"Losing is not my enemy … fear of losing is my enemy." ― Rafael Nadal

Good evening,

The week provided what Fundstrat Head of Research Tom Lee described as "whipsaw" action, consistent with his expectations for an "iffy" period for equities investors leading up to the election. Early on, investors worried over the possibility of escalating hostilities in the Middle East, as well as the path and potential impact of Hurricane Milton. As the week continued, some also eyed the impending release of inflation data warily. 

The September CPI print showed inflation falling on a YoY basis, but it nevertheless came in higher than expected. Although there was some choppiness to be seen in the market's reaction on Thursday, Lee said, "We think this report will have little effect on the Fed’s thinking on future cuts, and thus, we expect this to be not meaningful for stocks in the near term."

For Lee, the important thing to note about the latest CPI data is that the internals show inflation continuing to cool. Specifically – and as shown in our Chart of the Week, the percentage of CPI components in outright deflation continues to rise, coming in at a new high for this cycle of 44%.

"The CPI print didn't really structurally change the outlook for inflation risk," Head of Data Science Ken Xuan said during our weekly huddle. "And from what I can see in the FOMC minutes [which were released Wednesday], largely all of the participants saw inflation risk as diminishing, so the Fed has shifted back to its dual mandate." 

Lee agreed.  "The reality is that the Fed is focused more on the employment numbers, and the Fed is now dovish largely to support the economy," he told us. 

This week gave Head of Technical Strategy Mark Newton reasons to maintain a near-term constructive view. "One of the main short-term positives is that structure continues to be very bullish," he told us. "We just saw the S&P 500 close at new all-time highs, as did the Dow. To me, this is very constructive in the short run, by which I mean the next one or two weeks, and I think it's possible that next week we could see a pretty good push [for the S&P 500] up to near 5,835, or maybe even the area around 5,850."

Digging a little more deeply, Newton observed, "We've seen some noteworthy breakouts on a sector basis. Technology on an equal-weighted basis just hit the highest level since July, and Financials are breaking out just ahead of earnings season. We're seeing some triangle patterns that tend to be very constructive."

That's consistent with Lee's intermediate-term view. "We think investors should expect turbulence into Election Day, but the dips are buyable because there is too much cash on the sidelines. 

Elsewhere

The Department of Justice suggested that it might request a breakup of Alphabet after the company's Google search-engine business was found to be an illegal monopoly. In a court filing, prosecutors indicated that a breakup of the Mountain View-based giant is one of several potential remedies. Another option the DOJ is considering involves imposing limits on revenue-sharing arrangements with companies like Apple and Samsung. 

The Biden administration ordered all water utilities in the U.S. to replace lead pipes within the next 10 years, seeking to eliminate a drinking-water neurotoxin that is known to cause permanent harm to infants and children. The Environmental Protection Agency estimates that about 9 million service lines continue to use lead pipes to deliver water to homes and businesses, and that replacing them would cost between $20 billion and $30 billion. Concurrent with the new rule, the EPA announced $2.6 billion in federal funding to help pay for the effort.

Chinese hackers have reportedly compromised the wiretapping infrastructure of major U.S. telecommunications companies including Verizon, AT&T, and Lumen Technologies. Citing anonymous sources, the Wall Street Journal reported that for months, a group known as "Salt Typhoon" had illicit access to the surveillance systems that the telecom companies use to comply with authorized wiretapping requests related to criminal and national security investigations.

Negotiations between Boeing and striking machinists ground to a halt. The company withdrew its most recent offer of a 30% pay raise and walked away, saying further discussions "do not make sense at this point" even though the strike is costing Boeing an estimated $1 billion a month. Continuing the strike could result in Boeing's debt being downgraded to junk status and having major consequences for its suppliers as well.

Rio Tinto reached an agreement to acquire Arcadium Lithium, paying $6.7 billion to acquire the U.S. lithium producer. The acquisition, if completed, would make British/Australian Rio Tinto the third-largest lithium producer in the world, after Albemarle and SQM. 

Ratan Tata, one of the leading tycoons and philanthropists of this era, died at age 86. During his 21-year tenure as chairman and CEO of the Tata Group, the conglomerate made major acquisitions including Jaguar, Land Rover, and Air India, becoming a broadly diversified global powerhouse in the process. Tata received a state funeral in Mumbai on Thursday. 

Elon Musk unveiled the long-awaited Tesla Cybercab robotaxi, showing a concept two-seat vehicle with no steering wheels or pedals that he hopes to have in production by the end of 2026. Also unveiled at the event was the Robovan, a self-driving shuttle that can seat up to 20 passengers. As for the unsupervised Full Self Driving feature on which the Cybercab will rely, Musk said it  will be available in Tesla Model 3 and Model Y vehicles next year in Texas and California. 

TD Bank pleaded guilty to anti-money laundering (AML) violations and agreed to pay $3 billion in civil and criminal monetary penalties to settle the matter. The civil penalty constitutes the largest penalty against a bank in U.S. Treasury history. TD Bank CEO Bharat Masrani admitted to "serious failures of [the bank's] U.S AML program." The investigation was sparked after federal agents discovered that as much as $470 million of illicit proceeds from fentanyl sales had been laundered through TD Bank locations in New York and New Jersey.

Two of the three Nobel Prizes in STEM fields recognized the paradigm-shifting impact of AI, with current and former Google researchers represented. Dr. Geoffrey Hinton, the so-called "Godfather of AI," shared the Physics prize with John J. Hopfield, with the Nobel Committee honoring their work on neural networks and machine learning. The Chemistry Prize was shared by drs. David Baker, Demis Hassabis, and John M. Jumper, who were awarded for developing AI- and software-based methods to determine the three-dimensional shapes of proteins based on their chemical formulae, shortening the time needed for this task from months to hours.

And finally: The 2024 Nobel Peace Prize has been awarded to Nihon Hidankyo, an advocacy group started by survivors of the U.S. atomic bombings of Hiroshima and Nagasaki. The Nobel Committee recognized the importance of the group's work, noting that its members, "despite physical suffering and painful memories, have chosen to use their costly experience to cultivate hope and engagement for peace."