Stock Futures: Little Changed – What We Know

Stock futures are barely budging this morning, and the headlines are all about Wall Street riding high on October gains. S&P 500 futures are up a measly 0.17%, Nasdaq-100 futures a slightly more enthusiastic 0.26%, and the Dow Jones Industrial Average futures are creeping up 49 points, or 0.1%. Before we pop the champagne, let's inject some data-driven sobriety into this party.

The October Illusion

Yes, the S&P 500 and Dow industrials climbed 2.3% and 2.5% respectively in October. The Nasdaq Composite did even better, gaining 4.7%. The narrative? AI momentum and easing US-China trade tensions. That's what they want you to believe. But let's dig a little deeper. More than 300 S&P 500 companies have reported Q3 results, and over 80% beat expectations, according to FactSet.

Here's where the spin starts. "Beating expectations" doesn't mean stellar performance; it means doing slightly better than analysts already downgraded their estimates to. It's a low bar to clear. We're not seeing explosive growth; we're seeing companies managing expectations downwards and then just exceeding them. It's a game.

Tom Lee at Fundstrat is quoted saying the U.S. earnings picture is strong, supported by AI spending, blockchain innovation in financials, a dovish Fed, and the end of quantitative tightening (QT) in December. AI spending visibility is strong, and Amazon's Q3 report supports that. But blockchain driving innovation? That's a claim that needs more scrutiny. How much of the financial sector's gains are directly attributable to blockchain applications, and what’s the actual ROI? Details are suspiciously absent. And I've looked at hundreds of these reports – the vagueness here is notable.

Wall Street might get a "seasonality boost" this month, with the S&P 500 averaging a 1.8% gain in November historically, according to the Stock Trader's Almanac. Averages are deceptive though. They hide volatility and outliers. What's the median gain? What's the standard deviation? Without that, the 1.8% figure is just noise.

The Unseen Risks

While everyone's focused on earnings and seasonality, the elephant in the room is the ongoing government shutdown. It's delaying key economic data releases, including the monthly jobs report. A lack of data creates uncertainty, and uncertainty breeds volatility. It's like driving with a blindfold on; you might get lucky, but you're more likely to crash.

On top of that, the Supreme Court is expected to hear oral arguments on the legality of the Trump administration's tariffs. This could have major implications for trade and the economy. If the tariffs are deemed illegal, it could lead to a surge in imports and potentially lower prices for consumers. But it could also hurt domestic industries that have benefited from the tariffs. The uncertainty surrounding the court's decision is another risk factor that's being largely ignored.

The market's acting like everything's fine, but the data suggests otherwise. We're seeing a combination of lowered expectations, seasonal tailwinds, and willful blindness to significant risks. It's a dangerous cocktail.

Is This Fool's Gold?

The market's recent gains feel less like a sustainable rally and more like a dead cat bounce (a temporary recovery after a steep decline). The underlying fundamentals aren't strong enough to support a true bull market. The risks are too high, and the data is too murky. Until we see real, sustainable growth and a resolution to the government shutdown and tariff issues, I'm staying on the sidelines. The upside potential doesn’t justify the downside risk.