U.S. Futures & World Markets

US equity futures are mixed premarket, with Apple results weighing on sentiment. Fears of lower gross margins and the potential for AI agents to disintermediate parts of its business have the stock down 4% premarket. Elsewhere, tech stocks are trying to bounce this morning after semiconductor names got hit again yesterday.

Oil prices are up +2% after seeing their biggest one-day drop in six months on Monday. Positive headlines out of Qatar on a possible deal pushed crude lower, but the US struck targets on Qeshm Island overnight. I wouldn't want to be an oil trader in this tape.

Election Day is finally here, and thank goodness. I can't wait for the barrage of political commercials and spam texts to stop. See the first chart below for a cheat sheet from JPMorgan. Whatever your political persuasion, I wouldn't expect the election to immediately clear the air for markets. There will be plenty of headlines, spin, and uncertainty to work through before investors move on.

With all of the talk around Anthropic and its upcoming IPO, it was interesting to read a Bloomberg article saying investors are pushing for a lower valuation ($1.5 trillion vs. the previous estimate of $2 trillion). A choppy tape, concerns around AI spending, and data center pushback are all genuine concerns. But, bottom line, investors want to know the answer to one question: how fast can the company turn all of that AI capex spending into REAL profits?

S&P Futures vs. Fair Value: -7.00  |  10-Year Yield: 4.92%

CORE Headlines

Charts & Data

JPMorgan's midterm scenario cheat sheet (chart) via ZeroHedge.

Nominal GDP growth is currently solid at around 6%, while S&P 500 earnings growth has surged to nearly 40% YoY. A simple regression suggests the current pace of earnings growth is consistent with nominal GDP growth of 10%. Strong earnings and upside risks to GDP growth and employment imply interest rates will stay higher for longer, particularly combined with the ongoing fiscal challenges. Torsten Slok, Apollo.

If you take 2022 capex as a percent of revenue and apply it to hyperscaler operating cash flows, the average adjusted FCF would be 22.6% vs. 3.3% today. If the ROI from AI capex isn't there, they can turn off the tap and boost FCF over time. If the ROI is there, why would shareholders not want them to spend as much as possible today? @BoringBiz (a bullish look on hyperscalers).

NDX is closing below its 200-day moving average for the first time since March, with RSI at its most oversold since July and approaching the extremes seen during the March panic. A major trend line comes in right around these levels. The Market Ear.

SOX is closing decisively below its 200-day moving average for the first time since May 2025. The longer-term trend line is the last major support, but momentum remains awful. The Market Ear.

Goldman's risk indicator suffered one of its largest monthly declines in October, highlighting the extent of the risk-off shift. Still, we are not quite at contrarian buy levels. The Market Ear.

Our composite sentiment indicator is nearing capitulatory levels, but not quite there yet. Morgan Stanley via @wallstjesus.

CTA flows look negligible in a flat tape this week, but the one-month setup is anything but calm. Downside selling could reach a massive $164B in a falling market, while an upside move could trigger $120B in buying. Key thresholds: short-term 7,713, medium-term 7,544, long-term 7,082. The medium-term level is the most important. The Market Ear — probably the most important chart of the day.

Compared to other periods of financial stress in the last couple of years, equities have been much more resilient relative to HY credit spreads. Deutsche Bank via @gunjanjs.

While the institutional community has remained short VIX futures, we have seen aggressive covering the last couple of weeks, nearly rivaling what we saw in Q1. Lee Coppersmith, Goldman via Daily Chartbook.

These levels of net exposure have been associated with drawdowns of more than 20%. The S&P is barely 3% from its high. Hedge funds are already positioned for a bear market the index hasn't delivered, which is what makes it a contra signal. Brian Garrett, Goldman via Zero Hedge.

Morgan Stanley notes hedge funds have moved underweight AI for the first time since early 2023 following the largest sustained reduction in gross exposure on record. Morgan Stanley via @carlquintanilla.

The S&P 500 Equal Weight Index outpaced the S&P 500 Top 20 Index by approximately 9 percentage points in October, the widest monthly spread since April 2009 — a sharp broadening of market leadership beyond the largest constituents. Euan Smith, S&P Global via Daily Chartbook.

MegaCap Growth and Tech relative performance is back at the bottom of its long-run trend channel. It has rebounded sharply from this level five times since 2024. More downside is possible, but the risk-reward favors an overweight position. Deutsche Bank via @isabelnet_sa.

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This content does not constitute legal, tax, accounting, or other professional expert advice. Everything published is believed to be reliable, but its accuracy or completeness is not assured. Past performance does not indicate future results. The opinions expressed herein are subject to change without notice and are solely those of the author as of the date indicated.