The US Supreme Court appeared skeptical of Trump's use of sweeping tariff powers, with some justices suggesting he overstepped his authority. Even if the duties are struck down, he has other legal options, leaving companies and countries in limbo. Odds that IEEPA tariffs are ruled unlawful have risen toward the 70-80% range. In equities, tariff losers such as Healthcare, Consumer Discretionary, and Industrials could see material impacts, along with cyclicals and breadth improvement. US companies announced 153k job cuts in October, the most for any October in more than two decades, as AI reshapes industries and cost-cutting accelerates. Democrats remain divided on how to end the record shutdown.
Continuing on yesterday's AI bubble theory, I don't think we're at the peak yet, as major players still have room to make moves. On the macro side, the Fed announced it would pause QT last week, and the market expects more rate cuts into 2026. This aligns with our thesis from the beginning of the year that we'd see a combination of monetary and fiscal stimulus from the new administration to ease the debt problem (fiscal stimulus to ensure economic growth while monetary stimulus monetizes government debt). The Fed's QE, combined with record-high fiscal stimulus, will push multiples higher. Currently, we're at about 30x P/E for Mag7, compared to the peak of around 50x during the dot-com bubble. We will see a combination of 1) more warning signs from major players' deteriorating balance sheets or cash flow, 2) record-high round-tripping deals, 3) increased multiples, and 4) increased inflation. As the Fed accelerates this bubble, it can also pop it if we see a meaningful increase in inflation.
We were stopped out yesterday due to a broad-based rebound, supported by a return to Tech, Supreme Court skepticism on IEEPA tariffs, solid global economic data, and perhaps most importantly, Trump's pump tweet calling for a higher stock market. Breadth was strong, with RTY1!2,848.7 leading the rebound. ES1!7,763.85 6860-6870 is critical for bulls to take back control today, but we could see a reversal at the ironclad resistance around 6850-6860. The selling had been orderly in the past few days, and yesterday's rally was met with an ugly sell-off into the close, which could add fuel to the downside in the ST. I'll be looking for a reentry around 6850-6860 if tested in the morning session.