Video: Markets were roiled by China headlines Tuesday, but we ultimately see this as noise. The bigger dynamic at play is the positive seasonals and the performance chasing, as many fund managers are trailing their benchmark.
Please click here to view our Macro Minute (duration: 4:34).
I am traveling in Latin America this week, meeting with institutional investors. The meetings have been insightful so far, and my overall takeaway is that investors are generally constructive but are keeping an eye out for signs of “froth.”
- Stocks were hit early on Tuesday due to China’s statement regarding trade, and in particular, their statement:
“”If you wish to fight, we shall fight to the end; if you wish to negotiate, our door remains open.” - This caused the VIX to spike to above last Friday’s highs. And raised concerns about a trade war heating up. But as we highlight below, this same statement was made in April 2025 and May 2025. So, this is not necessarily escalation of rhetoric. But President Trump made an escalatory statement on truthsocial.com noting that China is not buying soybeans and he threatened further action. This put more pressure on stocks.
- In our view, this is not thesis changing. And while we cannot predict the ultimate outcome, what is evident to me, is that equities tend to sell-off on fears of trade wars but eventually recover their footing. I believe this will be the case again.
- In the meantime, the underperformance of fund managers in 2025 is striking. Only 22% of managers are beating their benchmark, and as the Bloomberg.com article highlights, this is the worst performance in decades and pre-2000.
- Why are managers underperforming? It is not surprising to us — after all, this is why it is the “most-hated V-shaped rally” ever. Many managers were too cautious at the April lows. And many ignored our work showing waterfall declines lead to V-shaped bounces.
- Now the latest BofA Fund Manager survey shows that 33% of fund managers see an AI bubble. We think this is healthy skepticism. And given NVDA -1.20% forward P/E is only 27X, seems reasonable considering Costco COST -1.46% is 49X and Walmart WMT -0.60% is 35X. This is hardly bubble territory. And keep in mind, in 2000, Cisco CSCO -1.11% P/E peaked at 218X. Yup.
- Due to the shutdown, it looks like we won’t be seeing the scheduled inflation data this week, however this week marks the start of the 3Q25 earnings season with the banks starting reporting Tuesday Morning:
– 10/14 Tue: Start of 3Q25 Earnings Season
– 10/14 Tue 6:00 AM ET: Sep Small Business Optimism Survey 98.8 vs 100.6e
– 10/14 Tue 11:30 AM ET: Powell Speaks at NABE Event– 10/15 Wed 8:30 AM ET: Sep Core CPI MoM 0.32%eDelayed due to Shutdown (Now Oct 24th)
– 10/15 Wed 8:30 AM ET: Oct Empire Manufacturing Survey -1.8e
– 10/15 Wed 2:00 PM ET: Oct Fed Releases Beige Book– 10/16 Thu 8:30 AM ET: Sep Core PPI MoM 0.23%eDelayed due to Shutdown– 10/16 Thu 8:30 AM ET: Sep Retail Sales 0.4%eDelayed due to Shutdown
– 10/16 Thu 8:30 AM ET: Oct Philly Fed Business Outlook 10.0e
– 10/16 Thu 10:00 AM ET: Oct NAHB Housing Market Index 33e
– 10/17 Fri 9:00 AM ET: Oct M Manheim Used Vehicle Index– 10/17 Fri 4:00 PM ET: Aug Net TIC FlowsDelayed due to Shutdown - The spike in the VIX last Friday of 32% is often a sign of a local bottom. This 32% surge is the 39th largest ever. And the table below looking at precedent 1-day spikes >30%, shows that S&P 500 median gain 1 month later is 2.8%. This implies new all-time highs by mid-Nov.
- Seasonals remain favorable, and we see at least 5% upside into year-end which implies S&P 500 7,000. And this is arguably the base case, given that in 2025, the Fed only started cutting in September. This mirrors Sept 1998 and Sept 2024. In both instances, S&P 500 gained 13% in the 4th quarter.
BOTTOM LINE: Still “most hated rally”
This still remains the “most hated” V-shaped stock rally. As for what we would buy
- MAG7 & Bitcoin & Ethereum
- Industrials
- Financials: Large-cap and regional banks
- Small-caps
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50 SMID Granny Shot Ideas: We performed our quarterly rebalance on 8/17. Full stock list here -> Click here
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Key Incoming Data October:
10/1 9:45 AM ET: Sep F S&P Global Manufacturing PMITame10/1 10:00 AM ET: Sep ISM Manufacturing PMITame10/2 10:00 AM ET: Aug F Durable Goods Orders MoMDelayed due to Shutdown10/3 8:30 AM ET: Sep Non-farm PayrollsDelayed due to Shutdown10/3 9:45 AM ET: Sep F S&P Global Services PMITame10/3 10:00 AM ET: Sep ISM Services PMITame10/7 8:30 AM ET: Aug Trade BalanceDelayed due to Shutdown10/7 9:00 AM ET: Sep F Manheim Used Vehicle IndexTame10/7 11:00 AM ET: Sep NYFed 1yr Inf ExpTame10/8 2:00 PM ET: Sep FOMC Meeting MinutesMixed10/10 10:00 AM ET: Oct P U. Mich. 1yr Inf ExpTame10/14 6:00 AM ET: Sep Small Business Optimism SurveyTame- 10/15 8:30 AM ET: Sep Core CPI MoM
- 10/15 8:30 AM ET: Oct Empire Manufacturing Survey
- 10/15 2:00 PM ET: Fed Releases Beige Book
- 10/16 8:30 AM ET: Oct Philly Fed Business Outlook
- 10/16 8:30 AM ET: Sep Core PPI MoM
- 10/16 8:30 AM ET: Sep Retail Sales
- 10/16 10:00 AM ET: Oct NAHB Housing Market Index
- 10/17 9:00 AM ET: Oct M Manheim Used Vehicle Index
- 10/17 4:00 PM ET: Aug Net TIC Flows
- 10/23 8:30 AM ET: Sep Chicago Fed Nat Activity Index
- 10/23 10:00 AM ET: Sep Existing Home Sales
- 10/23 11:00 AM ET: Oct Kansas City Fed Manufacturing Survey
- 10/24 9:45 AM ET: Oct P S&P Global Services PMI
- 10/24 9:45 AM ET: Oct P S&P Global Manufacturing PMI
- 10/24 10:00 AM ET: Oct F U. Mich. 1yr Inf Exp
- 10/24 10:00 AM ET: Sep New Home Sales
- 10/27 8:30 AM ET: Sep P Durable Goods Orders MoM
- 10/27 10:30 AM ET: Oct Dallas Fed Manuf. Activity Survey
- 10/28 9:00 AM ET: Aug S&P CS home price 20-City MoM
- 10/28 10:00 AM ET: Oct Conference Board Consumer Confidence
- 10/28 10:00 AM ET: Oct Richmond Fed Manufacturing Survey
- 10/29 2:00 PM ET: Oct FOMC Decision
- 10/30 8:30 AM ET: 3Q A GDP QoQ
- 10/31 8:30 AM ET: 3Q ECI QoQ
- 10/31 8:30 AM ET: Sep Core PCE MoM
Economic Data Performance Tracker 2025:
Economic Data Performance Tracker 2024:
Economic Data Performance Tracker 2023:
