaviest volume day in both shares traded and notional value, behind only three days in April.

Now, right around the time futures markets were closing, President Trump took to social media yet again announcing that tariffs on China would be increased to a hundred percent starting on November 1st. Now with U.S. futures closed, ETFs and some single stocks did take another leg lower in the aftermarket, but the real selling happened in the crypto complex with nearly $20 billion of levered crypto positions liquidated. Now, amidst the sell-off, Bitcoin had traded down over 10% and Ethereum traded below 3,500, while other altcoins were also off well over 20%.

Now when we get these sorts of volatility shocks, they don't tend to be contained to a single session, and we've been feeling those aftershocks throughout this week. Now, the China trade tensions remain at the center of most of the volatility. AI also remains a hot topic. But this week was also the official start of earnings season. Now, before we unpack some of this week's volatility and talk through some of the key technical levels, let's talk about the setup heading into earnings season.

Now, analysts are looking for S&P 500 earnings growth to be up 8% on a year-over-year basis following the double-digit earnings growth last quarter. Now, heading into the reporting season, estimates have been moving higher for the first time since 2021, bucking the typical trend where estimates generally get cut by an average of 3% during the quarter. Now, tech has been a big driver of that dynamic with all of the recent deal announcements pushing up guidance, but it'll be hard to keep feeding that hype train. Now, with equity markets hovering around all-time highs and valuations getting stretched, expectations are pretty high. Now, there is no reason to believe that corporate America won't continue to put up solid results, but the focus will be on the commentary and price action, and that commentary will take on some added importance this quarter as we are in the midst of a government shutdown. So we've been without some key economic data for a couple of weeks. Now, investors will use these conference calls to make inferences as to how the overall economy is performing, particularly the consumer, the labor market, and insight into the inflation backdrop. Now, for a deeper dive into earnings, make sure to check out our preview on the nyse.com home page.

Now, over the weekend, the administration toned down some of the China commentary with President Trump saying, "Don't worry about China, it'll be all fine." Treasury Secretary Bessent said the two sides had been in communication over the weekend and he believed the meeting scheduled for the end of this month was still on.

Now, futures bounced on Sunday night, recouping half of Friday's losses, and there was some optimism heading into Monday, and it was a monumental day as Hamas released the remaining living hostages after two years of captivity, opening the door for a ceasefire deal.

Now, in just ahead of the open, there was another OpenAI partnership announcement, this time with Broadcom announcing a deal to deploy 10 gigawatts of AI accelerators or racks through the end of 2029, which sent the stock up over 10%. Now, the rally held throughout the day with broad-based gains, as major indices recouped over half of Friday's losses. However, the crypto complex was only able to recoup that flash crash we talked about from late Friday night, not able to make up any additional ground. Now, this dynamic has remained in place throughout the week, and we're sitting at some key technical levels.

Now, Tuesday was the official start of earnings season, but at least early in the session, this was overshadowed by China headlines again as the press was focusing on the increase in port fees on U.S. vessels declared by China over the weekend, matching those recently announced by the White House. Now, this clearly has less of an impact on the U.S. given the large trade deficit with the country, but was viewed as another provocation.

Now, futures had reversed all of Monday's gains ahead of the open, despite the fact that earnings from major banks were pretty strong across the board. Now, that weakness continued right after the opening bell with the S&P 500 trading down about a hundred points or one and a half percent, retesting Friday's lows and trading within 10 points of its 50-day moving average, around 6,550. Now, that level and markets rallied throughout most of the session before pulling back in the final 30 minutes of the day when President Trump began to talk about China cutting off U.S. soybean imports and threatening a cooking oil embargo.

Now, more importantly, let's talk about what caused the 2% intraday rally. Now, as mentioned above, the financial earnings were solid, helped by strong capital markets and investment banking activity. The commentary on conference calls with sanguine with management teams suggesting that the consumer remain resilient. Now, ahead of earnings, credit quality had become a big topic given the recent bankruptcies of Trico and First Brands. Now in general, the provisioning at the large banks was better than expected, though JPMorgan took a related $170 million charge off with Jamie Dimon warning that when you see one cockroach, there are usually more, and I'll have a little bit more on this in a moment.

Now, Fed Chair Powell spoke in the afternoon blessing further rate cuts and discussed the end of QT. Now, this pushed yields lower and led to a rotation in equity markets with [inaudible 00:07:06], financials, and consumer-facing stocks, which had been under pressure recently, all moving higher.

Now, Wednesday was another volatile session, 2% intraday range in the S&P 500 again, with markets ending modestly higher. Now, as it relates to China, there continues to be posturing by both sides, but nothing particularly new. However, elsewhere on trade, Treasury Secretary Bessent did suggest that there will be more trade deals announced when President Trump visits Asia later this month.

Now, after the close yesterday, President Trump had said he had gotten India's Prime Minister Modi to agree to stop purchasing Russian oil, which has been a sticking point in those negotiations. And today he had a conversation with President Putin. Now, the president said there will be a meeting between high-level advisors next week ahead of a meeting between him and President Putin soon. Now, keep in mind, Zelensky will be in the White House tomorrow.

Now, today's action has been choppy again with markets fading after opening gains. Now, regional banks have been a focal point with the sector getting hit for over 4% as there were more related First Brand and Trico write-downs and concerns related to commercial real estate loans.

Now, as I'm filming, the S&P is holding onto gains of just over 1% for the week with all of the trading happening completely within Friday's range. Now, earlier in the week, we saw a blow off move in many of the upside momentum thematic trades like quantum computing, nuclear, and rare earths, and those names are now reversing sharply. However, the biggest of all momentum trades right now, the precious metals, continue to surge with gold trading over 4,300.

So here are the key levels I'm paying attention to in this potentially pivotable time period. Now, Bitcoin is starting to break below 110,000, with the recent lows right around 107,000. If this doesn't hold, that puts the 200-day moving average around 103,000 in play. Now, crypto has been a leading indicator of key turning points in the markets earlier this year, so keep an eye on this for clues.

Now, the VIX is holding above 20, so this has not issued an all clear sign either. And the S&P 500 has spent the last four days unable to break back above its 20-day moving average, around 6,675, but the pivot level is Friday's low and the 50-day moving average around 6,550. If that level were to break, things could get a bit more dynamic.

Now, as we're entering the heart of earnings season in the next couple of weeks, companies are in their buyback blackout window, removing a stabilizing bid from the market. And next week is options expiration, which can add to the volatility.

Now, the focus will remain the same next week, China and earnings. Now, over the weekend, China will release key economic data including Q3 GDP, retail sales, and industrial production, and the country will have its plenum where key party officials meet to lay out the five-year plan. So expect plenty of headlines.

Now, the pace of earnings will start to accelerate and broaden out beyond the financial industry. The government shutdown negotiations will continue with no end in sight. Though next Friday, we will get some economic data as the BLS has been called back in to work on CPI, as this is used to calculate the annual cost of living adjustment, which needs to be done before November 1st. Now, global flash PMIs will also be released on Friday.

Now, that's going to do it for this week. Thanks for spending some time with us. If you like today's episode, please tell a friend or leave a comment wherever you listen to your podcast. Have a great weekend. Thanks for joining me. I'm Michael Reinking, and we'll talk to you again next week.

Speaker 2:

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