The S&P 500 is up +1.17% so far this week and down -0.9% for the month. Not bad. But the level of “apprehension” for equities has risen as the VIX now sits at 25, the highest levels since the tariff days of April to May 2025. So markets are worried.
- The driver for this concern appears to be “cracks” in US credit quality emerging in the past week:
– Early Oct: First Brands, an auto parts supplier, filed Ch. 11, with $6b missing and a hit to private credit
– Early Oct: Tricolor brands, an auto lender, loan losses trigger losses for JPM -0.64%
– 10/16: Zions ZION -1.11% fell -13% and Western Alliance WAL -1.31% -11% fell as both reported large losses in distressed commercial mortgages. - Equity markets are taking JPMorgan CEO, Jamie Dimon, seriously, when he says “there is never just one cockroach.” And this is why equity markets are nervous and the VIX has surged. Fortunately, high-yield markets are only showing “mild concern” as HY OaS (options-adjusted spread) sit at 352bp wider, which is up from August lows but not anywhere close to the 2025 tariff-highs at 500bp-plus.
- The VIX at 25 is showing “fear” and as we noted earlier this week, the spike in VIX on 10/10 (+32%) is historically associated with the “local low” — so despite these wobbles, we think the risk/reward in stocks remains positive.
- Are we concerned about credit? There are always going to be losses created and therefore credit events. And markets still have memories of Silicon Valley Bank in 2023 and the need for the Fed to intervene. So I can understand the “fire, ready, aim” reaction. That said, the muted reaction in high-yield markets gives me some comfort that fundamentals are not deteriorating in an adverse way.
- All the news has not been bad recently. The BLS (Bureau of Labor Statistics) announced that the September CPI report will be released on Oct 24th, Friday. This is an unusual step as the BLS is subject to the US govt shutdown. But it’s a good thing. The CPI report was supposed to be released this past Wednesday (Oct 15th). There are practical reasons for this as the US govt/Social Security Administration need to calculate the cost of living adjustment (COLA) for Sept for the subsequent year.
- Polymarket still places odds of 30-day plus shutdown at 81%. This is up from 76% just a few days ago and this figure is rising. This suggests that a shutdown will last past early November, at least. And our Head of Policy, Tom Block, notes that he sees little progress at the moment. And he has noted it is the extension of the Obamacare subsidies that matters for Democratic members of Congress. So we will see.
- Investors continue to show low conviction around equities, which I view as a contrarian positive. If conviction wavers easily, then this is a sign that sentiment is not ebullient:
– AAII net bulls fell to -12.7 this past week, a quick flip to solid bearishness
– the avg AAII net bulls in 2025 has been -11.7, a solid bearish reading all year
– the only times AAII net bulls avg’d double-digit negative for a full year:
1990: -13.0
2008: -11.1
2022: -21.5 - Notice that this bearish AAII avg sentiment lines up with major stock market decline years? Yet in 2025, the S&P 500 is up 13%. This is why this is the “most hated V-shaped rally”
- Keep in mind that only 22% of fund managers are beating their benchmark in 2025. This is the worst showing since before 2000. To me, this fuels upside into year-end:
– AAII sentiment is bearish = contrarian positive
– fund managers have to catch up with performance
– S&P 500 already up 13% YTD and likely up 5% in 4Q
– doesn’t this sound like a positive risk/reward? - Moreover, 3Q25 EPS season is underway and so far so good:
– Of 51 cos reporting so far
– 82% beating EPS consensus
– by 6.3% magnitude - 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 10.7 vs -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 12.8 vs 10.0e
– 10/16 Thu 10:00 AM ET: Oct NAHB Housing Market Index 37 vs 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 - As for next week, we will be receiving an important CPI release on Friday:
– 10/23 Thu 10:00 AM ET: Sep Existing Home Sales 4m
– 10/23 Thu 11:00 AM ET: Oct Kansas City Fed Manufacturing Survey
– 10/24 Fri 8:30 AM ET: Sep Core CPI MoM 0.30%e
– 10/24 Fri 9:45 AM ET: Oct P S&P Global Manufacturing PMI
– 10/24 Fri 9:45 AM ET: Oct P S&P Global Services PMI
– 10/24 Fri 10:00 AM ET: Oct F U. Mich. 1yr Inf Exp
– 10/24 Fri 10:00 AM ET: Sep New Home Sales 710ke - 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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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 SurveyTame10/15 8:30 AM ET: Oct Empire Manufacturing SurveyTame10/15 2:00 PM ET: Fed Releases Beige BookMixed10/16 8:30 AM ET: Oct Philly Fed Business OutlookTame10/16 8:30 AM ET: Sep Core PPI MoMDelayed due to Shutdown10/16 8:30 AM ET: Sep Retail SalesDelayed due to Shutdown10/16 10:00 AM ET: Oct NAHB Housing Market IndexTame- 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 8:30 AM ET: Sep Core CPI MoM
- 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:
