As a matter of due diligence, we’ve been sifting through the refuse and detritus from the market’s “stealth correction” underneath the AI debt situation.
In September, before debt questions began to weigh on the hyperscalers and their opaque deals, nearly every other sector of the market had fallen.
Tech stocks got their share of the sell-off last week.
Now, in what we anticipate will be a rotation out of Big Tech, stocks near their lows are showing signs of life.
If you’ve been following our Grey Swan Trading Fraternity livestreams, you know that in midterm election years, markets tend to take off before the final votes are cast – and trend higher into the New Year.
And you also know that the third year of a presidency is historically the strongest for stocks.
So where do we find the best candidates for tomorrow’s rebound headlines?
Well, we started at the bottom: Bank stocks:
Over the past six weeks, for the first time since the 2008 financial crisis, bank stocks have endured a straight six-week decline.
There is, of course, a direct connection to the AI debt story. We’ve been on top of that story since Goldman Sachs warned its own traders to monitor the developing situation in June 2024.
But here’s the thing: bull markets die on hope and euphoria, not fear. The first whiff of fear the mainstream gets will be ignored.
Bank earnings kicked off this round of earnings releases last Tuesday, October 13. The third-quarter U.S. bank earnings season officially began with JPMorgan Chase, Wells Fargo, Goldman Sachs and Citigroup all reporting their results.
Without getting too wonky with the specifics (yet), the sector is alive and well. The “stealth correction” in these big bank stocks was a market aberration common in late-stage bull market runs.
Even the fear of rising interest rates doesn’t impact the banking sector as much as you’d think.
Last week’s earnings show “net interest income” is soaring as interest rates rise and new loans are being issued at higher rates. If loan generation slows because of rising rates, that won’t be reflected for at least another quarter.
Bank stocks also tend to reflect market liquidity trends. And… there have been no signs of trouble in new investors getting into or expanding their trading in the market.
The only smudge in bank earnings’ ink so far has been the $1.2 billion fine that Bank of America paid for money laundering cartel money, footnoted on Tuesday’s release, too.
As ever diligent himself, Andrew’s Pro recommendation has a twinge of “hold your nose and play the game the way it’s played” to it.
~ Addison
P.S. Politicians have plenty to say about the future. But where they’re putting their money might be more revealing.
With the midterm elections creeping up, Washington is gearing up for a political showdown. The results could change more than who’s in charge. They could reshape the policies, markets and investment opportunities ahead.
That’s why Andrew Zatlin joined us last week on Grey Swan Live! Andrew provided a lively discussion of the economic data, lawmakers’ own investments and the defense stocks he’s interested in now ahead of the midterms.
With investors searching for the next catalyst, these developments could offer important clues about where the market heads next.
That’s why last week on the Grey Swan Trading Fraternity, we took a closer look at the latest bank earnings. Are financial stocks gearing up for a year-end rally — and could banks’ role in financing the AI boom offer clues to where the market goes next?
We examined what the results reveal about the health of the financial sector, whether this traditional rally can get underway before the midterms and what it could mean for our broader market strategy.
Catch the full replay here to hear our take on what’s driving markets — and what could be coming next.
