This Week

Last week brought some of the widest trading ranges and sharpest intraday volatility since the initial tariff tantrum back in April. The end result: stocks actually finished higher on the week, recovering much of the prior Friday’s sudden sell-off.

This kind of elevated volatility leaves the market in a precarious spot, vulnerable to another round of de-risking if headlines around regional banks, tariffs, inflation, growth, or most importantly earnings take a negative turn. At the same time, that quick burst of volatility can also serve as fuel for a breakout, especially if traders who sold into weakness start feeling FOMO on a multi-day bounce.

We’ll likely get some clarity early this week. For now, stocks appear stable heading into Monday, with S&P futures up about +0.2%. More on the week ahead in a moment, but first, a quick roundup of the weekend’s news.

• Stock futures rise ahead of big earnings week (CNBC)

  • This week, several large companies are expected to report quarterly results. Netflix , Coca-Cola , Tesla and Intel are among the names on deck. The September consumer price index is also set for release on Friday and is expected to show inflation remains hot.

• ‘The tide went out’: How a string of bad loans has bank investors hunting for hidden risks (CNBC)

  • Big banks including JPMorgan Chase and Goldman Sachs had just finished taking victory laps after a blockbuster quarter when concerns emerged from an obscure corner of Wall Street, sending a collective shiver through global finance. Regional bank Zions late Wednesday disclosed a near total wipeout on $60 million in loans after finding “apparent misrepresentations” from the borrowers. The next day, peer Western Alliance said that it had sued the same borrower, a commercial real estate firm called the Cantor Group, for alleged fraud. The result was a sudden and deep selloff among regional banks, drawing comparisons to the churn of the 2023 banking crisis that consumed Silicon Valley Bank and First Republic. This time around, investors are focused on a specific type of lending made by banks to non-depository financial institutions, or NDFIs, as the source of possible contagion.

• OpenAI would have to spend over $1 trillion to deliver its promised computing power. It may not have the cash. (Yahoo Finance)

  • OpenAI would have to spend more than $1 trillion within the next five years to deliver the massive amount of computing power it has promised to deploy through partnerships with chipmakers Nvidia (NVDA), Broadcom (AVGO), and Advanced Micro Devices (AMD), according to Citi analysts. OpenAI's latest deals with the three companies include an ambitious promise to deliver 26 gigawatts worth of computing capacity using their chips, which is nearly the amount of power required to provide electricity to the entire state of New York during peak summer demand.

• JPMorgan: 30 AI stocks driving $180 billion in consumer spending (Axios)

  • The rip-roaring performance of just 30 AI-linked stocks may be driving nearly $200 billion in annual consumer spending, according to a new report from JPMorgan economists. The overall economy has become increasingly dependent on AI-driven growth, most notably through investment in data centers and software. But the "wealth effect," in which higher asset prices make consumers more willing to spend money, is part of the story as well. Consumer spending has remained solid this year despite a weakening job market — and the impact of of surging AI-related stocks on Americans' behavior is a significant factor, at least among those households that own stocks. It is one more way that the overall economy could prove vulnerable if AI investment — and the stocks that are benefiting — experience a correction.

• First Ford, Now Jeep. Automakers Are Hit by Lack of Parts (WSJ)

  • Assembly lines inside a Michigan factory that churns out high-end Jeep SUVs ground to a halt last week and won’t resume production until early next month. The cause, according to an official for the United Auto Workers, is a shortage of aluminum.

    Ford has paused production at three plants for the same reason. Between the two automakers, thousands of workers in Michigan and Kentucky are now collecting unemployment.

• Blackstone says Wall Street is complacent about AI disruption (FT)

  • Jonathan Gray said that understanding AI risks has become a priority for the private capital group when assessing investments, with the technology already upending business models and causing job losses. “We’ve told our credit and equity teams: address AI on the first pages of your investment memos,” said Gray at the Financial Times Private Capital Summit in London this week. “People say, ‘This smells like a bubble,’” but they’re not asking: ‘What about legacy businesses that could be massively disrupted?’” said Gray.

• As Anthropic tries to keep pace with OpenAI, it’s also taking on the U.S. government (CNBC)

  • Artificial intelligence startup Anthropic is doing all it can to keep pace with larger rival OpenAI, which is spending money at a historic pace with backing from Microsoft and Nvidia . Of late, Anthropic has been facing an equally daunting antagonist: the U.S. government. David Sacks, the venture capitalist serving as President Donald Trump’s AI and crypto czar, has been publicly criticizing Anthropic for what he’s called a campaign by the company to support “the Left’s vision of AI regulation.” OpenAI, meanwhile, has established itself as a partner to the White House since the very beginning of the second Trump administration.

Last week’s recovery has subdued short duration implied volatility, but it still remains relatively elevated. For comparison sake, this week’s SPX expected move is 1.7%, while last week’s was 2.4%. This week’s remains substantially higher from the string of 1.1% weekly expected moves before the past week’s sudden uptick.

This Week’s Expected Moves:

• SPX/SPY: 1.7%

  • QQQ: 2.2%

  • IWM: 2.6%

  • TLT: 1.2%

  • USO: 3.2%

As for the week ahead, some missing data from the government shutdown but we will get a delayed look at the September CPI number. Volatility is already elevated so we may not see it increase into Friday’s number (which would be more likely in a low IV environment) but that morning does have the possibility of being a market mover should the number surprise:

Economic Calendar: 

• Monday

• Tuesday

  • 7am - ECB Lagarde speech

• Wednesday

  • 8:30am - ECB Lagarde Speech

• Thursday

  • Unlikely: Initial Jobless Claims

  • 10am - Existing Home Sales

• Friday

  • 8:30am: CPI

  • 9:45am: S&P Global PMI

  • 10am: UoM Consumer Sentiment

We’re solidly into earnings season and this week is highlighted by Netflix and Tesla, but we also have a slew of reports across many sectors including Coca Cola, GM, IBM, Intel, Newmont Mining. It will be a busy all week pre and postmarket:

Earnings (with expected moves):

• Monday

  • Pre-market: CLF 9.5%

  • After-hours: ZION 12.6%

• Tuesday

  • Pre-market: GM 6.1%, GE 6%, KO 2.8%, LMT 4.6%

  • After-hours: NFLX 7.4%, TXN 6.8%, ISRG 7.4%, COF 5.9%

• Wednesday

  • Pre-market: T 4.1%

  • After-hours: TSLA 7.3%, IBM 6.8%, LRCX 7.1%

• Thursday

  • Pre-market: AAL 6.9%, FCX 5.2%, HON 3.8%, LUV 7.6%, TMUS 4.5%, AN 9.6%

  • After-hours: INTC 11.2%, NEM 6.7%, F 5.7%

• Friday

  • Pre-market: PG 3.2%

One last note: Because there was so much macro/financial news moving markets last week, some of the earnings moves were sort of hidden amid overall market volatility. This week may be different where this sudden pop of implied volatility clears the way for some more idiosyncratic single stock moves. This week has several sectors that will get a health check, including ZION, which was at the center of the news last week, as well as automakers, story stocks like Intel. Should be interesting.

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