Stocks Modestly Lower into Afternoon on AI Regulation Concerns, Mideast War-Induced Inflation Fears, Technical Selling, Tech/Financial Sector Weakness

Economic/Market Gauges:

• North American Investment Grade CDS Index 51.7 +.6%
• BofA Private Credit Proxy Index 71.5 -.1% 
• Bloomberg US Securitized MBS/ABS/CMBS Avg. OAS .37 +2.0 basis points
• BofA Global Financial Stress Indicator -.04 unch.
• European Financial Sector CDS Index 56.6 +2.4%
• Emerging Market CDS Index 141.2 +1.3%
• Israel Sovereign CDS 53.6 -.3%
• Bloomberg Global Trade Policy Uncertainty Index 1.3 unch.
• US Morning Consult Daily Consume Sentiment Index 87.0 -2.2

• Citi US Economic Surprise Index 26.5 -.5

• Citi Eurozone Economic Surprise Index 70.3 -4.2

• Citi Emerging Markets Economic Surprise Index 17.6 -2.8
• S&P 500 Current Quarter EPS Growth Rate YoY(497 of 500 reporting) +53.0% -.2 percentage point
• S&P 500 Blended Forward 12 Months Mean EPS Estimate 400.67 +.04:  Growth Rate +22.1% unch., P/E 19.1 +.1
• S&P 500 Current Year Estimated Profit Margin 16.27% -3.0 basis points
• NYSE FANG+ Current Quarter EPS Growth Rate YoY(10 of 10 reporting) +131.6% unch.
• NYSE FANG+ Blended Forward 12 Months Mean EPS Estimate 979.16 +2.07: Growth Rate +45.8% +.3 percentage point, P/E 19.0 +.1
• Bloomberg US Financial Conditions Index 1.34 +17.0 basis points
• US Yield Curve 32.75 basis points (2s/10s) -1.25 basis points
• Bloomberg Industrial Metal Index 175.5 -1.5%
• Dutch TTF Nat Gas(European benchmark) 81.3 euros/megawatt-hour +2.2%
• US Recession Within 6 Months Probability(3M/18M Forward Yld Curve Spread) 9.6 -.1 percentage point
• US Atlanta Fed GDPNow Q3 Forecast +4.4% unch.
• US 10-Year T-Note Yield 4.96% -1.0 basis point
• 1-Year TIPS Spread 2.47 +2.0 basis points

• Highest target rate probability for Oct. 28th FOMC meeting: 53.0% (+2.0 percentage points) chance of 3.75%-4.0%. Highest target rate probability for Dec. 9th meeting: 49.4%(+1.4 percentage points) chance of 4.0%-4.25%. (current target rate is 3.5-3.75%)
  

Overseas Futures:

• Nikkei 225 Futures: Indicating -7 open in Japan 
• China A50 Futures: Indicating -17 open in China
• KOSPI 200 Futures: Indicating -14 open in South Korea 

• DAX Futures: Indicating +120 open in Germany

Portfolio:

• Slightly Higher: On gains in my consumer discretionary/biotech sector longs, index hedges and emerging market shorts
• Disclosed Trades: None
• Market Exposure: 50% net long

Bear Radar

Style Underperformer:

• Large-Cap Growth -.5%

Sector Underperformers:

• 1) Semis -5.1% 2) Oil Service -4.1% 3) Computer Hardware -3.7%

Stocks Falling on Unusual Volume: 

• SRRK, ORCL, HPQ, QDEL, AYA, BIP, BIPC, TS, DELL, DRD, GLUE, AMRC, HMY, GLUE, AMRC, BAC, BZ, EGO, CRDO, ENOV, BE, DSGN, CECO, BDC, DY, QRVO, CEG, VRT, AEHR, FPS, TLN, ETN, PBF, KGS, EROC, CAMT, GEV, OLED, LITE, HPE, SWKS, NVT, BRUN, COHR, CIMO, GLW, SWMR and HQ

Stocks With Unusual Put Option Activity:

• 1) AIPO 2) EWT 3) XEL 4) DFTX 5) FPS

Stocks With Most Negative News Mentions:

• 1) MU 2) GLW 3) BE 4) HTZ 5) CAT

Sector ETFs With Most Negative Money Flow:

• 1) SMH 2) XLP 3) IYE 4) IYW 5) IYZ

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value +.1%

Sector Outperformers:

• 1) Cyber Security +6.5% 2) Software +5.4% 3) Computer Services +3.8%

Stocks Rising on Unusual Volume:

• ELMT, RPD, SAIL, S, ZS, CRWD, NTSK, PANW, RBRK, TYRA, TENB, OKTA, RBLX, IOT, COIN, NET, BLSH, BWIN, OCTV, GRDN, TTAN, CHWY, ASST, CHKP, CRCL, AVAV, SMMT, COCO, FSLY, RELX, SLS, SLDE, AVLN, OSPN, XE, WBTN, DSGX, PHVS, SEDG, VRNS, WFG, GENB, BBNX, M, CHYM, BTI, PODD, BNTX, HAWK and AEO

Stocks With Unusual Call Option Activity:

• 1) BBD 2) EL 3) PLAY 4) LSCC 5) CVE 

Stocks With Most Positive News Mentions:

• 1) ELMT 2) PANW 3) OKTA 4) RUM 5) QLYS

Sector ETFs With Most Positive Money Flow:

• 1) XBI 2) XLF 3) AGIX 4) XLC 5) KBE

Charts: 

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

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

Earnings of Note 
Company/Estimate 

Before the Open:

• None of note

After the Close: 

• (TCOM)/5.94

Economic Releases 

8:30 am EST

• Empire Manufacturing for Sept. is estimated to fall to 15.0 versus 20.6 in Aug. 

Upcoming Splits

• None of note

Other Potential Market Movers

• The 20Y T-Bond auction, weekly ADP employment change report, weekly US retail sales reports, API weekly crude oil stock report, Piper Sandler Tech Conference, Baird Healthcare Conference, (SWBI) annual meeting and the Jefferies Healthcare Conference could also impact global trading tomorrow.

US Equity Market Hours

• 9:30 am - 4:00 pm EST

Mid-Day Market Internals

NYSE Composite Index:

• Volume Running -6.6% Below 100-Day Average 
• Nasdaq/NYSE Volume Ratio 11.4 -2.9
• 4 Sectors Rising, 7 Sectors Declining
• 45.8% of Issues Advancing, 51.7% Declining 
• TRIN/Arms .75 -21.9%
• Non-Block Money Flow -$36.7M
  
• 46 New 52-Week Highs, 231 New Lows
• 50.4% (-1.0%) of Issues Above 200-day Moving Average
• Average 14-Day RSI 45.0 -2.0

Polymarket: 

• Will China invade Taiwan by June 30th 2027? 7.0% -1.0 percentage point
• Strait of Hormuz traffic returns to normal by October 31st 6.0% -4.0 percentage points
• Iran agrees to end enrichment of uranium by Dec. 31st 14.0% +1.0 percentage point
• Israel withdraws from Lebanon by December 31st 7.0% -1.0 percentage point
• US Invades Iran before 2027 17.0% +1.0 percentage point
• US announces end of Iranian blockade by October 31st 36.0% -1.0 percentage point

Other

• Bloomberg Global Risk-On/Risk-Off Index 132.6 +.3%
• Global Monitor Iran Instability Index 65.0 -14.0
• Strait of Hormuz Oil Tanker Traffic Curtailed Estimate 90.0% unch.
• US High-Yield Tech Sector OAS Index 443.25 +9.5 basis points
• Bloomberg Cyclicals/Defensives Index 269.2 -.5%
• Morgan Stanley Growth vs Value Index 145.6 -.7%
• CNN Fear & Greed Index 31.0 (FEAR) -2.0
• 1-Day Vix 9.4 -27.3%
• Vix 16.7% +5.7%
• Total Put/Call .79 -9.2%

Monday Watch

Around X:

• @Business

• US Energy Secretary Chris Wright cautioned oil traders against expecting a breakthrough on the Strait of Hormuz as Iran plans to pitch other Gulf countries on a deal for passage through the energy chokepoint. 
• Trump said he’d warned Ukrainian Zelenskyy to stop targeting oil refineries in Russia amid strikes that have shut down diesel refining and helped drive prices for the fuel to record levels. 
• A top Iranian official has been blocked from addressing the International Atomic Energy Agency’s general conference in Vienna after pressure from the Trump administration. 
• House Democratic Leader Hakeem Jeffries says Democrats plan a caucus on Tuesday morning on action on artificial intelligence, according to a transcript of his interview with ABC’s This Week. 
• The loss of a fifth of liquefied natural gas supply due to the US-Iran war is blowing out costs for Asia’s developing markets, and forcing a rethink of the fuel’s long-term future in the region. 
• The US Environmental Protection Agency is expected to formally rescind carbon pollution standards for fossil fuel-fired power plants as soon as Monday, sources say.
• Here’s the latest news and analysis on the oil market. 
• Get up to speed on what's moving global markets.    
• Here’s what you need to know to start your day. 

• @ZeroHedge

• 2026 "Unmatched" In Macro/Market Decoupling; Goldman's Top Quant Trader Says Americans Are "Under-Appreciating" Japan's Geopol Impact. 
• *SK HYNIX FALLS MORE THAN 5%, SAMSUNG DOWN 4% AFTER AI WARNINGS *SOUTH KOREA'S KOSPI INDEX FALLS 3.1% TO 6,692.61.   
• "Our HY AI datacenter custom basket now trades at a spread of 353bps – 88bps wide of not only its tights from June 22nd, but also the broader HY market. When looking at all 2025 and 2026 AI-centric issuance, the respective OAS of that cohort is even wider at 381bps" - Goldman. 
• Trump's Grid Battery Ban Leaves Developers Guessing. 
• Arab Spring 2.0? Fuel Riots Erupt In Syria As Instability Spreads Across Mideast.
• "Going Nowhere Fast": BTIG Warns New Lows Soaring Below Calm Index Surface.
• *ANTHROPIC WILL BE PROFITABLE FOR SECOND STRAIGHT QUARTER: FT.
• Shareholder Ownership Gives Way To Corporate Control.
• *DELL FAMILY OFFICE NEAR TAKE-PRIVATE DEAL FOR BALDWIN GROUP: FT.
• *BRENT GAINS 2.4% AFTER SAUDI PIPE SHUT, HORMUZ MEETING DELAYED.
• Johnson Says $5,000 Trump Payments Require Congress To Act.
• The Extremism - And Irrelevancy - Of The 'Democratic Socialists'.
• "The Politics Of Compute": Morgan Stanley Evaluates How Public Backlash Against Data Centers Would Hammer U.S. GDP.
• California Enacts New Child Safety Laws On Social Media And AI Chatbots.
• Resource Nationalism Hits Tungsten: US Locks Down Scrap, UK Funds Mine, Zimbabwe Bans Exports, Vietnam Weighs Curbs.
• "projects totalling an estimated ~$156 billion were cancelled or delayed in 2025, with another ~$130 billion affected in 1Q26. While not our base case, the risk that political opposition slows the AI infrastructure buildout is no longer negligible." - Morgan Stanley.
• Hormuz Deal Hits Snag: Monday's Gulf-Iran Shipping Talks "Postponed".
• The 'Smart' Money Cut, The Machines Did Not; Goldman Partner Sees 3 Market Headwinds & 4 Key Debates.
• The Fauci Diary Entry That Explains Why MAHA Must Exist.
• Trump Rejects AI "Pause" As Obama Urges Democrats To Regulate It.
• Anthropic's AI Warning To Weigh On Stocks As Contracts Traded On Hyperliquid Slide.
• Warsh Faces An "Incredibly Difficult Dilemma" This Week.
• If Dems Win The House: Data Centers, Nuclear, Venezuela Oil Deal Likely Targets.
• *ANTHROPIC HAS CHOSEN NASDAQ FOR IPO LISTING: BUSINESS INSIDER. *BUSINESS INSIDER CITES PERSON FAMILIAR WITH ANTHROPIC IPO PLANS. No delays here.
• Trump Admin Weighs Emergency Powers To Boost Refining As Diesel Tops $6.
• "I Ain't Playin'": Cognizant, Cloudera PERM Filings And H-1B Processing Suspended.
• Obama Urges Democrats to Move A.I. Oversight to the Center of Their Agenda.
• Yemen Blame Game Begins: "Saudi-American F**k Up Of Epic Proportions".
• 'Regulatory Capture Or Psy-Op': Top White House AI Advisor Slams 'Pace The Frontier' Push.
• Attack Drone Hits Warsaw-Bound Passenger Train Near Polish Border, Raising NATO Spillover Risk.
• Anthropic Bans Israeli Account Over Iran, Gulf Social Media Citizen Profiling.
• "Something's Going To Happen": DHS Chief Says Lefty Ilhan Omar "Married Her Brother", Floats Deportation.
• How Romania Came To Host A Post-9/11 CIA Black Site & Got US Cash Bonanza.
• Florida's Attorney General Sues Netflix For Allegedly Harvesting, Selling Children's Data.
• US Limits Its Air Defense Coverage For Tankers Sailing Through Hormuz: Report.    
• Hartnett: All Eyes On This Indicator, Whose Breakdown Will Confirm A Fall Stagflation Event.                            

• @CNBC  

• Stock futures drop as investors weigh AI safety concerns, oil gains: Live updates.
• Oil prices rise after Saudi Arabia shut down critical pipeline that bypasses Strait of Hormuz.
• Anthropic's Amodei says China presents 'toughest dilemma' for his proposed AI slowdown.

Night Trading 

• Asian equity indices are -2.25% to -.75% on average. 
• Asia Ex-Japan Investment Grade CDS Index 65.5 +.5 basis point. 
• China Sovereign CDS 34.5 unch.
• China Iron Ore Spot 96.05 USD/Metric Tonne -.5%. 
• Crude Oil 103.25/bbl. +3.2%. 
• Gold 4,376.5 USD/t oz. -.73%. 
• Swiss Franc/Offshore Chinese Renminbi Cross 8.21 -.07%.
• Bloomberg Emerging Markets Currency Index 34.19 -.07%.
• Bloomberg Global Risk-On/Risk Off Index 132.6 +.4%.
• US 10-Year Yield 4.96% unch.
• Japan 30-Year Yield 4.08% +2.0 basis points.
• Volatility Index(VIX) futures 18.8 +2.6%.
• Euro Stoxx 50 futures -.35%. 
• S&P 500 futures -.5%.
• NASDAQ 100 futures -1.3%.

Morning Preview Links

BOTTOM LINE: Asian indices are lower, weighed down by transportation and technology shares in the region. I expect US stocks to open lower and to maintain losses into the afternoon.  The Portfolio is 50% net long heading into the week.