Going to just bullet-point some thoughts this morning:
It’s extraordinarily odd, and maybe telling, that DJT’s pre-election closing speech was on the Reflecting Pool and his first post-election presser was at the ballroom. Yesterday, he blamed the market for the Democratic wave results and the selloff. I’m not sure he cares about more than his legacy right now
I’m worried about Iran. The President took a huge loss in the elections, and I cannot see him taking another in Iran. A deal, as things stand, leaving Iran with enormous leverage in the regime would be seen broadly as a loss. My spidey-sense is tingling here. Do we see a massive bombing campaign- including civilian infrastructure- followed by a victory lap and walking away from the region? Bibi is wounded and will be pushing for this as well.
Were I a conspiracy theorist, I would wonder if there was some ‘political’ motivation to this massive sell pressure.
I understand the concerns about data centers, but rejecting them writ large would be the ultimate ‘own goal’. I am not sure why the market doesn’t understand that this isn't an all-or-nothing situation. I get the whole “Bernie is back’ hoopla, but more moderates were elected than progressives, and 260 seats give Jeffries enormous latitude. I think this will be seen to be peak Bernie.
A friend of mine said to me yesterday, ‘its amazing how many people who hate Trump were heavily invested in all the trump names’. Anecdotal, sure, but it tickled a memory. Back before the scam was revealed, lots of sober, insightful, cautious investors threw themselves at the feet of Bernie Madoff hoping to be ‘allowed’ to give him money. His returns were not replicable, and NO ONE ( ok, maybe Druck) gets 15-20% returns every year. But they wanted to be ‘on the inside’ of whatever was going on. Lo and behold, they were the targets. Feels like- aside from the AI mania- the continued outperformance of names and sectors in which the President and his family showed interest or invested in may have led to too many people ‘following the money’. Now we’re seeing the flip side of that trade. Just sayin’
MY READ
Thursday’s price on the chips was set by machines and margin clerks, and Tuesday’s ballots handed them the story. That’s my main argument this morning. The permitting risk is real (I spent yesterday on it), but it lives in the buildings and the power, and Thursday marked it hardest in the silicon, the most liquid thing in the chain to sell.
Count the forced sellers first.
Nomura’s Charlie McElligott estimates leveraged ETFs had to sell about $47 billion into the close, a 0th percentile day in a sample back to 2006. The only bigger one was 5 June this year at $51.3 billion. Semis were $20.5 billion of it and tech $17.3 billion; Morgan Stanley’s desk has $52 billion.
Tier1Alpha puts vol-control deleveraging at about $68 billion, the largest one-day requirement since last October, and their systematic positioning z-score fell to about minus 0.65 from plus 0.2 in a week. Their point is that CTAs and vol-control funds are now selling at the same time, and that version doesn’t end in a day.
Vanda clocked $390 million of retail net selling in single names in the first two hours, the largest at a US open in data back to 2012. Retail is a net buyer on large down days about 90% of the time. Not Thursday.
The 2x single-stock funds on SanDisk, AMD, Micron, Western Digital, Marvell, Vertiv, IREN and Nebius fell between 23% and 41% in a session. Those products rebalance at the close whatever the price.
The options market says the same thing. Mag7 three-month put skew sits at the 88th percentile and call skew at the 11th, and one-month 25-delta skew spiked to about 0.50 of at-the-money, level with the early-2026 peak (Tier1Alpha). One-month realized volatility on the S&P is 18.8, the 95th percentile, against 13.2 on three months, so the vol-control models keep selling if the next few sessions stay wide. And the dispersion trade has run to its edge: over the past month the S&P moved 1.1% while the average member moved 13.2%, a 12.1-point gap at the 100th percentile of 30 years (Nomura).
So how much repriced on fundamentals? Less than the tape implies. Semis traded at 13.8 times forward earnings against 18.3 for the S&P on 3 November, a 0.75 ratio and the widest discount since 2018 (Citadel Securities). They’ve fallen another 12% since. IREN told investors ‘demand for compute hasn’t slowed’ and blamed its slip into January on suppliers late with equipment; my friend Peter Boockvar has heard the same from people building these sites. Lam Research answered Thursday with a $25 billion buyback. AppLovin rose 31% on revenue above its own guidance. I don’t see an order book being canceled in any of that.
The permit discount, meanwhile, hasn’t reached the assets that need a permit. Equinix fell 5.38% against 12.25% on the semiconductor index. Dominion, with the biggest data center interconnection queue in the country, closed flat at a one-month high. A county hearing can’t cancel a memory order already placed; it can delay a building and the megawatts behind it. Thursday priced that backwards, and I think the gap closes from both ends over the next month, with the chips higher and the landlords and regulated pipelines lower.
Rates are the second leg, and they worry me more than the chips.
The 10-year fell 6bp on a day the S&P lost about $3 trillion, while the 2-year fell 12bp. Duration didn’t hedge; the front end repriced the Fed.
December hike odds dropped to about 70% from 83%. Peter now says they don’t hike in December at all and that peak AI capital spending lands in 2027. I lean his way on the direction and I’m not ready to bet the date.
The Bank of England hiked to 4% with Mann dissenting for more, and Cleveland’s Hammack and Richmond’s Barkin both pointed at further increases here. Three central banks tightening into a semiconductor drawdown is the reverse of how 2018 and 2022 ended.
Options price about a 1.5% index move on today’s print. A 0.4% hourly earnings number with payrolls over 100,000 puts December back in the price and takes this morning’s bounce with it.
Credit is the third leg, and it has names on it. High yield printed 332bp for 4 November, and HYG fell only 0.31% on Thursday with investment grade funds higher, so the index hasn’t voted. Two single names have. SoftBank’s five-year protection widened as far as 466bp, the widest since October 2022, with the stock down about half since early September (Reuters); it owns about 90% of Arm and funded a $64.6 billion OpenAI stake with debt at record yields. CoreWeave’s five-year printed a record 1,267.9bp. That’s the road from a multiple event to a funding event, and Tokyo tonight tells me whether SoftBank’s selling is finished.
Oil is the fourth piece and the one I’d least like to be short. Brent came back to about $99 on Thursday after Wednesday’s 8.7% collapse, with no concession from Tehran and another tanker hit north of Qatar. US distillate stocks fell 3.6 million barrels to 99.3 million, the lowest since May 2003 and down 25% since January. My friend Paulo notes that Brent’s one-to-two-month spreads rallied all the way back to where they traded when the January contract sat at $110 to $115, while the flat price is still about $10 lower. He bought more crude upside. The other side is real too: Iran is reviewing Qatari nuclear proposals with Vance as the main backer (NYT), and Aramco reportedly cut its December Arab Light price to Asia to a six-year-low discount. Two-sided, and the physical side is tighter than the screen.
THE CASE AGAINST.
The strongest argument against me is that nothing about Thursday looked finished.
The Russell 2000 fell 4.45% and closed 77.66 points under its 200-day average. Small caps own no data center chain. A forced seller sells whatever has a bid, yes, but a growth scare sells small caps first, and that explanation is simpler.
Paulo points out that the NYSE TICK barely broke minus 1,300 (true fear days print minus 1,600 or worse), and the ratio of deep out-of-the-money put volatility to near call volatility hasn’t collapsed the way it does at capitulation lows. Orderly selling with no index-level puke usually means the puke is still ahead.
Vol control has only begun. On his chart it is nowhere near March, never mind Liberation Day.
The buyers are trapped. BofA’s EPFR data show a record $265.6 billion into global equities over the four weeks to 4 November, and $140.4 billion into money market funds in the latest week, the seventh largest on record. Michael Hartnett stays risk-off until hikes end, the 10-year breaks 4.5% and oil breaks $80. None of the three is close.
If peak capital spending arrives in 2027, 13.8 times is a multiple on estimates about to come down, and the discount to the S&P shrinks without the price moving.
What separates the two readings shows up this week:
If the semiconductor index closes back over Wednesday’s 10,268.65 inside five sessions with high yield inside 340bp, Thursday was a flush.
If it closes under 8,500 with the VIX over 30, or SoftBank protection goes through 500bp, the machines were early and the fundamentals are catching up.
I’d put it 60/40 my way on the chips and closer to a coin flip on the index, because the index has the Fed in it.
WHAT MATTERS TODAY
8:30, October payrolls. Consensus runs 55,000 to 65,000 depending on the survey, against 29,000 in September, with unemployment at 4.2% and hourly earnings at 0.3%. I care about wages more than the count. Over 100,000 with 0.4% earnings and the 2-year goes back over 4.58%. Under 25,000 and the front-end rally becomes a growth forecast, with the 2-year through 4.43%.
Before the open, Vistra, Humana, Moderna, Charter, Enbridge, Brookfield Asset Management, Franklin Resources and Starwood Property Trust. Vistra is the cleanest live test of the permit argument: if management holds its data center language after Tuesday, the buildings get their discount on a delay and not a cancellation. Humana prints into a Democratic Congress that wants the exchange subsidies back. Starwood’s distributable earnings against its $0.48 dividend says whether Blackstone Mortgage’s 36% cut was an office problem or a sector problem.
10:00, preliminary Michigan sentiment, expected near 47.5 against 48.0, with one-year inflation expectations last at 4.7%.
12:15, Bowman. 1:00, Baker Hughes, oil rigs against 462. 3:00, September consumer credit, $12.0 billion expected against $8.28 billion.
Inside the session, the 5 November high yield print. Tonight, Tokyo and Seoul, for whether SoftBank and SK hynix found a buyer.
THE REST OF THE TAPE.
The President on Truth Social: ‘Your 401(k)s have, therefore, dropped. Remember, it wasn’t Republicans, it was Dumocrats’ (Bloomberg). A man who used the index as his scorecard for two years now wants credit for the denominator. Oh yay.
Trump met Kremlin envoy Kirill Dmitriev at the White House, without Ukraine in the room, and promised a ‘big, beautiful agreement’ that ‘might involve all of Europe’ (Washington Post). US, Russian and Ukrainian officials meet in Abu Dhabi on 10 and 11 November.
Oman and Iran discussed a joint mechanism for the strait; UKMTO confirmed a tanker hit by two projectiles about 50 nautical miles north of Qatar, while IRGC claims of more mine strikes remain unverified.
Nate Cohn has Democrats winning the House popular vote by about 13 points, the widest margin since 1974 and 1976 (NYT). The House majority is past 250 seats.
Elizabeth Warren is expected to chair Senate Banking. Stifel’s Brian Gardner expects investigations of crypto firms, big banks and private equity, and calls the Clarity Act dead for the lame duck.
Rubio is weighing leaving the administration (Bloomberg), and a vote to impeach Hegseth could come as soon as next week.
Teleperformance fell 17% in Paris after cutting revenue guidance on weak trust-and-safety work. That’s the cleanest datapoint I’ve seen this month on where AI removes revenue, and it got buried in a payrolls week.
Banxico surprised with a 25bp cut to 6.25% on a 3 to 2 vote, the same day the BoE hiked.
European implied volatility rose 3.6 points Thursday while the VIX fell 1.3 (Makor). European semis were the only green group, led by ASML, Aixtron and BESI.
MOVERS THAT MATTER
LAM RESEARCH. Up about 6% after hours on a $25 billion buyback after falling 16.4% in the session. A board doesn’t authorize that size into a demand cliff. Equipment is where I’d want the squeeze, ahead of memory, which needs the fundamental repair first.
ATLASSIAN. Down about 16% after its quarter. Software carries no permit exposure and fell anyway, so some of Thursday was the discount rate. If chips rally today and software doesn’t, I’d give the rate path half the credit for the week.
AIRBNB. Up about 11% before the bell on a raised outlook and a $12 billion buyback, with North American nights growing at the fastest pace in four years. The high-end traveler is fine; Shake Shack said Thursday its lower-income guests are still under pressure.
DRAFTKINGS. Down about 22% on a 2027 adjusted EBITDA guide of $175 million to $275 million, with prediction markets eating the spend.
Behind the wall this morning:
FLOWS AND POSITIONING: how much systematic selling is still owed, why an up day doesn’t stop the vol-control models, and what a dispersion unwind does to the VIX.
WHO’S LEFT TO SELL: the October hedge fund damage, who’s handing back capital, and the hiding spots that haven’t been hit yet.
FINANCIALS: why the sector beat the index by 154bp on the worst day since April 2025, the Warren overhang, and the consumer credit split that payrolls decides.
The free half is the argument. The paid half is the plumbing: who still has to sell, where they’re hiding, and what it does to the banks. Subscribe at marketmusing.com.
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