Stocks Reversing Sharply Lower into Afternoon on China's New Rare Earth Controls, Trump Massive Tariff Threat Response, Supply Chain Disruption Worries, Tech/Commodity Sector Weakness

Overseas Futures:

• Nikkei 225 Futures: Indicating -1,600 open in Japan 
• China A50 Futures: Indicating -550 open in China

• DAX Futures: Indicating +120 open in Germany

Portfolio:

• Lower: On losses in my tech/utility/financial/consumer discretionary/industrial sector longs
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my emerging market shorts
• Market Exposure: Moved to 25% Net Long

Monday's Earnings/Economic Releases of Note; Market Movers

Earnings of Note 
Company/Estimate 

Before the Open:

• (FAST)/.30

After the Close: 

• None of note

Economic Releases 

• None of note

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Paulson speaking, Goldman Sachs Metals & Mining Conference and the (GTLB) road show could also impact global trading on Monday.

US Equity Market Hours

• 9:30 am - 4:00 pm EST

Friday Watch

Around X:

• @Business 

• President Donald Trump made a big investment in trying to bring the war between Israel and Hamas in Gaza to an end and it’s about to pay off.
• China has unveiled broad new curbs on its exports of rare earths, boosting its leverage over critical minerals in its trade war with the US. Here's what to know. 
• scoop: Microsoft’s data center crunch will stretch into 2026, internal forecasts show. New azure cloud business is restricted in critical regions like Northern Virginia or Texas. 
• Employees are finding practical and creative ways to leverage AI technology into real business value.
• Southwest Airlines warned employees about potential operational delays at airports from a shortage of air traffic controllers as the US government shutdown drags on.
• The Bureau of Labor Statistics has recalled staff to prepare the September consumer price index report. 
• The existential threat of a network attack that has lingered over Bitcoin since its inception is being ignored while investor flock to the cryptocurrency as a refuge from the debasement of the dollar. 
• Follow the latest developments in global markets.
• Here's what you need to know to start your day. 

• @ZeroHedge

• Trojan Horse For Partisan Media': Seattle Mayoral Frontrunner Wants To Force Taxpayers To Subsidize Biased News Outlets.
• Pro-Paper-Ballot Firm Buys Dominion Voting Systems. 
• How Trans-Activists Hatched A Plot In The 1980s To Hijack 'Science'.
• *BESSENT SAYS ARGENTINA PESO IS UNDERVALUED.
• This is NOT true and taken out of context. To be clear: up to 200 U.S. personnel, who are already stationed at CENTCOM, will be tasked with monitoring the peace agreement in Israel, and they will work with other international forces on the ground. 
• Remember the POWERFUL words of Letitia James. They can and will be used against her in a court of law.  
• 18 Numbers Which Clearly Show What Direction Things Are Going.
• How Vaccine Policies Have Changed Under RFK Jr. 
• "Get Out Of My Fu**ing Shot!": Second Katie Porter Video Plunges Gubernatorial Campaign Into 'Disaster'.
• Fascinating. Dominion Voting was just bought out. 
• Update: Dominion Sold for Scrap Because Indictments Expected Soon? You bet your bippy that we're reading between the lines here - but with what is surfacing almost daily it's practically the only reason that makes sense. Developing ... Scott Leiendecker, give us a call if we're way wrong. 
• The Student Mule Economy: A Billion-Dollar Problem Hiding In Plain Sight.
• Grand Jury Indicts NY AG Letitia James On Criminal Bank Fraud, CNN Reports.
• 'Clubbed Like A Baby Seal' - Momentum Snaps Everywhere As Dollar Hits 2 Month Highs.

• @CNBC

• Microsoft engineer resigns over cloud business from Israeli military.
• Asia-Pacific markets set to open lower, tracking Wall Street losses.
• Friday's big stock stories: What’s likely to move the market in the next trading session.
• Stock futures are little changed after S&P 500, Nasdaq pullback from record highs: Live updates.

• @WSJ 

• Trump’s announcement that he ended the two-year war in Gaza rested on an unorthodox strategy of declaring victory first and forcing others to fill in the details and make it a reality. 
• Federal regulators have opened another investigation into Tesla’s automated driving technology, saying the system “induced” some cars to run red lights or to turn into oncoming traffic. 
• How much social and public-health damage will Americans suffer before doing a U-turn on marijuana promotion?
• Homeland Security Secretary Kristi Noem said that ICE is “doubling down” in and around Chicago despite opposition from local officials and a legal challenge to the deployment of federalized National Guard members. 
• Republican and Democratic senators are trading ideas on healthcare funding to forge a path out of the government shutdown.
• The government shutdown will soon hit the wallets of federal workers nationwide. Here’s what to know.
• A big U.S. military buildup in the Caribbean and strikes on alleged drug boats are heavily pressuring Venezuelan strongman Nicolás Maduro to find a way to appease President Trump.
• Novo Nordisk agreed to acquire Akero Therapeutics for up to $5.2 billion in cash.
• The books have closed on the U.S. government’s fiscal 2025. Here’s what has changed about the federal budget—and what hasn’t.  

Night Trading 

• Asian equity indices are -.75% to +.25% on average. 
• Asia Ex-Japan Investment Grade CDS Index 65.5 +.75 basis point.
• China Sovereign CDS 41.75 +2.0 basis points.
• China Iron Ore Spot 105.4 USD/Metric Tonne +.5%. 
• Swiss Franc/Offshore Chinese Renminbi Cross 8.85 -.07%.
• Bloomberg Emerging Markets Currency Index 36.28 -.05%.
• Bloomberg Global Risk-On/Risk Off Index 86.2 -.9%.
• US 10-Year Yield 4.14% unch.
• Volatility Index(VIX) futures 19.2 -.3%.
• Euro Stoxx 50 futures +.04%. 
• S&P 500 futures +.18%
• NASDAQ 100 futures +.22%.

Morning Preview Links

BOTTOM LINE: Asian indices are modestly lower, weighed down by financial and consumer discretionary shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher.  The Portfolio is 100% net long heading into the day.

Stocks Lower into Final Hour on Less Dovish Fed Rhetoric, Higher Long-Term Rates, Technical Selling, Homebuilding/Commodity Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Most Sectors Declining

• Volume: Above Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 16.8 +3.2%
• S&P 500 Intraday % Swing .61 +10.8%
• Bloomberg Global Risk On/Risk Off Index 87.4 +2.2% 
• Swiss Franc/Offshore Chinese Renminbi Cross 8.85 -.8%

• Euro/Yen Carry Return Index 200.08 -.4%

• Emerging Markets Currency Volatility(VXY) 6.39 +.2%

• CBOE S&P 500 Implied Correlation Index 13.8 +1.6% 

• ISE Sentiment Index 165.0 -33.0

• Total Put/Call .78 +4.0%

• NYSE Arms .67 -51.1%
• NYSE Non-Block Money Flow -$176.6M 
  

Credit Investor Angst:

• North American Investment Grade CDS Index 52.63 +1.4%
  

• US Energy High-Yield OAS 344.9 +2.4%
• Bloomberg TRACE # Distressed Bonds Traded 201.0 -9.0

• European Financial Sector CDS Index 60.82 +.7%
  
• Deutsche Bank Subordinated 5Y Credit Default Swap 132.6 +.34%
  

• Italian/German 10Y Yld Spread 81.0 +1.0 basis point

• Asia Ex-Japan Investment Grade CDS Index 65.2 +1.0%
  

• Emerging Market CDS Index 147.8 +.9%
• Israel Sovereign CDS 70.9 -9.6%
  

• China Corp. High-Yield Bond USD ETF(KHYB) 24.5 -.2%

• 2-Year SOFR Swap Spread -22.5 basis points -.75 basis point

• 3M T-Bill Treasury Repo Spread -14.0 basis points +1.75 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -2.0 -.5 basis point
• MBS  5/10 Treasury Spread 125.0 +1.0 basis point
• Bloomberg CMBS Investment Grade Bbb Average OAS 604.0 -1.0 basis point
• Avg. Auto ABS OAS 55.0 +2.0 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 36.3 -.2%
• US 10-Year T-Note Yield 4.14% +3.0 basis points
• 3-Month T-Bill Yield 3.95% +4.0 basis points

• China Iron Ore Spot 105.4 USD/Metric Tonne +.5%
• Dutch TTF Nat Gas(European benchmark) 32.4 euros/megawatt-hour -1.0%

• Citi US Economic Surprise Index 12.6 -.6 point

• Citi Eurozone Economic Surprise Index -3.0 -.4 point

• Citi Emerging Markets Economic Surprise Index 5.3 -.8 point
• S&P 500 Current Quarter EPS Growth Rate YoY(23 of 500 reporting) +9.7% -1.4 percentage points
• S&P 500 Blended Forward 12 Months Mean EPS Estimate 294.75 +.17:  Growth Rate +12.7% +.1 percentage point, P/E 22.9 unch.
• S&P 500 Current Year Estimated Profit Margin 13.48% -1.0 basis point
• NYSE FANG+ Current Quarter EPS Growth Rate YoY(0 of 10 reporting) n/a
• NYSE FANG+ Blended Forward 12 Months Mean EPS Estimate 478.21 +.26: Growth Rate +17.7% +.1 percentage point, P/E 34.3 +.1
• Bloomberg US Financial Conditions Index .69 +5.0 basis points
• Bloomberg Euro-Zone Financial Conditions Index 1.32 +6.0 basis points
• Bloomberg Global Trade Policy Uncertainty Index 1.9 -.2
• US Yield Curve 54.75 basis points (2s/10s) +.75 basis point
• US Atlanta Fed GDPNow Q2 Forecast +3.8% unch.
• US Recession Within 6 Months Probability(3M/18M Forward Yld Curve Spread) 36.5% -1.2 percentage points

• Cleveland Fed Inflation Nowcast Core PCE YoY +2.87% unch.: CPI YoY +2.99% unch.
• 1-Year TIPS Spread 2.70 -5.0 basis points
• 10-Year TIPS Spread 2.36 unch.
• Highest target rate probability for Dec. 10th FOMC meeting: 81.5% (+2.3 percentage points) chance of 3.5%-3.75%. Highest target rate probability for Jan. 28th meeting: 56.1%(+.6 percentage point) chance of 3.5%-3.75%. (current target rate is 4.0-4.25%)
  

Overseas Futures:

• Nikkei 225 Futures: Indicating +450 open in Japan 
• China A50 Futures: Indicating -13 open in China

• DAX Futures: Indicating +140 open in Germany

Portfolio:

• Slightly Higher: On gains in my tech//utility sector longs, index hedges and emerging market shorts
• Disclosed Trades: None
• Market Exposure: 100% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Value -.9%
  

Sector Underperformers:

• 1) Gold & Silver -4.8% 2) Oil Service -2.3% 3) Electrification -2.0%

Stocks Falling on Unusual Volume: 

• TSLX, ARCC, BA, CTRA, AZZ, IDR, CSWC, HTGC, SION, AESI, AG, MYE, FORD, PAAS, PENG, AS, PHM, ADUR, ERO, MAIN, DELL, CCRN, HSBC, GRBK, EGO, HSAI, CMCL, SBSW, ODD, BNC, BTQ, RACE, DGNX and HELE, 

Stocks With Unusual Put Option Activity:

• 1) CNK 2) AS 3) CCCX 4) ORBS 5) LEVI

Stocks With Most Negative News Mentions:

• 1) RACE 2) HELE 3) AZZ 4) TROX 5) DOW

Sector ETFs With Most Negative Money Flow:

• 1) XLK 2) ARKK 3) FDN 4) XLE 5) KBWB

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Mid-Cap Growth -.3%

Sector Outperformers:

• 1) Coal +1.6% 2) Electric Vehicles +1.4% 3) Networking +.4%

Stocks Rising on Unusual Volume:

• SERV, CRML, SYRE, BYRN, AKRO, PATH, TECX, WOLF, USAR, BHVN, APGE, BMA, SEDG, PHAT, UAMY, CSIQ, CDTX, IMVT, CCCX, GGAL, NTGR, ZBIO, UUUU, ORKA, TGS, HOND, EWTX, NTLA, CGON, YPF, QURE, CFLT, SUPN, ASTS, ALB, GPCR, BROS, ZETA, BEAM, ELVN, SIBN, DAL, TNK, FRO, IREN, JANX, DHT, ORCL, VIST, PEP, ENPH, BILI, CEVA, BRKR, NBIS, HROW, MIRM and UAL 

Stocks With Unusual Call Option Activity:

• 1) XHB 2) ALK 3) CABA 4) TE 5) SIRI

Stocks With Most Positive News Mentions:

• 1) TLRY 2) MP 3) DAL 4) PATH 5) ALB

Sector ETFs With Most Positive Money Flow:

• 1) XLF 2) SOXX 3) VGT 4) XLV 5) XBI

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume