US Equities Weekly: Oct 5 - 9
Disclaimer: This article is for informational and educational purposes only. It does not constitute financial, legal, or investment advice. Views are based on public information as of the publication date and are subject to change.
1. Three Treasury auctions were the main storyline
For the past month, the biggest headwind for US stocks has been the bond market. The 10-year yield rose nearly 50 basis points in September and touched 5.37% intraday on Wednesday, the highest in 24 years. Higher yields mean higher borrowing costs and lower equity multiples.
Treasury held three auctions this week:
- Tuesday: 3-year notes
- Wednesday: 10-year notes
- Thursday: 30-year bonds
All three went well. The 10-year drew the strongest bid-to-cover ratio of the last 12 auctions, and foreign participation was at a multi-year high. That answered last week’s biggest question: whether anyone wants to buy Treasuries at 5.3%. The answer is yes, and buyers lined up.
After the auctions, the 10-year yield fell back to 5.24%. The MOVE index, which tracks bond-market volatility, dropped from 113 to around 105, its first lower low in three months. The panic in bonds is fading.
2. Breadth improved, but no new money came in
- Tuesday was the best breadth day since August 4.
- Thursday, the equal-weight S&P 500 beat the cap-weighted index by more than 100 basis points.
- Friday, all four major indices closed higher.
The improvement ran on two things: falling rates, and money rotating out of AI leaders into other sectors.
Net long exposure at US long/short hedge funds is at the 0th percentile. There is cash on the sidelines, but it hasn’t come in. This week’s breadth improvement was a reshuffling of existing money, not an inflow.
3. The OpenAI headline was noise, but it exposed the structure
Thursday, the FT reported OpenAI’s annualized revenue at end-September was close to $50 billion, below the $70 billion figure that had been circulating. The reaction:
- Nasdaq: −1.25%
- Nvidia: −2.9%
- Micron: −4.8%
- AMD: −3.9%
Every semiconductor stock closed lower. Friday, Bloomberg reported OpenAI expects to reach or exceed $70 billion by year-end, and that the earlier figure had included partners’ gross revenue.
OpenAI’s revenue number is not the problem. The problem is what the episode revealed: the AI trade’s anchor customer is a private company whose revenue is known only to its investors, and the market is pricing several trillion dollars of market cap off second-hand information. One report knocked the whole group down 3%. A second report recovered only half of it.
4. AI financing headlines hit record density
- SpaceX is raising $40 billion to buy Nvidia chips.
- Broadcom is arranging over $50 billion in financing for OpenAI’s custom chips.
- Oracle is in talks with Apollo and Goldman Sachs on a similar deal.
- Wall Street banks plan to issue 30% more bonds in Q4 to fund these projects.
- SpaceX credit default swaps hit a record high.
These numbers say one thing: the buyers of AI hardware are borrowing to buy chips.
The core question for the AI trade is how suppliers keep making money if their customers don’t. Nvidia’s profits come from purchases by OpenAI, SpaceX and Oracle, and those purchases are funded by debt. OpenAI projects it will burn $278 billion in cash from 2026 to 2030. The chain holds as long as borrowing costs don’t rise and credit stays available. This week’s auctions say borrowing costs have stopped rising for now. SpaceX CDS says credit has started charging more for access.
Same week, three pieces of good news that didn’t get bought:
- TSMC: September revenue up 55%. Stock closed lower.
- Samsung: record Q3 profit. Stock closed lower.
- Lumentum: AI server components booked through 2029. Stock closed lower.
Good news isn’t getting bought. Expectations for semis are fully priced.
Positioning: The Pros Are on the Sidelines
Goldman Sachs published a number this week. Net long exposure among the US long/short hedge funds it covers is at the 0th percentile over the past year, meaning positioning has not been lighter at any point in the last 12 months. On a three- and five-year basis, it sits at the 2nd to 3rd percentile.
Charts below are taken from my Market Fragility Dashboard, the COT data, updated four days ago, shows leveraged fund positioning at historic lows.
Positioning at the lows means whoever wanted to sell has already sold. If good news arrives, a broad rally is easier to get. If bad news arrives, these funds have little left to sell, so the downside is capped.
The S&P is near all-time highs while professional investors hold their lightest positioning in a year. That looks contradictory, but it explains three things from this week:
- Thursday’s FT report hit every semiconductor name, because lightly positioned investors have no patience.
- Friday’s rebuttal recovered only half the loss, because the cuts were never about OpenAI. They were about rates and a pile of other uncertainties, and one correction doesn’t bring that money back.
- The rotation out of AI into other sectors was existing money moving around. Sideline cash is still on the sidelines.
Consumers: Record Pain, Record Stock Market
Friday’s University of Michigan survey:
- Current conditions index: 44.7, the lowest since records began in 1951.
- One-year inflation expectations: 4.7%, highest since May.
- Long-run inflation expectations: 3.5%, highest since May.
The same day, the S&P closed within 0.4% of its all-time high. The survey said pain is concentrated among lower-income households, and buying conditions for durable goods have deteriorated sharply on high prices and high borrowing costs.
The corporate side shows the same picture:
- Delta: Q3 fuel costs up 62% year over year; full-year EPS guidance cut from $6.50–7.50 to $5.10–5.60.
- Apple: raised iPhone prices after memory costs spiked, saw demand soften, and cut October component orders by at least 15%.
Stocks are rising because earnings are rising, and earnings are rising on AI capex and corporate pricing power. Consumer pain comes from higher energy and memory prices. Both are happening at once. The base of earnings growth is narrower than the index suggests.
The Fed: Tougher Talk, Less Belief
The September FOMC minutes showed all 19 officials supported the September hike, and most expect one more before year-end. Two officials said publicly this week that further hikes are needed. The market prices only 25 basis points of hikes by year-end, with less than a 20% probability of an October move.
Friday, the White House announced a commission to investigate Fed Governor Cook. Next Friday, Fed Chair Warsh speaks at the IMF annual meetings, his first public remarks after the CPI print.
Oil: Tension Beneath a Flat Tape
WTI traded between $88 and $92 all week.
Supply is recovering:
- Saudi Arabia’s East-West pipeline is back to 5.8 million barrels per day.
- Kuwait’s output is back to 75% of pre-war levels.
- The G7 plans to release 100 million barrels from reserves.
Demand-side risk is worsening:
- Iran struck at least nine ships last week, the most since July.
- Crude flows through the Strait of Hormuz fell from 16 million to 8 million barrels.
- Trump said there will be no strike on Iran before the midterms.
Oil’s reaction to bad news is dulling. The US now produces twice as much oil as Saudi Arabia and exports more LNG than Qatar, so energy shocks hit the US economy far less than in the 1970s. And the market has started treating sustained Middle East conflict as background.
What to Watch Next Week
CPI is the focus. Consumer inflation expectations are accelerating, September’s energy prices will show up fully in the data, and a hot print is more likely than a cool one. But the market has prepared for hot. This week’s bond buying shows institutions are willing to step in above 5.3%.
My Calls
1. The high in the 10-year yield is in.
Wednesday’s 5.37% was the top for this cycle; no close above 5.35% in October. The three drivers of higher rates — oil, hike expectations, foreign buyers on hold — all weakened this week. Historically, a lower low in bond volatility leads a peak in yields by two to three weeks.
Invalidation: core CPI above 0.4% month over month, or a sovereign-level event in French bonds.
2. CPI comes in hot. The S&P tests 7,700 and holds.
7,700 is the early-October breakout level and a cluster of call open interest in the options market. Professional positioning is already at the lows, so there aren’t many sellers left. A test of 7,700 is more likely a touch-and-bounce than a sustained break.
Invalidation: two consecutive closes below 7,700.
3. If CPI is mild, the S&P clears 8,000 before the end of October.
Sideline cash is the highest in a year, a mild print removes both the rates overhang and the Fed overhang, and Q3 earnings growth is expected above 25%. With all three in place, the sidelines have to chase.
4. The credit layer of the AI chain cracks before the equities do.
This is the only area that worsened this week. High-yield spreads are at 1.83%, 17 basis points from the 2% warning line. Anthropic’s IPO in mid-November will force the market to reprice all AI financing. The exposure sits with the companies borrowing to buy chips — Oracle, CoreWeave, SpaceX — not with Nvidia.
Invalidation: Anthropic’s IPO prices smoothly at a valuation above expectations.
5. Semis don’t make new highs before hyperscaler earnings at month-end, but do afterward.
The group is up 10% in two weeks, good news isn’t getting bought, and institutions cut exposure in unison this week. It needs new data. Cloud revenue typically lags capex by three to six quarters, and this is when the returns start to show.
6. No October hike, but Warsh pushes December hike odds back above 50%.
The minutes say most officials favor one more hike this year; the market prices 25 basis points. Data resolves that gap. With the White House investigating Cook, the Fed will want to demonstrate independence.
Invalidation: core CPI below 0.25% month over month.
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