To The Moon

• The $.SPX(.SPX)$ and $.IXIC(.IXIC)$ returned 1.13% and 1.19%, respectively, last week.

• Major market movers include $NVIDIA Corp(NVDA)$ (+7.91%), $Eli Lilly(LLY)$ (+5.06%), $JPMorgan Chase(JPM)$ (+5.24%), $Uber(UBER)$ (+16.24%), $Wells Fargo(WFC)$ (+7.08%), $Tesla Motors(TSLA)$ (-12.91%), $Alphabet(GOOG)$ (-2.29%), $Meta Platforms, Inc.(META)$ (-1.01%), $Constellation Energy Corp(CEG)$ (-6.76%), and $Vistra Energy Corp.(VST)$ (-9.48%).

• Key economic data this week includes Retail Sales and Unemployment Claims on Thursday.

• Important earnings announcements this week:

Tuesday: $Citigroup(C)$ $Bank of America(BAC)$ $Charles Schwab(SCHW)$ , $Goldman Sachs(GS)$ , $UnitedHealth(UNH)$ and $Johnson & Johnson(JNJ)$

Wednesday: $ASML Holding NV(ASML)$ , $Morgan Stanley(MS)$ , $Abbott Laboratories(ABT)$

Thursday: $Taiwan Semiconductor Manufacturing(TSM)$ , $Netflix(NFLX)$ , $Intuitive Surgical(ISRG)$

Friday: $American Express(AXP)$

Things You Should Know Before Starting Your Week:

1) The $Cboe Volatility Index(VIX)$ is rising alongside the S&P 500, indicating a potential correction ahead.

• The VIX is currently trading at 20.46, compared to a year-to-date average of 15.17.

• Oftentimes, the VIX has a negative correlation with the S&P 500. Therefore, the rising VIX may signal trouble ahead for the S&P 500, which is trading at its all-time high.

• The VIX futures curve is inverted again and has remained inverted for most of September and October thus far, indicating that the S&P 500 is pricing in higher near-term fear.

Source: Bloomberg, Tiger Brokers, 14 Oct 2024

2) The Prospect of a Divided Government Is Driving the Equity Market Higher

• Trump currently has better odds of winning the US presidential election. According to bookmaker PredictIt, Trump shares are priced at 54 cents, while Harris shares are at 49 cents.

• Despite the tight race, investors are anticipating a split Congress—where the House of Representatives and the Senate are controlled by different political parties—or a divided government, in which one party holds the presidency while the other controls at least one chamber of Congress.

• Current odds suggest Republicans are likely to gain control of the Senate, while Democrats have a greater chance of retaking the House.

• Consequently, regardless of the US presidential election outcome, extreme policies that could disrupt the business cycle are less likely to be enacted due to a potential split congress. As a result, investors expect the stock market to rise following the election.

Source: Bloomberg, 14 Oct 2024

3) Technology Sector Continues to Drive $.SPX(.SPX)$ Higher:

• The S&P 500 has risen 3.1% since September, with the technology sector accounting for 46% of this gain. The technology sector has risen for five consecutive weeks.

• Investors have flocked back to AI-related stocks, viewing generative AI as a long-term transformative trend.

• $ASML Holding NV(ASML)$ and $Taiwan Semiconductor Manufacturing(TSM)$ are scheduled to release earnings on Wednesday and Thursday, respectively, and their results can serve as a bellwether for the semiconductor industry. The technology sector may see further gains if both companies exceed their Q3 2024 expectations and provide better-than-expected earnings guidance.

Conclusion:

• Israeli retaliation against Iran, election uncertainties, negative earnings surprises, and the historically weak performance of October could destabilize the stock market. Therefore, I believe bears are not ready to abandon their pessimistic outlook just yet.

• In summary, I remain short term bearish primarily due to  bad October seasonality, but I anticipate a rally beginning in November.

• I continue to favor AI beneficiaries, such as the Magnificent Seven, along with semiconductor stocks like Broadcom $Broadcom(AVGO)$ , ASML $ASML Holding NV(ASML)$ , ARM $ARM Holdings Ltd(ARM)$ , TSMC $Taiwan Semiconductor Manufacturing(TSM)$ , Oracle $Oracle(ORCL)$ , and AMD.