Market Got Hit. Blame It on Netflix or Texas Instruments?

Equities suffered a rather broad decline on Wednesday. Damage was most visible in the most speculative parts of the market. The AI trade was hit. The quantum computing trade was hit. The nuclear power trade was hit. Momentum stocks were hit. Small- and mid-cap stocks were hit. Some pundits put the blame on Tuesday night's Netflix  (NFLX)  earnings. While I initiated that name on the weakness, I put the blame more on Texas Instruments  (TXN) . The chip maker was down 5.6% on Wednesday after disappointing Wall Street with its current quarter guidance.

On top of all of that, while third-quarter earnings season appears to be off to a better than expected start overall, concerns over trade with China continue to make headlines, the government shutdown continues to drag on and now Pres. Trump appears to be tightening the screws on Russia in yet another attempt to get that nation to a place where the negotiation of a ceasefire in its war with Ukraine is possible.

For the day, the S&P 500 gave up 0.53% while the Nasdaq Composite dropped 0.93%. Beyond the major equity indexes, it got uglier. The Philly Semiconductors lost 2.38%, led lower by Texas Instruments and ON Semiconductor  (ON) . The Dow Transports gave back 1.36% led lower by the airlines. The Russell 2000 gave up 1.45% while the S&P Midcap 400 gave back 1.15%.

Strength in Energy 

While defensive sectors took four of the five top slots on the daily performance tables, Energy  (XLE)  was the runaway leader on Wednesday, gaining 1.28%. Oil prices are up about 5% overnight in response to the Trump administration's new and apparently substantial sanctions against Russian oil giants Lukoil and Rosneft as well as about three dozen subsidiaries of those two companies.

These sanctions are the first such direct moves made against Russia since Pres. Trump re-entered the White House. The president has put off a meeting in Budapest with Russian President Vladimir Putin as it has become clear that the Russian president has no interest in peace. This has frustrated the U.S. president who has had surprising success in getting other world leaders involved in various conflicts to at least pause the fighting.

On top of that, we do know that Ukrainian forces launched a "Storm Shadow" cruise missile in an attack on Tuesday on a munitions plant in Bryansk, which is in Russia, about 12 miles from the Ukrainian border. The Wall Street Journal is reporting that the Trump administration has lifted a restriction on Ukraine's ability to use long-range missiles on targets inside Russia. Pres. Trump himself, referred to that article as "fake news."

Either way, a Storm Shadow was used against Russia proper. The Storm Shadow is a 1990's era British-made cruise missile manufactured by MDBA, which is a privately held joint subsidiary of Airbus  (EADSY) , BAE Systems (BAESY) and Leonardo (DRS). The Storm Shadow is reliant for targeting upon data supplied by US intelligence, so if it happened...

Day One?

This time, the answer is "yes." On Wednesday, losers beat winners by a rough 7 to 5 at the NYSE and by a more convincing 7-to-3 margin at the Nasdaq. Advancing volume took a 34% share of composite NYSE-listed trade and a 40.9% share of composite Nasdaq-listed activity. Aggregate trading volume was notably higher on Wednesday, up 8.9% on day-over-day basis across NYSE-listings and up a stunning 32.4% across Nasdaq-listings as there were margin calls across more speculative parts of the market and there was some meme stock activity as well. ​

With a new "Day One" in place, it would not surprise to see a pause on Thursday or a pause that lasts a little longer even. ​That Double Top pattern of bearish reversal within the overall "uptrend" is still valid. Spread out, Heads on a swivel.

Quantum This, Batman!

News broke overnight that the Trump administration's Commerce Department is in talks to potentially take equity stakes in several quantum computing companies in exchange for some federal funding. The Wall Street Journal is reporting that IonQ  (IONQ) , Rigetti Computing  (RGTI)  and D-Wave Quantum  (QBTS)  are already discussing such arrangements according to unnamed people "familiar with the matter." Other companies such as Quantum Computing  (QUBT)  and privately held Atom Computing are also mentioned in the article as being considered for similar arrangements. All of these stocks are trading sharply higher overnight.

Readers who read everything I write know that earlier this week, I took my profits in D-Wave and in Quantum and moved those funds, taking advantage of Tuesday's and Wednesday's selloffs, into Churchill Capital X (CCCX), which is the special purpose acquisition company that is merging with Infleqtion, which is a higher-end (my opinion) and more advanced quantum computing operation. CCCX is also trading higher on Thursday morning but is not mentioned in the piece that I saw. I also believe that the real push for computing on the quantum level may come from the likes of IBM  (IBM)  or even Microsoft  (MSFT) .

Whether these legacy tech firms continue to grow their quantum segments organically or consider acquiring any of the above-mentioned firms, I do not know yet. We do know this though. If the federal government considers leadership in quantum computing vital to national security, then these firms, that still have hardly any sales, will not wither and go away.

On Nuclear Power

While I also took my profitable exit from Oklo  (OKLO)  earlier this week, I do believe in that story, and I do expect to be back in that name once the shares trade at a more reasonable valuation and once the company actually drives some revenue. Until then, I have used that recently created cash and taken advantage of recent weakness to more than double my long position in GE Vernova  (GEV) . I tried to more than double that stake, but my final lowball bid was never hit late Wednesday as the stock recovered going into the close.

I don't know how many readers caught GEV CEO Scott Strazik on CNBC on Wednesday.

Strazik said, "I met with Sam (Altman) multiple times over the past few weeks. It is a relationship that continues to evolve. I've been with his team over the last 72 hours. Clearly, OpenAI is a critical piece of this growth trajectory with a lot of ambition." 

Readers do not need to be reminded of OpenAI's recent deals with Nvidia  (NVDA) , Advanced Micro Devices  (AMD) and Broadcom  (AVGO)  as it builds out its infrastructure.

Where is all of that required power going to come from? I have an idea. GE Vernova would be my pick. That's why I am there. Certainly, there will be a place for firms such as Bloom Energy  (BE) and eventually firms like Oklo and Lightbridge (LTBR), but in my humble opinion, GEV is positioned to help at scale and help sooner rather than later. Just my two cents.

CPI FYI

While we expect to finally see September consumer price index data tomorrow and it will move markets, my friends at Hedgeye, who have been more accurate than most all along (I won't give away their store, they do run a business, and I am a client) actually see signs of disinflation in October from September. We may not have all that much else to go on for the October data when we get there, as the September data we do see is very possibly going to be somewhat incomplete.

Economics

(All Times Eastern)

10:00 - Existing Home Sales (Sep): Expecting 4.08M, Last 04M SAAR.

10:30 - Natural Gas Inventories (Weekly): Last +80B cf.

11:00 - Kansas City Fed Manufacturing Index (Oct): Expecting 6, Last 4.

The Fed 

(All Times Eastern)

Fed Blackout Period.

Today's Earnings Highlights 

(Consensus EPS Expectations)

Before the Open:  (AAL)  (-.28),  (BX)  (1.23),  (DOV)  (2.51),  (FCX)  (.40),  (HAS)  (1.63),  (HON)  (2.57),  (TMUS)  (2.57),  (UNP)  (3.00),  (VLO)  (3.04)

After the Close:  (F)  (.35),  (INTC)  (.01),  (NSC)  (3.20)

At the time of publication, Guilfoyle was long FCX, F, INTC, NFLX, CCCX, MSFT, GEV, NVDA, AMD equity.