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London Quick Take - 5 Things to Know in Markets Today - 2 Nov
5 Things to Know in Markets Today
1. AI selloff cools, but confidence remains shaken
AI selloff eases a touch: The Nasdaq-100 looks set to open higher with US futures rebounding on Monday after a brutal selloff on Friday capped the worst month for the index in a year. NDX finished down –3.5% with semiconductors –8% as investors turned tail on AI stocks. Things are stabilising a bit now with a positive move in Asia - the Kospi rallied over 2% as SK Hynix and Samsung Electronics posted 2-4% gains, a sign of a tick-up in the beaten-up memory space.
Just how much damage was done on Friday? Intel dropped -28.6%. SanDisk -13.5%, AMD -10.9%, and Arm Holdings -10.0%. Reddit was down 30% as search traffic is down because of AI. But there are some heavy positive pre-mkt moves in some of the most beaten-up names on Monday, Reddit +9% for instance. Are you a buyer with NDX -10% below its ATH and November historically strong? Underlining the nervousness, Meta was slapped with a negative outlook by S&P Global Ratings due to the ballooning capex and negative free cash flow.
Just how much damage was done on Friday? Intel dropped -28.6%. SanDisk -13.5%, AMD -10.9%, and Arm Holdings -10.0%. Reddit was down 30% as search traffic is down because of AI. But there are some heavy positive pre-mkt moves in some of the most beaten-up names on Monday, Reddit +9% for instance. Are you a buyer with NDX -10% below its ATH and November historically strong? Underlining the nervousness, Meta was slapped with a negative outlook by S&P Global Ratings due to the ballooning capex and negative free cash flow.
2.Diversification is beating
It's not all doom and gloom – lots of lower quality names and more defensive corners of the market have been rallying. SOXX is now down –28% from its summer high, while SPX is just –3% lower. SPX equal weight is +4% higher, underlining the importance of diversification. Utilities, Energy, Healthcare and Staples all +10% for the month vs Communication Services –10%.
We're seeing a mismatch in cash flows and capex and a fundamental reassessment of what's behind the boom in AI-related stocks. Investors have got more cautious and this reflects doubts about the pace and durability of the AI capex and monetisation timeline combined with uncertainty ahead of the US midterms. The pullback in the AI trade is a positive for bonds, which rallied in October to steady the ship after the September scaries.
We're seeing a mismatch in cash flows and capex and a fundamental reassessment of what's behind the boom in AI-related stocks. Investors have got more cautious and this reflects doubts about the pace and durability of the AI capex and monetisation timeline combined with uncertainty ahead of the US midterms. The pullback in the AI trade is a positive for bonds, which rallied in October to steady the ship after the September scaries.
3.Apple earnings are the next test
Later today we have earnings from Apple and Palantir. Apple has largely shrugged off the tech selloff, rallying 28% this year, leading the Mag 7 easily. Whilst it was punished for a lack of spending on AI in 2025, it's being rewarded in 2026 for its consistently strong execution, product mix and services growth. Wall Street is eyeing earnings per share to rise about 8% year-on-year to around $1.99 a share, on revenues that are set to grow 11% YoY to $113 billion. Investors will be eyeing iPhone demand with data indicating a surge in China sales for the 18 Pro, as well as the high margin services business.
4.Oil drops as Iran diplomacy hopes grow
Brent fell -3% in early trading to $110 after reports President Trump wants to give diplomacy with Iran more time before potentially resuming strikes. Secretary of State Marco Rubio said Trump would prefer not to use military force and would like to resolve the Iranian war “diplomatically.” On the other side, it seems the US is prepping for a 3-10 campaign of strikes after the midterms. Iran signalled that a deal is still possible after two days of talks mediated by Qatar. Gulf states warn a now better-prepared Iran could trigger a wider regional war.
The drop in oil prices has not done a huge amount for European equities with the major bourses generally weaker early Monday, with the FTSE 100, DAX and CAC all sliding around –0.3%. IAG climbed to the top of the FTSE 100 with miners adding some positive moves while oil majors pulled back. Ibstock said brick sales in Q3 were 22% below expectations...not much sign of getting Britain building again.
The drop in oil prices has not done a huge amount for European equities with the major bourses generally weaker early Monday, with the FTSE 100, DAX and CAC all sliding around –0.3%. IAG climbed to the top of the FTSE 100 with miners adding some positive moves while oil majors pulled back. Ibstock said brick sales in Q3 were 22% below expectations...not much sign of getting Britain building again.
5.US Midterms and Bank of England could drive markets this week
Mr Veto: US midterms this week represent a potential clearing event for risk. Currently markets anticipate the Democrats taking at least the House and the Senate seems too close to call, although betting markets seem to favour a Democrat clean sweep with about 70% lean for Democrats to take the Senate. Republicans losing control of Congress just means Trump leans more heavily on executive actions. Trump says he expects to issue vetoes for "a month or two" before reaching compromises with Democrats. "I guess I'll become Mr. Veto," Trump said. "And then at some point, we'll probably make deals."
I expect a split Congress, which should eliminate major tax and spending legislation but raises the likelihood of a government shutdown and debt ceiling impasse, whilst it could be taken as a bear signal for several stock market sectors. A Democratic sweep would increase Congressional scrutiny in a number of business sectors such as AI, crypto and financial services. A Democrat-controlled Congress could use ‘must-pass’ legislation as leverage to delay One Big Beautiful Bill Act tax cuts, which could negatively impact equities, particularly consumer and healthcare names. A Republican sweep — the least likely scenario — would permit further tax incentives but create upward yield pressure, with equities historically softening in its aftermath. Gridlock has historically been positive for stocks broadly. A split or Democrat-controlled Conrgess probably puts Trump in a corner and raises Iran war escalation risks. You can read my Midterm Playbook here.
The Bank of England is widely seen raising rates this week. I'd think it could wait a little longer, but it seems the Bank will reluctantly raise rates to pre-emptively avoid a later spike in inflation, with the surprisingly resilient economic backdrop providing some ballast. Market pricing for 4 hikes this cycle is still too hawkish, but cable trades firmer again this morning above 1.34 with the 200-day SMA looking to offer the main resistance at 1.3426.
I expect a split Congress, which should eliminate major tax and spending legislation but raises the likelihood of a government shutdown and debt ceiling impasse, whilst it could be taken as a bear signal for several stock market sectors. A Democratic sweep would increase Congressional scrutiny in a number of business sectors such as AI, crypto and financial services. A Democrat-controlled Congress could use ‘must-pass’ legislation as leverage to delay One Big Beautiful Bill Act tax cuts, which could negatively impact equities, particularly consumer and healthcare names. A Republican sweep — the least likely scenario — would permit further tax incentives but create upward yield pressure, with equities historically softening in its aftermath. Gridlock has historically been positive for stocks broadly. A split or Democrat-controlled Conrgess probably puts Trump in a corner and raises Iran war escalation risks. You can read my Midterm Playbook here.
The Bank of England is widely seen raising rates this week. I'd think it could wait a little longer, but it seems the Bank will reluctantly raise rates to pre-emptively avoid a later spike in inflation, with the surprisingly resilient economic backdrop providing some ballast. Market pricing for 4 hikes this cycle is still too hawkish, but cable trades firmer again this morning above 1.34 with the 200-day SMA looking to offer the main resistance at 1.3426.