Literal Quantum Trading, Free Fall for Freeport-McMoRan, Fed Gibberish
HSBC and IBM try quantum computing-assisted investing tools, tragedy strikes for FCX, home sales spike, and ... what did this Fed head just say?
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I'd call it the beginning of the end; except we saw the beginning a long time ago. Algorithms started replacing human traders on Wall Street shortly after the turn of the millennium. Ten years later, the humans either had to reinvent themselves or leave the industry. That said, there are still a few of us who have managed to stick around and provide for our families.
No, we cannot even come close to beating algorithms created through classical computing on speed. Trades are timed in microseconds now because milliseconds are too slow. Human trades were timed in minutes, not even seconds. Humans had remained competitive vs. algorithms on price for a long time though. In fact, those of us who can recognize algorithmic intent on the tape, are still competitive.
Those days may be winding down. MarketWatch ran a headline piece overnight penned by Jamie Chisholm that covered the first (that I know of) experiment in using quantum computing tools in trading financial markets. According to the piece, European lending giant HSBC (HSBC) has collaborated with a team from IBM (IBM) to create trading algorithms using quantum computing resources. Quantum computing created algorithms, so the story goes, enjoyed a 34% increase over algorithms created through classical computing means in predicting the probability that an order in the corporate bond market could be filled at a given price.
Long way to go? Yes. We're not talking about equities, currencies, or commodities just yet, but one can see where the ball is headed. In the article. Chisholm quotes Philip Intallura, who is HSBC's head of Quantum Technologies.
"This is a groundbreaking world-first in bond trading," Intallura said. "It means we now have a tangible example of how today's quantum computers could solve a real-world business problem at scale and offer a competitive edge.
Readers already know that I have been long D-Wave Quantum (QBTS) and Quantum Computing Inc (QUBT) . Readers know that I have considered initiating and still may initiate IonQ (IONQ) and Rigetti Computing (RGTI) . IBM has been the most aggressive, as far as I can tell, legacy tech company in the pursuit of developing this technology. AI may be the next great thing, but quantum computing may be the thing after that or instead ... what really puts the "I" in AI. How long before the large legacy tech companies realize that they may have to acquire these smaller companies in order to "buy" growth once realizing they are now at a competitive disadvantage? That is what is excitedly going through my head as a trader and investor. That's also what scares the heck out of me as a parent and a labor economist.
Invest Here
On a "red candle" day, the shares of Intel (INTC) spiked early and then spiked again with just 12 minutes left in the regular trading session. The shares are trading higher overnight as well. Bloomberg News reported on Wednesday afternoon that Intel had approached Apple (AAPL) looking for investment. Intel has already received recent help from the U.S. government, from SoftBank and from high-end chip designer Nvidia (NVDA) . Both Apple and Intel declined the opportunity to comment on the story. Quant fund Renaissance Technologies is also known to have boosted its investment in Intel in 2025.
Fire Sale?
On Wednesday morning, the Census Bureau reported August new home sales of 800,000. Yes, that is a seasonally adjusted, annualized rate, but still that is far better than the 650,000 or so that economists were looking for. What gives? This print of 800,000 units was up from 664,000 in July. That increase of 136,000 was largely reliant upon an increase of 105,000 in the South. Interesting.
The other three regions used by the Bureau for organizing this data, the Northeast, Midwest and West experienced increases of 13,000, 10,000 and 8,000 respectively. Is what I believe to be the Mamdani-driven exodus from New York to the Carolinas and Florida already underway? Maybe, combined with the idea that parents don't want to move their children during the school year.
I would have thought that perhaps homebuilder incentives were a catalyst as well, but the adjacent numbers do not really support that idea. Lower mortgage rates were probably a factor as well, but mortgage rates have, for now, stopped going down. Interestingly, the median price for a new home sold in the U.S. in August increased 4.7% from July to $413,500. That's an increase of $18,400 per home. Hence, the incentive-driven theory fades.
New home supply fell to 7.4 months from 9 months just from July to August. This report almost seems "too good." I really can't wait to see the September data for new homes next month to see if this is the start of a trend or if August is simply just one more macroeconomic data-point that needs to be revised lower. Later this morning, after August durable goods hit the tape, the National Association of Realtors will publish their August data for existing home sales. That print suddenly moves under the microscope.
Say What?
In a grand attempt to say a lot while actually saying close to nothing, San Francisco Fed Pres. Mary Daly spoke on Wednesday from an event at the University of Utah. Daly said that she "fully supported" the Federal Open Market Committee decision last week to cut the target range for the Fed Funds rate by a quarter-percentage point. She pointed toward data that shows slowing economic growth, consumer spending and labor markets.
Daly added, "It is likely that further policy adjustments will be needed as we work to restore price stability while providing needed support to the labor market."
That would have been fine. Unfortunately, she was not done. Straight out of the "cover your tail" department, Daly went on: "But these are projections, not promises, and making good decisions will require us to anchor on our objectives, assess the trade-offs and decide, again and again."
For those about to ask, no ... San Francisco does not have voting rights on policy this year. San Fran won't even vote next year. Daly's next opportunity to do more than jawbone policy will not come until January 2027.
Tell Us How You Really Feel
In a Wednesday morning interview at Fox Business with Maria Bartiromo, Treasury Sec. Scott Bessent said, "Rates are too restrictive, they need to come down. I'm a bit surprised that the Chair (Jerome Powell) hasn't signaled that we have a destination before the end of the year of at least 100 to 150 basis points (lower)."
Markets
Wednesday was a semi-weak day for U.S. financial markets. Treasury securities gave up a few basis points on the day (meaning prices fell and yields went up). Equities moved lower but were not routed. The S&P 500 gave up 0.28% as the Nasdaq Composite gave back 0.33%. Both of our "majors" are now on two-day losing streaks. Smaller caps were hit a little harder. The Russell 2000 surrendered 0.92% as the S&P Midcap 400 lost 0.75%. Most of the mid-majors lost between 0.12% and 0.41% for the regular session.
Just four of the 11 S&P sector SPDR exchange-traded funds closed out the day in the green, Energy (XLE) easily led the winners, while both the Materials (XLB) and the REITs (XLRE) took a bit of a beating. Neither cyclicals nor defensives performed especially well nor especially poorly. However, both Technology (XLK) and Communication Services (XLC) closed in the red as some air came out of the AI trade.
Losers beat winners by a 7-to-4 margin at the NYSE and by a 4-to-3 split at the Nasdaq. Advancing volume took a 39.9% share of composite NYSE-listed trade, but an impressive 56.8% share of composite Nasdaq-listed activity. Hence, that negated any chance for the markets to log a "Day One" bearish reversal of trend. Additionally, trading volumes were lower across the board on Wednesday from Tuesday's levels. This implies a general lack of broad market conviction in really anything right now.
Freeport-McMoRan Plummets
Freeport-McMoRan (FCX) was forced to declare "force majeure" on contracted supplies from its Grasberg mine in Indonesia. For those not following the story, the company was forced to stop mining at Grasberg after a large flow of muddy, wet material blocked access to parts of the mine. Two workers were killed in the unfortunate event and five are still missing. Additionally, due to this event, FCX has been forced to reduce its sales guidance for both copper and gold. Copper prices popped on the news and gold prices regained some ground lost earlier in the session.
Shares of FCX were down 17% on Wednesday, and some of you know how I roll. I tried to grab a few shares for a trade as close to the lows as I could. I entered Thursday morning trade with an average entry price of $37.90. We'll see where we go from here. If the shares go lower from here, I am willing to grow the position, because it is not yet large enough to really either help or hurt me. If I see an 8% or more pop in the share price before I get a chance to add, I am likely to just take the quick profit and move on to the next thing.
Economics
(All Times Eastern)
08:30 - GDP Growth Rate (Q2 F): Flashed 3.3% q/q, SAAR.
08:30 - Initial Jobless Claims (Weekly): Expecting 237K, Last 231K.
08:30 - Continuing Claims (Weekly): Last 1.92M.
08:30 - Durable Goods Orders (Aug): Expecting -0.4% m/m, Last -2.8% m/m.
08:30 - ex-Transportation (Aug): Expecting -0.1% m/m, Last 1.1% m/m.
08:30 - ex-Defense (Aug): Expecting -0.4 m/m, Last -2.5% m/m.
08:30 - Core Capital Goods (Aug): Expecting 0.2% m/m, Last 1.1% m/m.
08:30 - Goods Trade Balance (Aug): Last $-103.6B.
10:00 - Existing Home Sales (Aug): Expecting 3.97M, Last 4.01M, SAAR.
10:30 - Natural Gas Inventories (Weekly): Last +90B cf.
11:00 - Kansas City Fed Manufacturing Index (Sep): Expecting -5, Last 0.
The Fed (All Times Eastern)
08:20 - Speaker: Chicago Fed Pres. Austan Goolsbee.
10:00 - Speaker: Reserve Board Gov. Michelle Bowman.
1:00 p.m. - Speaker: Reserve Board Gov. Michael Barr.
3:30 - Speaker: San Francisco Fed Pres. Mary Daly.
Today's Earnings Highlights
(Consensus EPS Expectations)
Before the Open: (ACN) (2.97), (KMX) (1.06), (JBL) (2.94)
After the Close: (COST) (5.81)
At the time of publication, Guilfoyle was long QUBT, QBTS, NVDA, FCX equity.
