"The better I get to know men, the more I find myself loving dogs." ~Charles de Gaulle

Good evening,

This week was relatively light on macroeconomic data. That arguably gave room for earnings season and election news to more prominently influence the markets.

On earnings season thus far, Fundstrat Head of Data Science Ken Xuan had this to say at our weekly research huddle: "The large Tech names are still scheduled to report next week, but so far, I think earnings have been solid – just not as good as they have been in the last few years." As Xuan pointed out, thus far, the median earnings beat has been around 6%, a bit lower than the average beats we've seen in the past five years. 

As for the upcoming election, with traditional polling data increasingly being seen as unreliable due to the shift away from landline phones, many have turned to betting markets to gauge opinion. This week, those markets suggested a surge in the chances for Republicans – and not just GOP Presidential nominee Donald Trump. On Polymarket, the odds of a Republican sweep on November 5 – winning control of not just the White House, but also the House and Senate – rose to 48% (as of early Friday afternoon), up from 28% a week earlier. (Odds of a Democratic sweep were at 13%.)

To be sure, there are legitimate concerns about how reliably one can gauge broader public opinion through betting markets. In our weekly research huddles, Fundstrat Washington Policy Strategist Tom Block has suggested that the ability of non-Americans to participate in betting markets and the fact that bettors as a whole tend to be predominantly male mean that betting-market odds should be taken with a grain of salt. That's a view that Fundstrat Head of Research Tom Lee acknowledges. 

For investors, however, arguably the more meaningful use for betting-market odds is to examine how they affect the stock market. Lee and Fundstrat's Data Science team have found a correlation between Polymarket election betting-market probabilities and sector performance. Thus, as Lee put it, "Regardless of whether one believes the betting markets represent a true election signal, it seems like the betting market movements are impacting equity markets. So to me, it probably makes sense for investors to pay attention to them."

We see sector correlations to improving betting-market odds for former President Trump in our Chart of the Week:

To be clear, the Fundstrat team does not have a preference in the election: Both Lee and Head of Technical Strategy Mark Newton maintain a constructive intermediate- and long-term view of equities regardless of the election's outcome. 

Their nearer-term views are another matter. Of late, Lee has noted frequently that the eight weeks preceding a Presidential election can be tricky for investors, particularly when the race is tight, and he maintains this view, despite seeing the S&P 500 as resilient and the Federal Reserve as dovish. 

Newton is slightly more sanguine about the final weeks leading up to the election. Due to election-year seasonality, he views it as possible that "we could chop around and actually rally into the end of October or beginning of November before the election." Despite this, however, he, too, is cautious: "As I mentioned last week, there are reasons to suggest that markets can have a dip of between five and 7%, and I think that happens in the month of November." 

Much of that has to do with what he's been seeing in Tech:  "Technology just has not been acting that well. It's just under a little bit of pressure. If we look at Tech versus the S&P 500, so it's just really going sideways. It's not really a great sector right now." 

Still, his view for the rest of the year remains bullish. "In my view, the stock market could have its best year of the century. It's already up around 22% year to date, and I think that over the next six months, markets in general will be good – though I don't think it's going to be a nice  straight line."

Elsewhere

Arm Holdings initiated the cancellation of Qualcomm's chip-design licenses, escalating a dispute over royalty rates for its design architecture. The two are in the midst of a lawsuit over whether Qualcomm can continue to use Arm designs for processor cores based on licenses granted to Nuvia, a startup Qualcomm acquired in 2021. Arm contends that Qualcomm needs to negotiate a new licensing agreement. Many of the designs in Qualcomm's pipeline rely on Nuvia cores.

The owner and manager of the cargo ship that destroyed Baltimore's Francis Scott Key bridge agreed to pay $102 million to settle a negligence lawsuit brought by the Department of Justice. The settlement, to be paid by Grace Ocean Private Ltd. and manager Synergy Marine Group, covers the cleanup costs resulting from the disaster, but it does not cover damages for costs to rebuild the bridge. The respondents also face numerous civil lawsuits related to the incident, including by the families of six construction workers who died when the bridge was destroyed. A federal criminal investigation into the incident was ongoing as of this writing.

Former Abercrombie & Fitch CEO Mike Jeffries was arrested and charged with running an international sex trafficking and prostitution scheme while leading the clothing retailer. Also charged were Jeffries' partner Matthew Smith and their employee, James Jacobson. Prosecutors described an alleged scheme in which young men were lured by the possibility of modeling jobs, trafficked to locations around the world, including Manhattan and the Hamptons, and forced or coerced into having sex with Jeffries and Smith.  Abercrombie, which Jeffries ran from 1992 to 2014, denied knowing about the alleged misconduct. 

The World Bank and the Inter-American Development Bank agreed to an $8.8 billion financing package for Argentina, tacit approval for austerity measures pushed through by Argentine President Javier Milei. Milei's policies have been controversial – they led to the country's first primary budget surplus in 16 years and helped to tame the country's runaway inflation, but also caused a recession and propelled the country's poverty rate to nearly 53%.

A food-poisoning outbreak at McDonald's has sparked a wider withdrawal of onions from menu items at other fast-food chains. The E. coli outbreak, theorized to have been caused by slices of raw onions in McDonald's Quarter Pounders, has sickened at least 75 people in 10 states, causing 10 to be hospitalized and killing one. In response, Yum Brands' Taco Bell, Pizza Hut, and KFC restaurants have voluntarily removed fresh onions in locations in the states where the outbreak occurred. The contaminated onions are believed to have come from the produce giant Taylor Farms. The FDA and CDC have initiated probes of the outbreak, which has also caused McDonald's stock price to plummet.

The Consumer Financial Protection Bureau finalized "open banking" rules that it says will make it easier for customers to more easily share their personal banking information to third-party providers of financial products such as loans, credit cards, and bank accounts, thus stimulating competition and lowering prices for consumers. The Bank Policy Institute, a lobbying group for the banking industry, pledged to challenge the rule, arguing that the rule would put customers' data at risk of being compromised.

And finally: Archaeologists have discovered the ruins of two lost medieval cities that were part of the fabled Silk Road. The cities, Tugunbulak and Tashbulak,  were found in the highlands of eastern Uzbekistan, surprising researchers who had long believed that the Silk Road primarily connected lowland cities. Kilns found at the sites suggest that residents might have settled in the high elevations to exploit the strong winds that could fuel fires hot enough to smelt iron ore.