Inside Markets

There’s never a shortage of risk factors and next week’s Trump-Xi meeting is the near-term wildcard where we see risk/reward skewed to the downside.

Last week’s uptick in volatility and this week’s rotation out of momentum stocks have made the near-term equity backdrop more challenging.

The rotation out of the momentum factor and AI themes picked up yesterday on reports that ChatGPT’s VP for Science misrepresented the model’s capabilities in solving complex math problems.

Oracle’s pullback following last week’s analyst meeting could signal market doubt around AI capex ROI or the usual profit taking/de-risking that occurs before a known catalyst (Friday’s CPI report).

The SPX may be nearing the end of the consolidation phase we flagged on October 7.

Maybe it goes without saying that this is an extremely dynamic market environment with tail risk on both sides of the distribution.

Long equity positioning across discretionary investor groups is just slightly above neutral, while positioning in the systematic community (CTAs/vol-targeting) looks nearly full.

Our bullish fundamental outlook requires more US macro resilience, positive Q3 earnings growth and trade war de-escalation.

A building backlog of government data could present a potential near-term risk for equity markets as the shutdown-induced calm could abruptly end once the data is released.

The SPX has extended into technical resistance in the 6725-6805 zone ahead of Q3 earnings season.