October 31, 2025 • 32 mins
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Good morning and welcome to the Bulls Bears in the Bell Morning
Edition. Thank you for joining us.
Good morning. It's certainly shaping up to be
a pivotal day. Absolutely.
We know your time is valuable, especially you know, when
markets are this turbulent. So our mission custom built for
you today is to dive straight into the sources, really cut
through the sheer noise. There's a lot of noise out there
(00:21):
right now. Exactly.
And deliver the essential intelligence you need to
navigate this incredibly volatile October close and the,
well, the dramatic risks shapingtoday, October 31st.
Yeah, yesterday was a bit of a gut punch, wasn't it?
October officially closed with adecisive downturn, and today we
(00:41):
are staring down the barrel of immense immediate volatility.
Right, our deep dive. It's really designed to be your
essential shortcut. We're decoding the key drivers,
assessing the market's mood and mapping out those colossal
risks. The risks that are shaping not
just this final trading day of the week, but also, crucially,
the strategic positioning for next week's big economic events.
(01:02):
Exactly. It's all connected.
OK, so let's unpack this centralconflict we're seeing play out
right now. It feels like a powerful battle
for control of the indices, wouldn't you say?
Definitely on one side you've got this persistent, overarching
bearish pressure. It's stemming directly from the
Federal Reserve's monetary policy.
That's the big macro headwind pushing almost everything down.
(01:23):
Almost everything because on theother side we are seeing these
specific high conviction fundamental wins.
They're popping up in selective sectors, you know, companies
delivering real operational excellence that the market just
has to reward even in this environment.
That's the tension and you, the listener need to know exactly
which of these forces is winningthe battle today.
(01:44):
Will the expected cyclical strength, maybe from energy
earnings be robust enough to drag us out of that tech driven
slump we saw yesterday? Or will the Feds aggressive talk
just continue to smother growth expectations, right?
Understanding that dynamic is critical for managing the
intense volatility we are expecting this morning and maybe
more importantly, for strategically placing capital
(02:06):
ahead of next week's major data releases.
All right, let's start with the main character, or maybe the
antagonist in the room right now.
The Federal Reserve markets had built up a pretty healthy head
of steam leading into midweek. Yeah, things we're looking up
for a bit there, but. The whole environment just
completely soured on Thursday, October 30th.
(02:26):
And it wasn't just a slight downturn, it felt like a
rejection of that recent rally. The immediate risk driver,
without question, is the Fed. Well, what's truly fascinating
here is how the Fed managed to be both accommodative and
hawkish almost at the same time.How so?
Well, they delivered the expected minor rate cut, right?
The one the market had already completely priced in.
(02:47):
No surprise there. But then Chair Jerome Powell
immediately followed up with this stern, unequivocal warning
that just changed the entire tone.
That's the pivot everyone's talking about.
He explicitly cautioned investors against that.
You know that Pavlovian response, the assumption that
just because they cut once, further easing or a quick
reversal was somehow guaranteed.Exactly.
(03:07):
It was like a verbal counterpunch to the market's
recent enthusiasm. He insisted yet again that
policy would remain strictly data dependent.
And restrictive for the foreseeable future.
It felt like he was saying don'tget ahead of yourselves.
Pretty much That rhetoric wasn'tjust throwing cold water on the
rally. It was, I think, an
acknowledgement that the market's expectations had maybe
(03:28):
drifted too far into optimism. OK, So what was the immediate
consequence? We saw it play out right?
We. Did first in bond markets, then
hitting equities, investors weresuddenly forced to reprice the
probability of rates staying elevated for longer.
That's the aggressive hire for longer dynamic really taking
hold again. And we can actually put a number
(03:48):
on that, can't we, using the CBOE Fedwatch tool?
What happened there? Yeah, we saw an immediate,
pretty sharp reaction that Fedwatch tool, which tracks the
odds of future rate moves based on options trading, It scaled
back the probability of a December rate cut down to
roughly 69%. 69% now that still sounds like it's more likely
than not. It does, but the key take away
(04:11):
is the speed and the magnitude of that shift.
Just before Powell's speech, that probability was
significantly higher. It was pushing, you know, closer
to 80%. But help us understand why that
change dropping from, say, closer to 80% down to 69%.
Why is that so impactful? Why does it create so much
volatility? It's only about what, 9 or 10
percentage points? Well, it signals A fundamental
(04:33):
collapse in conviction. The market has sort of built
this consensus around a smooth path towards accommodation,
towards easing. When that consensus breaks, the
fixed income world especially has to unwind positions that
were betting on that guaranteed easing.
Think about it, a 31 percent chance of no rate cut in
December, that's actually a veryhigh probability when you
(04:55):
consider institutional trading floors operate on like razor
thin margins and high leverage. So that shift, it instantly
increases the cost of money and injects genuine uncertainty back
into everyone's forward modeling.
OK. So that uncertainty brings us
straight to the core issue plaguing the NASDAQ in those
high growth stocks. Why does this worry about
(05:15):
interest rates hit the stock market so hard?
Especially technology, which often seems like it operates
independently of daily bond yield fluctuations?
This is probably the most important concept for our deep
dive today. It's what we call the cost of
capital connection and it's rooted in discounted cash flow
modeling or DCF. OK, DCF, break that down for us.
Think about how any company's valuation is determined, right?
(05:39):
For a mature, maybe a value oriented company, let's say an
energy giant, a big chunk of itsvalue comes from cash flows
that's generating today or in the very near future.
OK, cash now. Cash now, but for a tech company
or maybe a biopharma growth stock, that cash flow, that
profit is much further. Out.
It's based on future potential. Precisely.
The value of a high growth company is mostly based on the
(06:01):
discounted present value of its future cash flows, often
projected years, sometimes decades down the line.
So when the Federal Reserve raises interest rates, or even
just signals they'll stay high, it significantly raises the
discount rate. That's the required rate of
return investors use to figure out what those future earnings
are worth today. Which means money earned 10
(06:24):
years from now is mathematicallyworth less today if rates are
higher. Exactly right.
When the discount rate is low, those distant cash flows are
still worth quite a lot in today's dollars.
But when the discount rate riseslike Powell just signaled, it
might stay high for longer. That process of discounting
those far off earnings back to the present, it absolutely
(06:45):
hammers those long duration growth assets.
It hits them the hardest. The hardest?
It's basically a mathematical process of valuation destruction
for the highest multiple stocks,the ones that tend to dominate
the NASDAQ value companies, though with their immediate
tangible cash flows, they're relatively more insulated from
that specific mathematical shock.
That concept perfectly explains since the divergent we saw in
(07:07):
yesterday's trading then. It really does.
OK. So that detailed explanation of
discounted cash flow, it really sets up the concrete evidence we
saw yesterday. We absolutely witnessed a stark
divergent in performance on October 30th and that's the
textbook sign, right. Institutional rotation money
fleeing high risk growth is already well underway.
Oh yeah, the numbers are pretty unambiguous.
(07:28):
Those hydration growth assets, the ones most sensitive to rate
shocks, they were the clear losers.
The NASDAQ 100I UXX closed down a sharp Monica, 1.47%.
Ouch. And the broader S&P 500 STX, it
fell almost a full percent down.Mining is 0.99%.
That's a massive rejection of risk right there.
But then look at the relative strength the Dow Jones
(07:50):
Industrials Index Neo DOY. It's weighted much more heavily
towards value and cyclicals, andit contained its losses
remarkably well. It only slipped.
Might get us .23%. That small loss is really
telling. It signals money was actively
moving into perceived safety, orat least relative safety and
away from those rate sensitive sectors we.
Can trace this divergent directly back to those rate
expectations we were just talking about?
(08:11):
Absolutely. When we dig into the sexual
impact, the area's most dependent on low borrowing costs
took the biggest hits. The technology select sector
SPDRETFINFT. It declined by a stiff manic
1.28%. But the Communication services
Select sector SPDR fund TLS, which holds the names like Meta
(08:32):
and Alphabet, saw an even largerdrop, manic 1.69%.
These sectors are just being mathematically repriced because
their future growth models suddenly look more expensive to
finance. Their future cash flows are
worth less today. Got it.
Exactly. Now here's where it gets really
interesting, though. Within technology itself, the
whole AI trade seems to be undergoing massive internal
scrutiny, especially after some recent earnings reports.
(08:54):
It feels like it's no longer enough just to have a catchy AI
initiative or, you know, a slidedeck talking about the future.
That is the critical aha moment for investors right now.
I think the market has moved decisively past just generalized
enthusiasm for anything AI. Investors are now distinguishing
between companies based on actual execution, can they
(09:15):
actually monetize it and critically, capital efficiency.
We saw this powerful dichotomy emerge from the reports, really
defining what the market sees asa good AI company versus maybe a
risky one. OK.
Let's break that down. Let's look at the winners and
losers based on those criteria. Alphabet Gogl seem to be the
clear featured winner here. Yeah, Alphabet was definitely
(09:38):
rewarded for execution. They highlighted accelerated
growth in their Google Cloud segment, and they explicitly
attributed it to AI achievementsand, importantly, immediate
customer uptake. So they showed the money.
They showed the money the marketrewarded, that tangible evidence
of monetization and revenue generation happening today.
It confirmed their investment inAI was actually generating real
(09:59):
high margin results, which helpsjustify their evaluation.
OK, so conversely, Meta Platforms Meta became a future
loser, and that's despite their huge commitment to building the
AI infrastructure of tomorrow. Why the punishment there?
Meta became the cautionary tale and it was because they
projected much faster capital expenditure CapEx spending for
(10:19):
2026 compared to 2025. OK, spending more money faster.
Why is that bad? Well, the fear centers on
whether that massive infrastructure build out
represents necessary investment or critically in this new rate
environment, does it represent reckless capital requirements
that just balloon the valuation risk?
Cost of capital again. Exactly.
(10:40):
When the cost of capital is high, the market loses patience.
Frankly, with these multi year, non revenue generating
investment cycles, Meta is essentially asking investors to
fund a huge multi year bet at a time when money is expensive and
the marks reacted by punishing them for it.
So investors are drawing a really clear line now.
It's execution that monetizes now versus expensive commitment
(11:03):
that maybe pays off later. That seems to be the dividing
line, yes. So if high growth tech is being
selectively punished, where is the money actually finding a
safe harbor? Where did it go yesterday?
We saw a clear rotation into defensive sectors, ones that
possess strong fundamentals and what you call inelastic demand,
things people buy regardless of the economy.
Like health care? Exactly.
(11:25):
The healthcare select sector SPDRETFHLTH actually posted a
positive daily return yesterday plus 0.17%.
A small gain, but positive nonetheless.
And what drove that? That strength was largely busted
by Eli Lilly Lly it's surged plus 3.81% on strong clinical
and commercial news for its pipeline.
(11:45):
This confirms that capital is actively rotating toward non
cyclical strong fundamental growth stories, companies whose
demanding profile is more insulated from the immediate
economic atomic effects of the Fed's actions.
OK, let's shift our focus squarely to today, October 31st.
Given yesterday's pretty dramatic sell off, this final
trading session of the week is absolutely packed with high
impact catalyst. Yeah, it really.
(12:07):
Is and the market seems like it desperately needs some kind of
cyclical counter attack to offset that technology drag.
We saw that buffer often comes from the traditional value
oriented names reporting before market open, right?
That counter attack is definitely scheduled to begin
this morning. We've got crucial earnings
reports from the energy giants Chevron, CBX and Exxon Mobil
XOM. These companies are massive,
(12:29):
absolutely huge, and their performance can really swing the
Dow and provide significant support to broader market
sentiment if they'd level. OK, let's look at the analyst
expectations, because they seem pretty grim compared to last
year's record highs. CBX consensus EPS is $7.29.
That's down sharply from $9.72 ayear ago, and excellent
(12:51):
consensus is $6.87, down from $7.84.
Right. The market has already factored
in some significant headwinds for them, lower commodity prices
compared to the peak last year for one, along with elevated
operating costs. So the importance of these
reports today isn't really abouthitting last year's impossible
number. And about the surprise factor?
Exactly. It's about beating these lowered
(13:11):
expectations. A surprise beat, even a modest
one, could catalyze a significant rally in energy
stocks. Enrs.
And those are textbook countercyclical plays if the
energy sector catches a strong bid this morning.
It could help lift the whole market.
It provides that necessary support to offset some of the
recent technology drag and potentially lift the broader
indices today. It's a big if, but it's the
(13:34):
potential buffer the market needs.
OK. So beyond the headline EPS
number, what specific details should investors be zeroing in
on when those energy results actually drop?
I think the focus really has to be qualitative this time,
specifically on their capital allocation plans.
What are they doing with their cash?
Meaning buybacks versus spending.
(13:54):
Exactly. Investors want to see evidence
that these companies are returning capital rather than,
say, hoarding it for risky long term projects.
Are they announcing new aggressive share buybacks that
signals confidence in their current operations and returns
cash directly to shareholders? Which the market likes right
now. Which the market definitely
likes right now? Or conversely, are they guiding
(14:15):
for unexpectedly aggressive capital expenditure?
Cap X In this kind of risk averse environment, return of
capital often Trump's future expansion plans in the eyes of
investors. That's the critical qualitative
insight the market is looking for this morning.
Got it? Then we have the other elephant
in the room. Reporting before market open.
Berkshire Hathaway Inc BRKAB, a trillion dollar conglomerate.
(14:38):
Its results always shift the institutional focus.
Yeah, and when it comes to Berkshire, we really have to
stress this loudly. You have to ignore the app EPS
number. OK, why?
The consensus is $30,862.93, which is a massive drop from
$61,900 prior year. That looks bad on the surface.
(15:01):
It looks terrible, but that difference is largely
meaningless for understanding the business.
It's driven almost entirely by non cash, non operational
fluctuations in the value of their enormous investment
portfolio, things like unrealized gains or losses in
their Apple stick or Bank of America or whatever.
It doesn't reflect the health oftheir operating businesses.
So if we ignore the headline gapnumber, what are the two crucial
(15:22):
metrics that investors and analysts will be focusing on for
Berkshire? OK, First, you look intensely at
core operating earnings. This is the actual income
generated from their underlying businesses thing GEICO
insurance, Burlington Northern Santa Fe Railroad, their energy
utility holdings, sees candies, all of that.
The real businesses. The real businesses, This number
tells us the true operational health and stability of the
(15:44):
conglomerate. If operating earnings are
strong, it suggests the core economy, which Berkshire is a
kind of a proxy for, is holding up OK.
In the second metric. 2nd, and perhaps most tellingly for the
broader market right now, we look at the size of their
growing cash position. How much cash are they sitting
on? Why is the cash file so
important, especially now? Because Warren Buffett has
(16:06):
repeatedly stated he only makes those elephants, those massive
acquisitions, when valuations look attractive.
So a record, or even just a rapidly increasing cash pile,
which some analysts are projecting, could hit a new
high. What is that signal?
It sends a powerful conservativesignal to the entire market.
It suggests that arguably the most respected value investor in
(16:27):
the world views current equity market valuations as generally
unattractive, maybe even overpriced.
That kind of conservatism from Buffett acts as a sort of
psychological ceiling on overallinvestor confidence.
Interesting. OK, moving to the macro calendar
for today, the afternoon is alsopacked with data that will frame
that fed discussion for the restof the day and into next week.
(16:48):
Absolutely. Global attention will be on the
release of the Eurozone preliminary HICP.
That's their main measure of inflation.
The forecast is for a slight deceleration in headline
inflation to 2.1%. Now, what's the implication of
European inflation data for us here on US trading floors?
Why do we care? Well, a soft of an expected
reading. Say if it comes in significantly
(17:09):
below that 2.1%, it would accelerate expectations for
European Central Bank, the ECB, to start easing policy.
OK, a weaker European economy often translates to a weaker
euro. We're currently seeing the euro
as E pair trading around 1.1562.If Europe slows faster than the
US, that can actually alleviate some global inflation pressure,
(17:29):
which is good. But the main thing is to see if
inflation is becoming structurally sticky
internationally. And if Europe is forced to ease
faster than the US? Then it strengthens the US
dollar, which creates its own set of headwinds for US
multinational companies that sell goods overseas.
So it's a complex relationship. OK, back home then we have the
crucial US Chicago PMI scheduledfor 14.45 US time, 2.45 PM
(17:52):
Eastern. Right, the forecast is 42.3.
Now while this is technically animprovement from the prior
months 40.6, the key thing is that number is still well below
the 50 threshold. Anything below 50 signals
contraction in regional manufacturing activity.
So still contracting, just maybeless bad than before.
Exactly. Now, if we get a significantly
(18:13):
worse print than that 42.3 forecast, it definitely raises
legitimate recessionary alarms. But here's the paradox.
If the data is very bad, like shockingly bad, suggesting rapid
economic weakening, it might actually increase the long term
likelihood of the Fed being forced to accommodate to cut
rates next year. So bad news becomes good news
(18:34):
for the equity bulls who are desperate for rate cuts.
Precisely. It's that weird dynamic we
sometimes see. And finally today, the ultimate
test of FED consensus, the highly anticipated speeches from
Fed officials later in the day, we've got Dallas Fed President
Lori Logan, Atlanta Fed President Rafael Bostic and
Cleveland Fed President Beth Hammock on the schedule.
Yeah, the market is going to intensely scrutinize every
(18:56):
single word from them. They'll be looking to see if
Chairman Powell's hawkish stancefrom yesterday represents A
unified consensus among the voting members of the FOMC.
What's the risk here? If these speakers uniformly echo
that higher for longer warning, if they emphasize data
dependency over any pre commitment to easing, well then
the upward pressure on long termTreasury yields will likely be
(19:19):
firmly reinforced. Which would be bad for stocks.
Right. That confirmation would cement
the dominant macro headwind and make it very, very difficult for
equities to sustain any kind of midday rally we might see.
OK. Let's pivot now to the
individual stock level because today's pre market activity it's
like a kaleidoscope of extreme catalyst driven price movements.
(19:41):
These massive price gaps we're seeing both up and down they're.
Huge today. They really are the purest
gauge, aren't they, of where high conviction fundamental
money is actually flowing and what the market is truly
rewarding or, well, punishing this morning.
Absolutely. We're seeing institutions making
major conviction based moves based purely on operational
performance or lack thereof. The top gainers today,
(20:03):
interestingly, are clustered in specialized technology and
precision medicine, areas where it seems operational excellence
can actually overcome these broader macro risks.
Garden Health GH is the undisputed leader here.
This morning it surged in enormous plus 27.87% to $92.41
pre market. I mean a move of that magnitude
(20:24):
is never random. What specific operational
factors are driving that kind ofRE rating?
Yeah, that's a monster move. It was just an overwhelming
third quarter result that showedreally accelerating operational
leverage. Get this, their sales growth
accelerated to 34% year over year.
Wow. OK.
What was expected? The consensus estimate was only
22%, so they absolutely blew past the top line forecast.
(20:45):
But I think the most important metric, the one driving this
move was the operational efficiency gain.
Their Shield revenues for their cancer screening test hit $24
million versus only a $17 million expectation.
And crucially, their gross margins surpassed forecasts by
300 basis points. 300 basis points.
So it wasn't just faster growth,it was significantly more
profitable growth. Absolutely critical distinction
(21:07):
for a high growth biotech like Garden delivering both
accelerated top line growth and that kind of margin
outperformance. It signals A clearer, faster and
much more capital efficient pathto profitability than the market
was anticipating. That sounds like the definition
of operational leverage. It really is.
And that operational clarity justified multiple analyst price
target raises this morning, including TD Cowan raising their
(21:30):
target up to $100. Garden Health is just a clean
example of a company achieving escape velocity, proving that
high growth and high efficiency can override even this hawkish
Fed environment if the executionis there.
OK. Next up we have two specialized
technology players, Form Factor Form and Viv Solutions VIAV.
Both are posting huge gains, over 20% each form gained plus
(21:53):
24.16% and Viv gained plus 22.32%.
This feels like a direct repudiation, doesn't it?
Of those generalized AI fears wewere just discussing with Meta.
It is the perfect counter narrative to that meta story.
Form factor surge is directly tied to its very specific
positioning in semiconductor testing, particularly for high
(22:14):
bandwidth memory or HBM. HVM that's crucial for AI
servers right? Exactly.
It's a critical component neededfor those sophisticated AI
servers, and the company confirmed that its HBM related
revenue is tracking over 15% higher year over year.
So the market isn't just investing in the idea of AI
anymore, it's investing in the specific tangible, high margin
(22:37):
components required to actually build the AI infrastructure.
The picks and shovels of the AI gold rush.
That's a great analogy, and Viavi Solutions plays a similar
specialized role, but more on the networking and data center
build outside. Right.
What drove their big game? Viavi had an exceptional
earnings beat, but more importantly, they absolute crush
their forward guidance. They're projecting Q2 revenue
between 360 million and $370 million.
(23:00):
The consensus was way down at $302 million.
Huge beat on guidance. Massive.
And their optimism, they said, is attributed to robust demand
from the data center ecosystem, specifically tied to new network
testing and validation requirements as these AI
networks get built out. Plus, they cited strength in
their aerospace and defense segment.
So taking form and VIAV together.
(23:22):
Yeah, the combined success, the form in via AV this morning
really shows a clear market preference for these specialized
high beta proxies for next generation infrastructure CapEx,
the picks and shovels. Like you said, this is happening
even while the mega cap buyers of that infrastructure like Meta
are struggling with evaluation concerns tied to their spending.
Fascinating. Divergent within tech itself.
(23:43):
OK, now for the flip side, the top losers.
This is where we see evidence ofwell structural damage and
serious valuation destruction. FMC Corporation.
FMC is suffering the steepest drop by far, declining A
catastrophic Nanigan 46.52%. Pre market got in half.
Basically, this isn't just a badquarter, is it?
No, this is a textbook example of a stock suffering A
(24:04):
structural failure, not just some cyclical dip.
Revenue plunged 49% in Q3, whichis bad enough, but the truly
damaging piece of information, the thing that's causing this
massive sell off was the 6% price decline they experienced
on their existing product portfolio during the quarter.
OK. Explain to the listener why a 6%
(24:25):
price decline is actually more damaging than a 49% revenue
plunge in this context. Right, because the revenue
plunge could potentially be cyclical, right?
Maybe farmers deferred purchasing inputs, maybe
commodity prices shifted temporarily.
That could theoretically be fixed next quarter or next year,
the 6% price decline, however, they specifically attributed
that to increased competitive pressure in the market,
(24:46):
particularly from generics in Latin America and Asia.
Generics. That sounds bad.
It signals a permanent systemic vulnerability to the company's
competitive Moat is protective barrier and its pricing power.
Their proprietary intellectual property, the thing that allowed
them to charge premium prices, is now being actively challenged
and undercut by cheaper generic competitors.
(25:08):
Which means what for the long term?
It means the entire long term margin outlook for FMC is likely
permanently impaired. The market views this not as a
temporary problem, but as a systemic competitive failure,
and that necessitates A drastic permanent RE rating of the
stocks valuation. When your pricing power vanishes
because of generic pressure, your whole investment thesis is
(25:30):
basically broken. So this is not a buy the dip
situation for patient recovery. I would argue, based on this
information, absolutely not. This looks more like a
fundamental breakdown of the company's structural advantage
in the marketplace. Wow.
OK, finally, on the downside of Pelis Pharmaceuticals, APLS also
saw a very sharp decline, down -31.02%.
(25:52):
Yeah. That drop really highlights the
inherently binary risk you see in commercial stage biopharma
companies. These companies are often
treating almost entirely on the promise and the successful
commercial ramp up of just one or two key therapies.
So execution is everything. Everything.
Despite what might have been high prior analyst price
targets, this negative reaction implies significant
disappointment. It could be in the actual sales
(26:14):
volume they reported, or perhapsconcerns regarding their
operational burn rate, how quickly they're sending cash, a
stumble in execution and commercial stage biotech gets
punished swiftly and severely mainly because the financial
runway is often very short and market expectations are usually
built on near perfection. OK.
So as we navigate the rest of today and closeout the week, the
(26:35):
market's strategic focus it seems immediately shifts beyond
today's catalysts. It moves straight to the highest
impact risk event on the immediate calendar, the
comprehensive labor market data scheduled for next week,
culminating of course in the nonfarm payrolls, the NFP release
on Friday, November 7th. Yeah, that NFP report next
Friday is arguably the single most important piece of data
(26:56):
coming up. It will either validate or
potentially destroy the Fed's justification for maintaining
its current higher for longer stance.
Because if the Fed is truly datadependent, as they keep saying.
Then the strength or weakness ofthe labor market is their
ultimate guiding start. It's the key piece of data they
point to. And analysts are already
signaling A potentially meaningful cooling in the labor
market forecasts for that report.
(27:19):
What are the consensus numbers looking like?
Well, the early consensus forecast for the October NFP
number is for an increase of only 55,000 jobs, 55K.
That sounds low. It is substantially below the
historical pace required just tokeep up with population growth.
It's a clear sign of deceleration if it comes in near
there. Furthermore, the unemployment
(27:39):
rate is projected to tick up slightly to 4.4%.
And crucially, average hourly earnings wage growth.
Those increases are expected to cool down to .3% month over
month and just 3.6% year over year.
OK, so if those numbers prove correct or even weaker, they
signal slowing job creation and decelerating wage inflation, the
two primary targets the Thigh's been aiming for with its rate
(28:01):
hikes. Exactly.
So this sets up a pretty clear, almost binary scenario based on
whether the final number hits, misses, or maybe beats those
expectations next Friday. Absolutely.
We have to prepare for two highly divergent potential
outcomes. Let's call scenario 1 the
bullish scenario. NFP miss.
OK, what happens there? If the actual report shows a
(28:22):
material miss, let's say the NFPnumber comes in below 50K.
Or maybe even more importantly, if average hourly earnings.
OK. That's the bullish case.
Now, Scenario 2, the bearish scenario NFP beat.
What happens if the labor marketactually proves much stronger
than anticipated next Friday? Right, a strong beat.
(28:43):
Let's say we get well over 100,000 jobs added.
Or maybe average hourly earningscome in hotter than that 3.6%
forecast. That would essentially confirm
the robust strength of the labormarket is still intact.
And that would reinforce Powell's message.
Precisely. It would reinforce Chairman
Powell's recent message, validate the higher for longer
policy, and demonstrate that maybe the Fed's current
(29:04):
restrictive stance isn't even restrictive enough yet.
That kind of outcome would likely initiate a broad market
sell off as rate uncertainty andthe fear of potentially even
more rate hikes get violently reintroduced into the market.
Wow. OK.
So a really high stakes report next week.
Given this binary setup, what are the actionable trading and
investment insights coming out of this briefing for you, the
(29:25):
listener over the next few days heading into that report?
OK, a few things. First, I'd maintain a close
track on those fundamental momentum names we highlighted
earlier, Garden Health, Form factor and Vivi solutions.
The operational clarity behind their big gains today suggest
these could be sustainable RE ratings based on real execution.
(29:46):
That makes them potential rotation targets for capital
that's seeking quality growth even amidst the uncertainty.
Go watch the winners. What else?
Second, approach those structural damage names like FMC
very conservatively. Their pricing power
vulnerability, that generic competition issue often means a
permanent reduction in valuationis warranted.
It's crucial not to confuse structural failure with just a
(30:07):
temporary dip you should buy. Got it.
Be careful with the big losers and finally preparation for the
volatility spike itself surrounding November 7th.
Yeah. Given the intense binary outcome
we're anticipating based on thislabor data, tactical options
strategy seems strongly justified for those comfortable
with them. If you are an investor who
actively manages volatility, youmight consider implementing long
(30:29):
straddles or maybe long strangles in the days leading up
to November 7th. Explain that briefly.
Well, that kind of strategy allows you to potentially
capitalize on the massive volatility spike we anticipate
regardless of which direction and the NFP number ultimately
sends the market up or down. The high impact nature of this
data virtually guarantees a violent move one way or the
(30:49):
other. And these volatility strategies
are specifically designed to capture that kind of
dislocation. Okay, that brings us pretty much
full circle. We've spent this deep dive
unpacking the market struggle. Really, it's attempt to
reconcile a hawkish Fed, which is pushing down valuations
across the board, with pockets of strong, selective,
fundamental performance in critical areas like specialized
(31:12):
AI infrastructure and precision medicine.
Yeah, the key tension really remains unresolved as we head
into the trading day. Well, that cyclical strength
maybe from energy and Berkshire earnings today managed to offset
the technology drag and the Fed's confirmed resolve.
Or will the speaking Fed presidents this afternoon just
ensure the bear market narrativegets fed?
And we've seen clearly how the market is specifically punishing
(31:35):
that general AI enthusiasm. The meta CapEx concerns really
illustrate that fear of expensive long duration bets
right now. Right.
But at the same time, it's heavily rewarding that
specialized AI infrastructure, the component makers like Form
Factor and Viati, they're getting paid today.
So this raises A crucial question, I think for your own
research for you, the listener, as you move into next week and
(31:57):
plan your strategy. Yeah.
The question is how do you define the difference between
necessary future investment and what might be seen as reckless
capital expenditure in these high growth industries?
And maybe more importantly, which side of that line does the
market expect your portfolio companies to fall on next week,
especially when rates are likelyto remain elevated?
A truly fantastic and very relevant thought to Mull over as
(32:20):
we head into the market open. Thank you for joining us for
this deep dive into your sources.
I have. Pleasure.
Stay nimble out there. We'll be tracking these
colliding forces as they shape the rest of your trading day.
Good morning and welcome to the Bulls Bears in the Bell Morning
Edition. Thank you for joining us.
Good morning. It's certainly shaping up to be
a pivotal day. Absolutely.
We know your time is valuable, especially you know, when
markets are this turbulent. So our mission custom built for
you today is to dive straight into the sources, really cut
through the sheer noise. There's a lot of noise out there
(00:21):
right now. Exactly.
And deliver the essential intelligence you need to
navigate this incredibly volatile October close and the,
well, the dramatic risks shapingtoday, October 31st.
Yeah, yesterday was a bit of a gut punch, wasn't it?
October officially closed with adecisive downturn, and today we
(00:41):
are staring down the barrel of immense immediate volatility.
Right, our deep dive. It's really designed to be your
essential shortcut. We're decoding the key drivers,
assessing the market's mood and mapping out those colossal
risks. The risks that are shaping not
just this final trading day of the week, but also, crucially,
the strategic positioning for next week's big economic events.
(01:02):
Exactly. It's all connected.
OK, so let's unpack this centralconflict we're seeing play out
right now. It feels like a powerful battle
for control of the indices, wouldn't you say?
Definitely on one side you've got this persistent, overarching
bearish pressure. It's stemming directly from the
Federal Reserve's monetary policy.
That's the big macro headwind pushing almost everything down.
(01:23):
Almost everything because on theother side we are seeing these
specific high conviction fundamental wins.
They're popping up in selective sectors, you know, companies
delivering real operational excellence that the market just
has to reward even in this environment.
That's the tension and you, the listener need to know exactly
which of these forces is winningthe battle today.
(01:44):
Will the expected cyclical strength, maybe from energy
earnings be robust enough to drag us out of that tech driven
slump we saw yesterday? Or will the Feds aggressive talk
just continue to smother growth expectations, right?
Understanding that dynamic is critical for managing the
intense volatility we are expecting this morning and maybe
more importantly, for strategically placing capital
(02:06):
ahead of next week's major data releases.
All right, let's start with the main character, or maybe the
antagonist in the room right now.
The Federal Reserve markets had built up a pretty healthy head
of steam leading into midweek. Yeah, things we're looking up
for a bit there, but. The whole environment just
completely soured on Thursday, October 30th.
(02:26):
And it wasn't just a slight downturn, it felt like a
rejection of that recent rally. The immediate risk driver,
without question, is the Fed. Well, what's truly fascinating
here is how the Fed managed to be both accommodative and
hawkish almost at the same time.How so?
Well, they delivered the expected minor rate cut, right?
The one the market had already completely priced in.
(02:47):
No surprise there. But then Chair Jerome Powell
immediately followed up with this stern, unequivocal warning
that just changed the entire tone.
That's the pivot everyone's talking about.
He explicitly cautioned investors against that.
You know that Pavlovian response, the assumption that
just because they cut once, further easing or a quick
reversal was somehow guaranteed.Exactly.
(03:07):
It was like a verbal counterpunch to the market's
recent enthusiasm. He insisted yet again that
policy would remain strictly data dependent.
And restrictive for the foreseeable future.
It felt like he was saying don'tget ahead of yourselves.
Pretty much That rhetoric wasn'tjust throwing cold water on the
rally. It was, I think, an
acknowledgement that the market's expectations had maybe
(03:28):
drifted too far into optimism. OK, So what was the immediate
consequence? We saw it play out right?
We. Did first in bond markets, then
hitting equities, investors weresuddenly forced to reprice the
probability of rates staying elevated for longer.
That's the aggressive hire for longer dynamic really taking
hold again. And we can actually put a number
(03:48):
on that, can't we, using the CBOE Fedwatch tool?
What happened there? Yeah, we saw an immediate,
pretty sharp reaction that Fedwatch tool, which tracks the
odds of future rate moves based on options trading, It scaled
back the probability of a December rate cut down to
roughly 69%. 69% now that still sounds like it's more likely
than not. It does, but the key take away
(04:11):
is the speed and the magnitude of that shift.
Just before Powell's speech, that probability was
significantly higher. It was pushing, you know, closer
to 80%. But help us understand why that
change dropping from, say, closer to 80% down to 69%.
Why is that so impactful? Why does it create so much
volatility? It's only about what, 9 or 10
percentage points? Well, it signals A fundamental
(04:33):
collapse in conviction. The market has sort of built
this consensus around a smooth path towards accommodation,
towards easing. When that consensus breaks, the
fixed income world especially has to unwind positions that
were betting on that guaranteed easing.
Think about it, a 31 percent chance of no rate cut in
December, that's actually a veryhigh probability when you
(04:55):
consider institutional trading floors operate on like razor
thin margins and high leverage. So that shift, it instantly
increases the cost of money and injects genuine uncertainty back
into everyone's forward modeling.
OK. So that uncertainty brings us
straight to the core issue plaguing the NASDAQ in those
high growth stocks. Why does this worry about
(05:15):
interest rates hit the stock market so hard?
Especially technology, which often seems like it operates
independently of daily bond yield fluctuations?
This is probably the most important concept for our deep
dive today. It's what we call the cost of
capital connection and it's rooted in discounted cash flow
modeling or DCF. OK, DCF, break that down for us.
Think about how any company's valuation is determined, right?
(05:39):
For a mature, maybe a value oriented company, let's say an
energy giant, a big chunk of itsvalue comes from cash flows
that's generating today or in the very near future.
OK, cash now. Cash now, but for a tech company
or maybe a biopharma growth stock, that cash flow, that
profit is much further. Out.
It's based on future potential. Precisely.
The value of a high growth company is mostly based on the
(06:01):
discounted present value of its future cash flows, often
projected years, sometimes decades down the line.
So when the Federal Reserve raises interest rates, or even
just signals they'll stay high, it significantly raises the
discount rate. That's the required rate of
return investors use to figure out what those future earnings
are worth today. Which means money earned 10
(06:24):
years from now is mathematicallyworth less today if rates are
higher. Exactly right.
When the discount rate is low, those distant cash flows are
still worth quite a lot in today's dollars.
But when the discount rate riseslike Powell just signaled, it
might stay high for longer. That process of discounting
those far off earnings back to the present, it absolutely
(06:45):
hammers those long duration growth assets.
It hits them the hardest. The hardest?
It's basically a mathematical process of valuation destruction
for the highest multiple stocks,the ones that tend to dominate
the NASDAQ value companies, though with their immediate
tangible cash flows, they're relatively more insulated from
that specific mathematical shock.
That concept perfectly explains since the divergent we saw in
(07:07):
yesterday's trading then. It really does.
OK. So that detailed explanation of
discounted cash flow, it really sets up the concrete evidence we
saw yesterday. We absolutely witnessed a stark
divergent in performance on October 30th and that's the
textbook sign, right. Institutional rotation money
fleeing high risk growth is already well underway.
Oh yeah, the numbers are pretty unambiguous.
(07:28):
Those hydration growth assets, the ones most sensitive to rate
shocks, they were the clear losers.
The NASDAQ 100I UXX closed down a sharp Monica, 1.47%.
Ouch. And the broader S&P 500 STX, it
fell almost a full percent down.Mining is 0.99%.
That's a massive rejection of risk right there.
But then look at the relative strength the Dow Jones
(07:50):
Industrials Index Neo DOY. It's weighted much more heavily
towards value and cyclicals, andit contained its losses
remarkably well. It only slipped.
Might get us .23%. That small loss is really
telling. It signals money was actively
moving into perceived safety, orat least relative safety and
away from those rate sensitive sectors we.
Can trace this divergent directly back to those rate
expectations we were just talking about?
(08:11):
Absolutely. When we dig into the sexual
impact, the area's most dependent on low borrowing costs
took the biggest hits. The technology select sector
SPDRETFINFT. It declined by a stiff manic
1.28%. But the Communication services
Select sector SPDR fund TLS, which holds the names like Meta
(08:32):
and Alphabet, saw an even largerdrop, manic 1.69%.
These sectors are just being mathematically repriced because
their future growth models suddenly look more expensive to
finance. Their future cash flows are
worth less today. Got it.
Exactly. Now here's where it gets really
interesting, though. Within technology itself, the
whole AI trade seems to be undergoing massive internal
scrutiny, especially after some recent earnings reports.
(08:54):
It feels like it's no longer enough just to have a catchy AI
initiative or, you know, a slidedeck talking about the future.
That is the critical aha moment for investors right now.
I think the market has moved decisively past just generalized
enthusiasm for anything AI. Investors are now distinguishing
between companies based on actual execution, can they
(09:15):
actually monetize it and critically, capital efficiency.
We saw this powerful dichotomy emerge from the reports, really
defining what the market sees asa good AI company versus maybe a
risky one. OK.
Let's break that down. Let's look at the winners and
losers based on those criteria. Alphabet Gogl seem to be the
clear featured winner here. Yeah, Alphabet was definitely
(09:38):
rewarded for execution. They highlighted accelerated
growth in their Google Cloud segment, and they explicitly
attributed it to AI achievementsand, importantly, immediate
customer uptake. So they showed the money.
They showed the money the marketrewarded, that tangible evidence
of monetization and revenue generation happening today.
It confirmed their investment inAI was actually generating real
(09:59):
high margin results, which helpsjustify their evaluation.
OK, so conversely, Meta Platforms Meta became a future
loser, and that's despite their huge commitment to building the
AI infrastructure of tomorrow. Why the punishment there?
Meta became the cautionary tale and it was because they
projected much faster capital expenditure CapEx spending for
(10:19):
2026 compared to 2025. OK, spending more money faster.
Why is that bad? Well, the fear centers on
whether that massive infrastructure build out
represents necessary investment or critically in this new rate
environment, does it represent reckless capital requirements
that just balloon the valuation risk?
Cost of capital again. Exactly.
(10:40):
When the cost of capital is high, the market loses patience.
Frankly, with these multi year, non revenue generating
investment cycles, Meta is essentially asking investors to
fund a huge multi year bet at a time when money is expensive and
the marks reacted by punishing them for it.
So investors are drawing a really clear line now.
It's execution that monetizes now versus expensive commitment
(11:03):
that maybe pays off later. That seems to be the dividing
line, yes. So if high growth tech is being
selectively punished, where is the money actually finding a
safe harbor? Where did it go yesterday?
We saw a clear rotation into defensive sectors, ones that
possess strong fundamentals and what you call inelastic demand,
things people buy regardless of the economy.
Like health care? Exactly.
(11:25):
The healthcare select sector SPDRETFHLTH actually posted a
positive daily return yesterday plus 0.17%.
A small gain, but positive nonetheless.
And what drove that? That strength was largely busted
by Eli Lilly Lly it's surged plus 3.81% on strong clinical
and commercial news for its pipeline.
(11:45):
This confirms that capital is actively rotating toward non
cyclical strong fundamental growth stories, companies whose
demanding profile is more insulated from the immediate
economic atomic effects of the Fed's actions.
OK, let's shift our focus squarely to today, October 31st.
Given yesterday's pretty dramatic sell off, this final
trading session of the week is absolutely packed with high
impact catalyst. Yeah, it really.
(12:07):
Is and the market seems like it desperately needs some kind of
cyclical counter attack to offset that technology drag.
We saw that buffer often comes from the traditional value
oriented names reporting before market open, right?
That counter attack is definitely scheduled to begin
this morning. We've got crucial earnings
reports from the energy giants Chevron, CBX and Exxon Mobil
XOM. These companies are massive,
(12:29):
absolutely huge, and their performance can really swing the
Dow and provide significant support to broader market
sentiment if they'd level. OK, let's look at the analyst
expectations, because they seem pretty grim compared to last
year's record highs. CBX consensus EPS is $7.29.
That's down sharply from $9.72 ayear ago, and excellent
(12:51):
consensus is $6.87, down from $7.84.
Right. The market has already factored
in some significant headwinds for them, lower commodity prices
compared to the peak last year for one, along with elevated
operating costs. So the importance of these
reports today isn't really abouthitting last year's impossible
number. And about the surprise factor?
Exactly. It's about beating these lowered
(13:11):
expectations. A surprise beat, even a modest
one, could catalyze a significant rally in energy
stocks. Enrs.
And those are textbook countercyclical plays if the
energy sector catches a strong bid this morning.
It could help lift the whole market.
It provides that necessary support to offset some of the
recent technology drag and potentially lift the broader
indices today. It's a big if, but it's the
(13:34):
potential buffer the market needs.
OK. So beyond the headline EPS
number, what specific details should investors be zeroing in
on when those energy results actually drop?
I think the focus really has to be qualitative this time,
specifically on their capital allocation plans.
What are they doing with their cash?
Meaning buybacks versus spending.
(13:54):
Exactly. Investors want to see evidence
that these companies are returning capital rather than,
say, hoarding it for risky long term projects.
Are they announcing new aggressive share buybacks that
signals confidence in their current operations and returns
cash directly to shareholders? Which the market likes right
now. Which the market definitely
likes right now? Or conversely, are they guiding
(14:15):
for unexpectedly aggressive capital expenditure?
Cap X In this kind of risk averse environment, return of
capital often Trump's future expansion plans in the eyes of
investors. That's the critical qualitative
insight the market is looking for this morning.
Got it? Then we have the other elephant
in the room. Reporting before market open.
Berkshire Hathaway Inc BRKAB, a trillion dollar conglomerate.
(14:38):
Its results always shift the institutional focus.
Yeah, and when it comes to Berkshire, we really have to
stress this loudly. You have to ignore the app EPS
number. OK, why?
The consensus is $30,862.93, which is a massive drop from
$61,900 prior year. That looks bad on the surface.
(15:01):
It looks terrible, but that difference is largely
meaningless for understanding the business.
It's driven almost entirely by non cash, non operational
fluctuations in the value of their enormous investment
portfolio, things like unrealized gains or losses in
their Apple stick or Bank of America or whatever.
It doesn't reflect the health oftheir operating businesses.
So if we ignore the headline gapnumber, what are the two crucial
(15:22):
metrics that investors and analysts will be focusing on for
Berkshire? OK, First, you look intensely at
core operating earnings. This is the actual income
generated from their underlying businesses thing GEICO
insurance, Burlington Northern Santa Fe Railroad, their energy
utility holdings, sees candies, all of that.
The real businesses. The real businesses, This number
tells us the true operational health and stability of the
(15:44):
conglomerate. If operating earnings are
strong, it suggests the core economy, which Berkshire is a
kind of a proxy for, is holding up OK.
In the second metric. 2nd, and perhaps most tellingly for the
broader market right now, we look at the size of their
growing cash position. How much cash are they sitting
on? Why is the cash file so
important, especially now? Because Warren Buffett has
(16:06):
repeatedly stated he only makes those elephants, those massive
acquisitions, when valuations look attractive.
So a record, or even just a rapidly increasing cash pile,
which some analysts are projecting, could hit a new
high. What is that signal?
It sends a powerful conservativesignal to the entire market.
It suggests that arguably the most respected value investor in
(16:27):
the world views current equity market valuations as generally
unattractive, maybe even overpriced.
That kind of conservatism from Buffett acts as a sort of
psychological ceiling on overallinvestor confidence.
Interesting. OK, moving to the macro calendar
for today, the afternoon is alsopacked with data that will frame
that fed discussion for the restof the day and into next week.
(16:48):
Absolutely. Global attention will be on the
release of the Eurozone preliminary HICP.
That's their main measure of inflation.
The forecast is for a slight deceleration in headline
inflation to 2.1%. Now, what's the implication of
European inflation data for us here on US trading floors?
Why do we care? Well, a soft of an expected
reading. Say if it comes in significantly
(17:09):
below that 2.1%, it would accelerate expectations for
European Central Bank, the ECB, to start easing policy.
OK, a weaker European economy often translates to a weaker
euro. We're currently seeing the euro
as E pair trading around 1.1562.If Europe slows faster than the
US, that can actually alleviate some global inflation pressure,
(17:29):
which is good. But the main thing is to see if
inflation is becoming structurally sticky
internationally. And if Europe is forced to ease
faster than the US? Then it strengthens the US
dollar, which creates its own set of headwinds for US
multinational companies that sell goods overseas.
So it's a complex relationship. OK, back home then we have the
crucial US Chicago PMI scheduledfor 14.45 US time, 2.45 PM
(17:52):
Eastern. Right, the forecast is 42.3.
Now while this is technically animprovement from the prior
months 40.6, the key thing is that number is still well below
the 50 threshold. Anything below 50 signals
contraction in regional manufacturing activity.
So still contracting, just maybeless bad than before.
Exactly. Now, if we get a significantly
(18:13):
worse print than that 42.3 forecast, it definitely raises
legitimate recessionary alarms. But here's the paradox.
If the data is very bad, like shockingly bad, suggesting rapid
economic weakening, it might actually increase the long term
likelihood of the Fed being forced to accommodate to cut
rates next year. So bad news becomes good news
(18:34):
for the equity bulls who are desperate for rate cuts.
Precisely. It's that weird dynamic we
sometimes see. And finally today, the ultimate
test of FED consensus, the highly anticipated speeches from
Fed officials later in the day, we've got Dallas Fed President
Lori Logan, Atlanta Fed President Rafael Bostic and
Cleveland Fed President Beth Hammock on the schedule.
Yeah, the market is going to intensely scrutinize every
(18:56):
single word from them. They'll be looking to see if
Chairman Powell's hawkish stancefrom yesterday represents A
unified consensus among the voting members of the FOMC.
What's the risk here? If these speakers uniformly echo
that higher for longer warning, if they emphasize data
dependency over any pre commitment to easing, well then
the upward pressure on long termTreasury yields will likely be
(19:19):
firmly reinforced. Which would be bad for stocks.
Right. That confirmation would cement
the dominant macro headwind and make it very, very difficult for
equities to sustain any kind of midday rally we might see.
OK. Let's pivot now to the
individual stock level because today's pre market activity it's
like a kaleidoscope of extreme catalyst driven price movements.
(19:41):
These massive price gaps we're seeing both up and down they're.
Huge today. They really are the purest
gauge, aren't they, of where high conviction fundamental
money is actually flowing and what the market is truly
rewarding or, well, punishing this morning.
Absolutely. We're seeing institutions making
major conviction based moves based purely on operational
performance or lack thereof. The top gainers today,
(20:03):
interestingly, are clustered in specialized technology and
precision medicine, areas where it seems operational excellence
can actually overcome these broader macro risks.
Garden Health GH is the undisputed leader here.
This morning it surged in enormous plus 27.87% to $92.41
pre market. I mean a move of that magnitude
(20:24):
is never random. What specific operational
factors are driving that kind ofRE rating?
Yeah, that's a monster move. It was just an overwhelming
third quarter result that showedreally accelerating operational
leverage. Get this, their sales growth
accelerated to 34% year over year.
Wow. OK.
What was expected? The consensus estimate was only
22%, so they absolutely blew past the top line forecast.
(20:45):
But I think the most important metric, the one driving this
move was the operational efficiency gain.
Their Shield revenues for their cancer screening test hit $24
million versus only a $17 million expectation.
And crucially, their gross margins surpassed forecasts by
300 basis points. 300 basis points.
So it wasn't just faster growth,it was significantly more
profitable growth. Absolutely critical distinction
(21:07):
for a high growth biotech like Garden delivering both
accelerated top line growth and that kind of margin
outperformance. It signals A clearer, faster and
much more capital efficient pathto profitability than the market
was anticipating. That sounds like the definition
of operational leverage. It really is.
And that operational clarity justified multiple analyst price
target raises this morning, including TD Cowan raising their
(21:30):
target up to $100. Garden Health is just a clean
example of a company achieving escape velocity, proving that
high growth and high efficiency can override even this hawkish
Fed environment if the executionis there.
OK. Next up we have two specialized
technology players, Form Factor Form and Viv Solutions VIAV.
Both are posting huge gains, over 20% each form gained plus
(21:53):
24.16% and Viv gained plus 22.32%.
This feels like a direct repudiation, doesn't it?
Of those generalized AI fears wewere just discussing with Meta.
It is the perfect counter narrative to that meta story.
Form factor surge is directly tied to its very specific
positioning in semiconductor testing, particularly for high
(22:14):
bandwidth memory or HBM. HVM that's crucial for AI
servers right? Exactly.
It's a critical component neededfor those sophisticated AI
servers, and the company confirmed that its HBM related
revenue is tracking over 15% higher year over year.
So the market isn't just investing in the idea of AI
anymore, it's investing in the specific tangible, high margin
(22:37):
components required to actually build the AI infrastructure.
The picks and shovels of the AI gold rush.
That's a great analogy, and Viavi Solutions plays a similar
specialized role, but more on the networking and data center
build outside. Right.
What drove their big game? Viavi had an exceptional
earnings beat, but more importantly, they absolute crush
their forward guidance. They're projecting Q2 revenue
between 360 million and $370 million.
(23:00):
The consensus was way down at $302 million.
Huge beat on guidance. Massive.
And their optimism, they said, is attributed to robust demand
from the data center ecosystem, specifically tied to new network
testing and validation requirements as these AI
networks get built out. Plus, they cited strength in
their aerospace and defense segment.
So taking form and VIAV together.
(23:22):
Yeah, the combined success, the form in via AV this morning
really shows a clear market preference for these specialized
high beta proxies for next generation infrastructure CapEx,
the picks and shovels. Like you said, this is happening
even while the mega cap buyers of that infrastructure like Meta
are struggling with evaluation concerns tied to their spending.
Fascinating. Divergent within tech itself.
(23:43):
OK, now for the flip side, the top losers.
This is where we see evidence ofwell structural damage and
serious valuation destruction. FMC Corporation.
FMC is suffering the steepest drop by far, declining A
catastrophic Nanigan 46.52%. Pre market got in half.
Basically, this isn't just a badquarter, is it?
No, this is a textbook example of a stock suffering A
(24:04):
structural failure, not just some cyclical dip.
Revenue plunged 49% in Q3, whichis bad enough, but the truly
damaging piece of information, the thing that's causing this
massive sell off was the 6% price decline they experienced
on their existing product portfolio during the quarter.
OK. Explain to the listener why a 6%
(24:25):
price decline is actually more damaging than a 49% revenue
plunge in this context. Right, because the revenue
plunge could potentially be cyclical, right?
Maybe farmers deferred purchasing inputs, maybe
commodity prices shifted temporarily.
That could theoretically be fixed next quarter or next year,
the 6% price decline, however, they specifically attributed
that to increased competitive pressure in the market,
(24:46):
particularly from generics in Latin America and Asia.
Generics. That sounds bad.
It signals a permanent systemic vulnerability to the company's
competitive Moat is protective barrier and its pricing power.
Their proprietary intellectual property, the thing that allowed
them to charge premium prices, is now being actively challenged
and undercut by cheaper generic competitors.
(25:08):
Which means what for the long term?
It means the entire long term margin outlook for FMC is likely
permanently impaired. The market views this not as a
temporary problem, but as a systemic competitive failure,
and that necessitates A drastic permanent RE rating of the
stocks valuation. When your pricing power vanishes
because of generic pressure, your whole investment thesis is
(25:30):
basically broken. So this is not a buy the dip
situation for patient recovery. I would argue, based on this
information, absolutely not. This looks more like a
fundamental breakdown of the company's structural advantage
in the marketplace. Wow.
OK, finally, on the downside of Pelis Pharmaceuticals, APLS also
saw a very sharp decline, down -31.02%.
(25:52):
Yeah. That drop really highlights the
inherently binary risk you see in commercial stage biopharma
companies. These companies are often
treating almost entirely on the promise and the successful
commercial ramp up of just one or two key therapies.
So execution is everything. Everything.
Despite what might have been high prior analyst price
targets, this negative reaction implies significant
disappointment. It could be in the actual sales
(26:14):
volume they reported, or perhapsconcerns regarding their
operational burn rate, how quickly they're sending cash, a
stumble in execution and commercial stage biotech gets
punished swiftly and severely mainly because the financial
runway is often very short and market expectations are usually
built on near perfection. OK.
So as we navigate the rest of today and closeout the week, the
(26:35):
market's strategic focus it seems immediately shifts beyond
today's catalysts. It moves straight to the highest
impact risk event on the immediate calendar, the
comprehensive labor market data scheduled for next week,
culminating of course in the nonfarm payrolls, the NFP release
on Friday, November 7th. Yeah, that NFP report next
Friday is arguably the single most important piece of data
(26:56):
coming up. It will either validate or
potentially destroy the Fed's justification for maintaining
its current higher for longer stance.
Because if the Fed is truly datadependent, as they keep saying.
Then the strength or weakness ofthe labor market is their
ultimate guiding start. It's the key piece of data they
point to. And analysts are already
signaling A potentially meaningful cooling in the labor
market forecasts for that report.
(27:19):
What are the consensus numbers looking like?
Well, the early consensus forecast for the October NFP
number is for an increase of only 55,000 jobs, 55K.
That sounds low. It is substantially below the
historical pace required just tokeep up with population growth.
It's a clear sign of deceleration if it comes in near
there. Furthermore, the unemployment
(27:39):
rate is projected to tick up slightly to 4.4%.
And crucially, average hourly earnings wage growth.
Those increases are expected to cool down to .3% month over
month and just 3.6% year over year.
OK, so if those numbers prove correct or even weaker, they
signal slowing job creation and decelerating wage inflation, the
two primary targets the Thigh's been aiming for with its rate
(28:01):
hikes. Exactly.
So this sets up a pretty clear, almost binary scenario based on
whether the final number hits, misses, or maybe beats those
expectations next Friday. Absolutely.
We have to prepare for two highly divergent potential
outcomes. Let's call scenario 1 the
bullish scenario. NFP miss.
OK, what happens there? If the actual report shows a
(28:22):
material miss, let's say the NFPnumber comes in below 50K.
Or maybe even more importantly, if average hourly earnings.
OK. That's the bullish case.
Now, Scenario 2, the bearish scenario NFP beat.
What happens if the labor marketactually proves much stronger
than anticipated next Friday? Right, a strong beat.
(28:43):
Let's say we get well over 100,000 jobs added.
Or maybe average hourly earningscome in hotter than that 3.6%
forecast. That would essentially confirm
the robust strength of the labormarket is still intact.
And that would reinforce Powell's message.
Precisely. It would reinforce Chairman
Powell's recent message, validate the higher for longer
policy, and demonstrate that maybe the Fed's current
(29:04):
restrictive stance isn't even restrictive enough yet.
That kind of outcome would likely initiate a broad market
sell off as rate uncertainty andthe fear of potentially even
more rate hikes get violently reintroduced into the market.
Wow. OK.
So a really high stakes report next week.
Given this binary setup, what are the actionable trading and
investment insights coming out of this briefing for you, the
(29:25):
listener over the next few days heading into that report?
OK, a few things. First, I'd maintain a close
track on those fundamental momentum names we highlighted
earlier, Garden Health, Form factor and Vivi solutions.
The operational clarity behind their big gains today suggest
these could be sustainable RE ratings based on real execution.
(29:46):
That makes them potential rotation targets for capital
that's seeking quality growth even amidst the uncertainty.
Go watch the winners. What else?
Second, approach those structural damage names like FMC
very conservatively. Their pricing power
vulnerability, that generic competition issue often means a
permanent reduction in valuationis warranted.
It's crucial not to confuse structural failure with just a
(30:07):
temporary dip you should buy. Got it.
Be careful with the big losers and finally preparation for the
volatility spike itself surrounding November 7th.
Yeah. Given the intense binary outcome
we're anticipating based on thislabor data, tactical options
strategy seems strongly justified for those comfortable
with them. If you are an investor who
actively manages volatility, youmight consider implementing long
(30:29):
straddles or maybe long strangles in the days leading up
to November 7th. Explain that briefly.
Well, that kind of strategy allows you to potentially
capitalize on the massive volatility spike we anticipate
regardless of which direction and the NFP number ultimately
sends the market up or down. The high impact nature of this
data virtually guarantees a violent move one way or the
(30:49):
other. And these volatility strategies
are specifically designed to capture that kind of
dislocation. Okay, that brings us pretty much
full circle. We've spent this deep dive
unpacking the market struggle. Really, it's attempt to
reconcile a hawkish Fed, which is pushing down valuations
across the board, with pockets of strong, selective,
fundamental performance in critical areas like specialized
(31:12):
AI infrastructure and precision medicine.
Yeah, the key tension really remains unresolved as we head
into the trading day. Well, that cyclical strength
maybe from energy and Berkshire earnings today managed to offset
the technology drag and the Fed's confirmed resolve.
Or will the speaking Fed presidents this afternoon just
ensure the bear market narrativegets fed?
And we've seen clearly how the market is specifically punishing
(31:35):
that general AI enthusiasm. The meta CapEx concerns really
illustrate that fear of expensive long duration bets
right now. Right.
But at the same time, it's heavily rewarding that
specialized AI infrastructure, the component makers like Form
Factor and Viati, they're getting paid today.
So this raises A crucial question, I think for your own
research for you, the listener, as you move into next week and
(31:57):
plan your strategy. Yeah.
The question is how do you define the difference between
necessary future investment and what might be seen as reckless
capital expenditure in these high growth industries?
And maybe more importantly, which side of that line does the
market expect your portfolio companies to fall on next week,
especially when rates are likelyto remain elevated?
A truly fantastic and very relevant thought to Mull over as
(32:20):
we head into the market open. Thank you for joining us for
this deep dive into your sources.
I have. Pleasure.
Stay nimble out there. We'll be tracking these
colliding forces as they shape the rest of your trading day.
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