Weekly Trader's Outlook

If you read last week's blog you might recall that my forecast for this week was once again "moderately bullish," citing several bullish developments from last Friday (sharp VIX reversal, correction in momo/spec cohort, treasury yield stabilization, and firm technicals). Stocks encountered some mid-week volatility but all the major indices, sans the Russell 2000, are at fresh all-time highs today. This morning's benign consumer price index (CPI) report provided an assist to the bulls (more on this in the "Economic Data, Rates & the Fed" section below) as did the confirmation from the White House that U.S. President Donald Trump and China President Xi are scheduled to meet next Thursday. This week wasn't as busy as last week but here is some additional color to help wrap things up:

• Earnings reports from regional banks Zions Bancorporation (ZION) on Monday and Western Alliance Bancorporation (WAL) on Wednesday helped ease recent credit concerns.
• Speculative/momentum areas of the market (nuclear, quantum, rare earth, drone, unprofitable tech, etc.) continued to correct this week, though rebounded some over the last 24 hours.
• On the Q3 earnings scorecard, 145 out of the S&P 500 companies have reported results thus far. 70% have beat on the top line while 85% have beat on the bottom line. Revenue growth has been 7.79% and EPS growth has been 15.08% thus far.
• WTI crude oil prices ($57.58) rebounded nearly 8% this week after hitting a five-month low last week.
• On the trade front, outside of next week's Trump/Xi meeting, the U.S. launched a Section 302 investigation into whether China has upheld trade commitments this morning. Elsewhere, Trump posted this morning that he is ending all trade talks with Canada after the northern neighbor released a TV ad featuring former president Ronald Reagan talking negatively about tariffs.
• The U.S. government shutdown is now on day 24, and earlier today Senate Democrats blocked the Republican Party's government funding legislation for the 12th time.

At the time of this writing (1:45 p.m. ET), stocks are trading near the highs of the day (DJI + 548, SPX + 65, COMPX + 304) as today's inflation data and fresh all-time highs in stocks lifts investor sentiment. While the government shutdown continues to persist, markets have been unconcerned, though the lack of economic data reports may eventually take its toll. In the meantime, next is all about three significant (potentially market-moving) catalysts: a) mega-cap tech (AAPL, AMZN, GOOGL, META, MSFT) earnings reports on Wed/Thur; b) Trump/Xi trade meeting on Thursday; and c) Federal Open Market Committee (FOMC) meeting on Tue/Wed. I deliberately put those catalysts in the order that I believe are most important, because: a) this has mostly been a tech/AI driven bull market; b) markets deem China/U.S. trade relations as important given the volatility seen earlier this month; and c) expectations are nearly cemented that the Federal Reserve will cut and remain in the accommodative camp. From a technical perspective, it's bullish to see the majors at fresh all-time highs, but the flip side of that is that market expectations are very high in regard to all three of those catalysts going into next week. I'm not suggesting that we set up for a "sell on the news" next week, but given the setup, along with a relatively subdued 16 VIX, I think the potentially for volatility is elevated. Therefore, my forecast for next week is for "higher volatility." What could challenge my forecast? If everything unfolds as expected next week stocks could just march higher and the VIX could continue to ease.

• Monday (Oct. 27): Durable Goods Orders
• Tuesday (Oct. 28): Consumer Confidence, FHFA Housing Price Index, S&P Case-Shiller Home Price Index
• Wednesday (Oct. 29): Advanced International Trade in Goods, Advanced Retail Inventories, EIA Crude Oil Inventories, FOMC Rate Decision, MBA Mortgage Applications Index, Pending Home Sales
• Thursday (Oct. 30): Continuing Claims, EIA Natural Gas Inventories, Q3 GDP Advanced Reading, Initial Claims
• Friday (Oct. 31): Chicago Purchasing Managers' Index (PMI), Employment Cost Index, personal consumption expenditures (PCE) Prices, PCE Prices -Core, Personal Income, Personal Spending

• Monday (Oct. 27): Alliance Resource Partners (ARLP), Bank of Hawaii Corp. (BOH), Cadence Design Systems, Inc. (CDNS), Carter's, Inc. (CRI), Daqo New Energy Corp. (DQ), Keurig Dr. Pepper, Inc. (KDP), Nucor Corp. (NUE), Waste Management (WM)
• Tuesday (Oct. 28): American Tower Corp. (AMT), Booking Holdings, Inc. (BKNG), Corning, Inc. (GLW), Ecolab, Inc. (ECL), Electronic Arts (EA), Nextera Energy, Inc. (NEE), Seagate Technology Holdings PLC (STX), UnitedHealth Group, Inc. (UNH), United Parcel Service, Inc. (UPS), Visa (V)
• Wednesday (Oct. 29): Agnico Eagle Mines Ltd. (AEM), Alphabet, Inc. (GOOGL), Automatic Data Processing (ADP), Boeing Co. (BA), Caterpillar, Inc. (CAT), CVs Corp. (CVS), Meta Platforms, Inc. (META), Microsoft Corp. (MSFT), Starbucks (SBUX), ServiceNow, Inc. (NOW), Verizon Communications, Inc. (VZ)
• Thursday (Oct. 30): Amazon.com, Inc. (AMZN), Apple, Inc. (AAPL), Anheuser-Busch Inbev SA (BUD), Coinbase Global, Inc. (COIN), Comcast Corp. (CMCSA), Eli Lilly & Co. (LLY), Gilead Sciences, Inc. (GILD), Mastercard, Inc. (MA), Merck & Co., Inc. (MRK)
• Friday (Oct. 31): Abbvie Inc. (ABBV), AON PLC (AON), Canadian National Railway Co. (CNI), Chevron Corp. (CVX), Colgate-Palmolive Co. (CL), Dominion Energy, Inc. (D), Exxon Mobil Corp. (XOM), WW Grainger, Inc. (GWW)

Once again, economic data was restricted this week due to the continued government shutdown. However, investors did receive the monthly CPI report this morning, and futures moved higher on the data since all the primary metrics came in 0.1% below estimates. The S&P manufacturing and services data was also bullish for stocks as both came in above estimates and at multi-month highs. If there is a soft spot in the batch of data, consumer confidence fell to a five-month low and below estimates, driven by high prices and job concerns. Here's the breakdown from this week's reports:

• Consumer Price Index (CPI): Headline inflation increased 0.3% on a month-over-month (MoM) basis (below the +0.4% expected), bringing the year-over-year (YoY) inflation rate to +3.0% (0.1% below expectations).
• Core CPI: Core inflation increased 0.2% on a MoM basis (below the +0.3% expected), bringing the YoY inflation rate to +3.0% (0.1% below expectations).
• S&P Global US Services PMI: Rose to 55.2 in October from 54.2 in the prior month, and well above the 53.5 expected.
• S&P Global Manufacturing PMI: Rose to 52.2 in October from 52.0 in the prior month, and above the 52.0 expected.
• University of Michigan Consumer Sentiment: Declined to 53.6 in October from 55.1 in the prior month and below the 55.0 economists had expected.
• Existing Home Sales: 4.06M vs. 3.95M est.
• EIA Crude Oil Inventories: -0.961M barrels
• EIA Natural Gas Inventories: +87 bcf
• The Atlanta Fed's GDPNow "nowcast" for Q3 GDP is unchanged at +3.9% from last week.

Treasury yields are flat to slightly down across the curve this week as 10-year yields have traded on either side of the key 4.00% level. Compared to last Friday, two-year Treasury yields are up nearly two basis points (3.48% vs. 3.464%), 10-year yields slipped are essentially flat (3.997% vs. 4.001%) and 30-year yields are lower by ~2 basis points (4.585% vs. 4.603%).

Expectations around potential rate cuts from the Fed in 2025 eased slightly this week, but markets remain convinced that the Fed will deliver two cuts this year and at least two more next year. For reference, the Fed's dot plot from September penciled in two 25-basis-point cuts in 2025 and one more 25-basis-point cut in 2026.

Last Friday I cited the healthy consolidation in the S&P 500 (SPX) above its 50-day Simple Moving Average (SMA) and that both intermediate-term and near-term technicals are bullish as long as the index holds ground above this support level. This week not only did the SPX remain above this indicator but is trading at fresh all-time highs this morning, which is incrementally bullish. New all-time highs are bullish, but the bearish divergences in some momentum/trend indicators like the MACD and RSI are something to be aware of but not too concerning currently. The MACD is moving above the signal line today (the red line in the study window in the chart below), which is bullish, but the new all-time price high in the SPX is being met with a lower relative high in the MACD.

Technical translation: intermediate-term and near-term bullish

The Russell 2000 Index (RUT) is the only major not trading at a fresh high today, but it's only 1% away from that milestone. Given the 18% financial composition in the RUT, perhaps the recent regional bank credit issues created some choppy price action over the past couple of weeks. Regardless, the technicals appear to be the most tentative out of the majors, as evidenced by both the declining MACD and because the MACD remains below the signal line. If the Fed cuts rates next week and bond yields decline, perhaps this will help bolster more bullish price index in this rate-sensitive index.

Technical translation: near-term slightly bullish

Investment management firm VanEck filed for an exchange-traded fund (ETF) this week that provides exposure to staked ether. The ETF, called the VanEck Lido Staked Ethereum ETF would track the performance of stETH, which utilizes the Lido protocol. Lido is a liquid staking protocol for Ethereum that allows users to stake their ETH and receive stETH, which represents their staked ETH and earns rewards. As a liquid staking derivative, stETH can be traded, used as collateral or integrated into other DeFi applications. If approved, this ETF would give institutional investors a "compliance, tax-efficient way to gain Ethereum staking exposure," the Lido Ecosystem Foundation stated on Monday. It's worth pointing out that the government shutdown has put the review of crypto product proposals such as this one on pause.

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, stocks had an up week and market breadth expanded across the board as a result. On a week-over-week basis, the SPX (white line) breadth rose to 66.67% from 59.20%, the CCMP (blue line) increased to 53.21% vs. 49.88%, and the RTY (red line) advanced to 59.98% from 54.34%.

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 (128 today): CrowdStrike Holdings Inc. (CRWD + $8.55 to $530.53), General Motors Company (GM + $1.79 to $68.64), KLA-Tencor Corp. (KLAC + $28.65 to $1,187.65), Rio Tinto PLC (RIO - $0.27 to $70.35), Southwest Gas Corp. (SWX + $0.58 to $81.59), Tenet Healthcare Corp. (THC + $6.09 to $213.00)

This Week's Notable 52-week Lows (10 today): Charter Communications Inc. (CHTR + $2.88 to $246.80), Clorox Company (CLX + $0.88 to $117.22), Dolby Laboratories Inc. (DLB - $0.13 to $67.46), Kimberly-Clark Corp. (KMB - $0.31 to $118.45), Roper Industries Inc. (ROP - $0.96 to $479.00), Trex Company (TREX + $0.33 to $49.48)