Happy Jobs Friday,
 
Just when you thought it was safe to go back in the water………After the Blue Tsunami on Tuesday evening most major US indices rallied on Wednesday despite the sharp selloff in AI related stocks. There was a violent rotation beneath the surface into other areas of the market while mega-cap tech stocks moved sharply higher given their competitive advantage with a potential slowdown in the AI buildout (balance sheet, slowing cash burn and increased value of operational assets).  This helped to offset much of the tech weakness. Part of the rally also was related to a monetization of hedges that were in place ahead of the catalyst, as the consensus view was that this was the clearing event to open the door to a year-end rally, and we’ve all seen the post-Midterm election stats. The VIX fell from ~21 to under 17.
 
Investors took the evening to rethink the potential ramifications of an AI capex peak which has been such a driver of economic activity, earnings growth and obviously US market performance. Yesterday was an ugly risk off ugly session with broad based weakness. The S&P 500 fell 4.4% with >80% of companies ending in the red. The index brbroke below the low end of the recent range (7,500 - 7,800) and traded within 1% of its 200d ma (7,325) a level we haven’t sniffed since reclaiming it at the start of Q2.  The blood bath in the AI complex continued with the ICE Semi index, memory stocks and neoclouds all down >10%.  The hyperscalers which bailed out the market on Wednesday gave back most of those gains with the NYSE FANG+ index down 6%. The price action in tech was similar to the end of July and the Situational Awareness blowup, causing rumors of forced liquidations to swirl. There was a scramble for protection with VIX trading up to 28 hitting the highest level since Q1. Yields fell in a flight to safety and as markets think about the path of monetary policy should economic growth slow and the potential impact of easing of AI, tariff and conflict related inflationary pressures.
 
Ahead of the jobs report there’s been a tentative bounce in futures with tech stocks trying to get off the mat but S&P futures were already off the highs The BLS Employment Report came in well ahead of estimates with 165k (vs. 65k) added to the economy while there were also positive revisions of 84k jobs to the previous two months. Private sector hiring accounted for most of that up 159k. The household survey was also very strong with 463k jobs added. The unemployment rate ticked back down to 4.1% while the labor participation rate also ticked up to 61.9%. Wages ticked up to 0.4% from 0.3% last month. Yields had been creeping a bit higher since European markets opened and moved up a couple more bps after the data though much of that last leg has reversed. 2yr yields are up 6bps while the long end is up ~3bps. The USD index has also been moving higher overnight trading back >$102. This is a strong report but doesn’t really change the overarching backdrop, the Fed will be focused on next week’s inflation data. Odds for a hike next month ticked down a bit yesterday but are now back ~75%. S&P futures are little changed since the data hovering around unchanged while the Dow is pulling back ~1% with the rotation back into tech.
 

 

• US 2yr +6bps to 4.54%, 5yr +5bps to 4.65%, 10yr +3bps to 4.86%, 30yr +1bps to 5.27%
• USD index: +$0.79 to $102.22

 
There’s been some mixed headlines in the tech complex. Newly elected Texas governor had some comments suggesting that she is not completely anti-data centers but does want protections. Neocloud Iren (+15%) had earnings that beat estimates, announced some new contracts and tried to talk about the strength of the relationship with Microsoft. It also cut its Capex guidance to $20B from $25B - $30B due to the state of capital markets. Speaking of there is a WSJ article raising questions about the timing and valuation of the Anthropic IPO though ARR reportedly exceeded $80B in October. Lam Research announced a new $25B buyback authorization (~11% of mkt cap). From a broader market perspective keep in mind companies coming out of the buyback blackout window starts to inflect higher this week.
 
Global markets lined up for their beatings following the US lead. South Korea’s Kospi and Japan’s Nikkei were hit especially hard (though not unexpected) with both down 6, putting the weekly losses ~10%. On the bright side they closed off their lows (they were approaching -10%). This took the Nikkei well below its 200d ma (57.4K vs 62K), after initially closing below it on Thursday. The losses were widespread not just tech. In Japan Softbank and Kioxia fell ~10% but many stocks across sectors saw losses >5%. China outperformed with the Hang Seng and Shanghai indexes down a little over 1%. Hong Kong’s consumer tech heavyweights saw moderate losses (Tencent, Alibaba down ~3%). One standout is India, again, as the Sensex made it 7 straight days of gains, continuing to bounce from underperformance. European indices are down ~2% with markets open as US futures bounce, however. Tech/AI names are benefiting from that, with ASML, Siemens Energy, ASM, Infineon up 2-4%. There’s broad weakness across the groups, however. UK pharma is weak (AZN, GSK +3%) as are Energy stocks. German Industrial production beat estimates.
 

 
Oil prices are off the overnight lows hovering around unchanged but down >10% for the week. EU nat gas prices are down >5% and >15% for the week. As the USD moves higher metals have pulled back and are near overnight lows with gold and silver both down ~1%. Ag and crypto are both hovering around unchanged.
 

 
Earnings:
After-Market: ABNB, AGM, AKAM, AXON, CALY, CDNT, COMP, CPK, CPT, ED, DBX, DKNG, DOCS, DNA, DVN, EOG, EVCM, FIGS, GMED, GRND, HHH, IONQ, IREN, LION, LITE, LYFT, LYV, MAT, MCHP, MTD, MP, NET, OPEN, PAR, PLBY, PURR, QNT, REG, RGA, SARO, SERV, SPG, SOLV, SMR, TDC, TEAM, TXRH, VSAT, WYNN, YELP, ZD
Pre-Market: BAM, BEN, BIP, BLMN, CHTR, ESNT, FLR, GLP, HUM, MRNA, PPL, UAA, UTZ, VST, WULF
 
Economic Data:
US:

• Nonfarm payrolls: 165k vs. 65k cons, prior revised to 60k from 29k
• Unemployment Rate: 4.1% vs. 4.2% cons., prior 4.2%
• Participation Rate: 61.9% prior 61.8%
• Average Weekly Hours: vs. 34.4 cons., prior 34.4
• Average Hourly Earnings: vs. 0.3%/2.9% cons., prior 0.1%/3%

Global:

• Japan Cash Earnings: 4.6% vs. 3.8% cons., prior 3.9%
• Germany Industrial Production: 0.7% vs. 0% cons., prior 1%
• EU Retail Sales: -0.7% vs. -0.1% cons., prior 0.4%