Oraclum Capital (ORCA)

What next after FOMC and Trump? In the wake of the election, we observed a robust 2.5% surge in the markets, affirming our forecasts of strong event hedging leading to a significant post-event rally. This trend extended throughout the week, driven by substantial gains in technology and banking sectors, underpinning a collective 5% rise for the S&P 500 and a 6% increase for NASDAQ. The potential policy shifts hinted at during the election—ranging from tariff adjustments to immigration reforms—suggest a landscape ripe for inflationary pressures, yet controlled enough to maintain a stable financial outlook. The Federal Reserve's steady hand despite these potential changes reflects a market primed for resilience, with inflation expectations and central bank independence remaining well-guarded under the current administration’s policies. Looking ahead, the revised upward earnings expectations signal a vigorous end-of-year rally, supported by an enormous influx of passive investing. The market’s momentum is underpinned by a significant capital flow, ensuring that any potential downturns are short-lived and that the rally is likely to sustain its strength into the new year.

Elections and FOMC playbooks As we approach the U.S. elections and the Federal Open Market Committee (FOMC) meeting this week, the financial markets are at a pivotal juncture. Despite strong economic indicators, with GDP growth at 2.8% and robust labor conditions, market reactions have been surprisingly muted. Notable exceptions include AMZN and GOOGL, which showed significant gains amidst overall cautious trading. At Oraclum, while we’ve chosen not to make election predictions this cycle, our analysis of the potential impacts of the election outcomes remains keen. With betting markets indicating a neck-and-neck race, the level of uncertainty is high, which could significantly influence the FOMC's upcoming decisions. As markets stand at this crossroads, the implications of potential fiscal policies and regulatory changes driven by the election results are crucial. What could a victory for Trump or Harris mean for the markets? Each outcome could reshape the fiscal landscape and regulatory environment in distinct ways. This election will not only shape economic policy but will also set the stage for how the FOMC might respond in their upcoming meetings.

What’s the Yield Curve Telling Us? Things are heating up with major events just around the corner. Earnings season is in full swing—Tesla already kicked things off with a 21% surge, and next week, we’ll see reports from the rest of the heavyweights like Microsoft, Amazon, and Apple. The market is bouncing around unpredictably, and with the dollar climbing, it's clear that expectations are shifting fast. Meanwhile, bonds are catching everyone’s attention. Despite the Fed’s recent rate cuts, yields are moving higher—10-year yields jumped from 3.6% to over 4.2%. Mortgage rates are back above 7%, signaling that inflation fears might be bubbling up again. This shift challenges the idea of a smooth "soft landing" the Fed has been selling for months. There’s more in play: A stronger labor market, hedging ahead of key events, and the rising possibility of a different economic path. Gold is climbing as investors pile in for protection, while bonds are selling off, leaving the market’s next move wide open.

Expecting volatility before the EOY rally The market maintained its bullish streak this past week, even as we navigated through occasional signs of concern during the early rallies. Notably, NFLX's stellar earnings caused a notable 11% jump on Friday, energizing NASDAQ and setting a tone for the earnings season which is just picking up steam. As we inch closer to the U.S. election and the next FOMC meeting, hedging around these significant events has intensified, heralding a possibly turbulent period. The so-called "window of weakness" looms, suggesting a potential sell-off as we approach the end of the month. This period could critically align with key earnings reports from major tech companies, except NVDA, further heightening the stakes. However, the sustained influx of regular investment into SPX, buoyed by a strong year, hints at an underlying robustness. Post-election, with the dust settled from the FOMC meeting, we might just find ourselves in a prime position for a strong year-end rally.

The rise of implied volatility In the recent landscape of the options market, we've witnessed an intriguing trend: a noticeable rise in implied volatility. This shift reflects a broader anticipation ahead of significant market events, notably the upcoming U.S. elections on November 5th. Implied volatility is not merely a metric but a pulse of the market, capturing the heightened demand for options as investors seek to hedge against potential shifts. Why does this matter for our strategies at ORCA BASON Fund? Implied volatility directly influences our focus on short-duration options. As we navigate these waters, the increasing cost of hedging has made market predictions more challenging yet equally rewarding. For instance, even as we accurately predicted market upswings, the actual gains were tempered by the steep costs of options earlier in the week. As we approach the elections, the scenario is set for volatility to potentially unclench post-event, recalibrating the cost and strategy surrounding options. This period could herald significant market adjustments, possibly mirroring the volatility patterns seen in previous months.

A new upper pin is given for Q4 The SPX's breakthrough past the crucial 5,750 level, a target set by an expiring collar trade, highlighted the day's volatility. This moment was pivotal as it marked a major supply zone that had previously capped the market. However, in the final moments of trading, as the old position was closed, the market surged, demonstrating the agility of market makers in navigating these critical thresholds. Looking forward, the positioning of the new collar's upper boundary at 6,055 suggests potential targets for year-end, particularly if the upward trajectory continues. Reinforced by a recent U.S. jobs report that exceeded expectations—adding over 250,000 jobs—the economic backdrop appears robust. This data not only supports a stable economic outlook but also moderates expectations of significant policy shifts by the Fed, creating a favorable environment for equity markets.

Cutting cycle: good📈 or bad📉? In our recent market analysis, we anticipated a rally leading up to the Federal Reserve meeting, with the SPX targeting the 5,650 mark. Our scenario unfolded as predicted: supportive Federal policies helped compress market volatility, propelling the SPX to break through significant resistance and achieve new all-time highs above 5,720. This rally highlights the broader market dynamics as we navigate shifting economic conditions. Despite the initiation of a rate hiking cycle, the market's robust response underscores a potential trend upwards for the remainder of the year. It's crucial to consider that while historical parallels to past financial crises are drawn, today's economic environment—bolstered by advancements in technology like AI—presents a new backdrop that could sustain a bull market much longer than anticipated.

FOMC and OpEx week 🚀🎇💥 The market had one of those weeks where it struggled to find its direction. It kicked off with some volatility, and by midweek, the CPI inflation data came in as expected, pushing inflation down to 2.5%. Despite the bears trying to force a sell-off on Wednesday, the market held firm above the key 5,400 support level, bouncing back strongly by the end of the week with a 4% rally. This rally aligns with what was anticipated: moving into the Fed meeting with momentum, eyeing the 5,650 range. With a supportive Fed stance, we’re looking at a potential setup for a strong close to the year. But there’s always a risk. A sell-off could still materialize, especially if the economic data takes a sudden downturn or the Fed strikes a cautious tone.

Wake me up when September ends? "Everyone has a plan 'till they get punched in the face," Mike Tyson once famously said, a sentiment that rings particularly true in the unpredictable world of stock markets. Reflecting on recent market trends, despite positive economic indicators and impressive earnings, particularly from NVDA, we've seen an unexpected pullback. This brings us to the peculiar case of September, a month notorious for its market turbulence. Historically, September has been a challenging month for stocks, but this year might just defy the odds. With the Federal Reserve hinting at upcoming rate cuts amidst strong economic growth and easing inflation pressures, the broader market is poised for potential uplift. Imagine ending the year at the 6000 mark for SPX—bold, yet entirely within reach given the current economic climate. This September is laden with significant market-moving events: the VIX expiration, a pivotal FOMC meeting, and the quarterly options expiration. These could very well dictate the market’s next big move. Will these events fuel a rally, or are we facing a potential downturn as we head into the final quarter?

Still Bullish NVDA just delivered one of its best earnings yet—beating expectations with a $0.68 EPS and $30 billion in revenue, marking a staggering 120% year-on-year revenue growth and a 168% increase in profits. Additionally, a $50 billion stock buyback was announced, signaling strong bullish confidence. However, the stock saw an 8% drop post-announcement, a smaller beat than usual that seemed to disappoint the market used to double-digit outperformance. But this didn’t pull down the broader market. In fact, other tech stocks rallied robustly, showing a dynamic rebalance. Why the continued optimism? The economy shows robust signs: a revised 3% GDP growth, promising job additions, and a decline in inflation to 2.5%. With the Fed hinting at rate cuts starting September and strong macroeconomic data, the market exudes vitality. Could we see the S&P 500 hit 6000 by year-end?