MARKET WRAP

Stocks finished red across the board today with another failed morning rally. Concerns of regional bank loan exposure are the latest worries. We’re still just -2% from recent highs, but with a VIX now 25, gold surging, and yields falling, it’s starting to feel like more than that. On the day: SPX -0.6%, QQQ -0.4% and IWM -2.1%.

As mentioned, Gold continued its surge with another new high, the US10YY is now below 4%, and the VIX spiked to 25.27. All signs of some growing unease beneath the surface. The dollar was lower. Notably, BTC was lower again, now 108k and has never recovered from Friday’s rout.

Tomorrow is monthly option expiry and the first one in some time that has a short gamma backdrop, which could exacerbate moves tomorrow. More below.

Notable Gainers: JBHT +21%, MU +5%, WDC +4.9%, ON +4.5%, NEM +4.3%, PG +1.5%, SBUX +1.8%

Notable Losers: KVUE -12.5%, FFIV -10.5%, HPE +9.7%, UAL+7%, CFG -6.9%, FITB -6.4%, COF -6.3%, KKR -6.2%, MSTR -5.5%, JPM -2.5%, AXP -2.8%

After hours: IBKR is up about +1% on earnings, CSX is higher by about +3%.

• MRKT Call: Liz, Guy, and Dan discuss the current wave of risk-taking and speculation in equities and how Friday’s sell-off may have tested that. They cover Bitcoin’s lack of a bounce and potential leverage issues, gold’s parabolic move higher, the sudden fears about regional banks, and wrap up with a look at the circular funding fueling AI, and what truly defines a bubble.

MRKT MATRIX: TODAY’S TOP STORIES

• Stocks fall as fears about bad loans in banking industry grow (CNBC)

• Regional banks, Jefferies shares tank as concerns about sour loans grow on Wall Street (CNBC)

• Oil Prices Drop to the Lowest Level in Nearly Five Years (WSJ)

• Retail traders’ incredible support of the stock market continues with biggest options volume day ever (CNBC)

• Tariff costs to companies this year to hit $1.2 trillion, with consumers taking most of the hit, S&P says (CNBC)

• Credit-Card Data Show Softer US Retail Sales as Shutdown Delays Report (Bloomberg)

• Private Credit on the Defensive Again Over ‘Mark-to-Myth’ Study (Bloomberg)

• OpenAI Says Oracle Helping Handle Chip Export Controls (Bloomberg)

• Why Cloud Profits Are Collapsing in the Chip Arms Race (The Information)

• AI Data Centers, Desperate for Electricity, Are Building Their Own Power Plants (WSJ)

WHAT’S NEXT?

The biggest story today was the weakness in regional bank shares, where chatter about bad loans are spreading to other names in the group (see Jamie Dimon’s cockroaches remark). There’s nothing the market hates more than banking worries, and that fear likely explains today’s jump in volatility despite the fact that equities are still only about -2% off their highs. Tomorrow’s option expiry is adding to that mix.

The mix of rising volatility, falling yields, some other things like Gold’s surge are indicators of some unease after months of complacency. Some of the most speculative corners of the market, including small caps, mid caps, and crypto-related names, were hit hardest today, showing how fragile those sorts of speculative trades are when the narrative shifts, even slightly.

We don’t know how this will play out yet. If the regional bank story proves fleeting, this kind of short-term volatility could serve as catapult fuel for the next leg higher, as short covering and re-risking kick in. But if these concerns persist and investors start protecting gains into year-end, implied volatility could climb even further, which only opens up the market for wilder swings (that tbh we haven’t really seen since Friday) and perhaps the first meaningful test of “buy-the-dip” since the Spring. Either way, the market’s tone has clearly changed — from cruise control into navigating a government shutdown, lack of official data, a renewed trade war, and now some concerns about smaller banks. We’ll see now if the AI trade can power upcoming mega-cap earnings and save the day.

For tomorrow, a 1% expected move, one of the widest potential ranges we’ve seen priced in months. It’s also monthly options expiry, with notable short gamma conditions. Those conditions could create some non sensical moves intraday, but also puts the entire market at a risk of an overall outsized move.

• Friday, October 17th

  • Pre-market: ALLY 6.8%, SLB 4%, AXP 3.6%

  • 9:45am - Industrial Production

  • Fed Speak - Musalem

  • Options Expiration

1 Day Expected Moves: SPX: 1%, QQQ 1.2%, IWM 1.4%

TODAY’S EPISODES

Watch MRKT Call’s newest episode: Why Would Anybody Sell Gold Yet?

Liz, Guy, and Dan discuss the current wave of risk-taking and speculation in equities and how Friday’s sell-off may have tested that. They cover Bitcoin’s lack of a bounce and potential leverage issues, gold’s parabolic move higher, the sudden fears about regional banks, and wrap up with a look at the circular funding fueling AI, and what truly defines a bubble.

Analysis - SPX, BTC, GLD, ETH, MSTR, KRE, NVDA, ORCL

SoFi Weekly Report - Gold’s historical correlations with equities, interest rates, copper, and more. 

Learn more about our sponsor, SoFi.

A MESSAGE FROM OUR PARTNER

Subscribe to the RiskReversal YouTube Channel and drop a comment/like to show your support

Want to check out past podcast episodes? Go to wherever you get your podcasts and type in “RiskReversal Media”

We want to hear your feedback! Reply to this email with any comments or questions