'REALLY STICKY': Trading CEO reveals what won't have 'as much of an impact' on the market

Key Concepts

• Quantum Computing Stocks (D-Wave, IonQ, Rigetti)
• US Government Equity Stakes in Quantum Companies
• IBM's Quantum Business and Red Hat Segment Performance
• AI Business Growth at IBM
• Hiring of Computer Science Majors
• Tesla Earnings
• Oil Prices
• September Consumer Inflation (CPI)
• Chicago Board Options Exchange (CBOE)
• Intel and Ford Earnings
• Market Optimism and Trading Sentiment
• VIX (Volatility Index)
• Netflix and Texas Instruments Earnings
• Consumer Price Index (CPI) - September Data
• Sticky Inflation
• Federal Reserve Rate Cuts
• Fed Funds Futures
• Russell 2000 Index
• Treasury Yields (10-year)

Quantum Computing Stocks and Government Interest

The transcript highlights significant activity in the quantum computing sector. Several publicly traded quantum computing companies are experiencing gains: D-Wave is up 14%, IonQ is up 7%, and Rigetti is up 10%. This surge is partly attributed to a "Wall Street Journal" report indicating that the Trump White House is considering taking equity stakes in quantum companies, viewing them as a critical segment of the economy.

IBM is identified as a long-standing player in quantum computing. While IBM shares were down 1.6% at the time of the discussion, they had initially tanked 6% at the open. This dip was not due to issues with IBM's quantum business, which is described as enjoying "torrid expansion," but rather a slowdown in its Red Hat (hybrid cloud) segment.

IBM's Financial Performance and AI Growth

IBM CEO Arvind Krishna discussed the quarter-over-quarter decrease of 2% in Red Hat's performance. He expressed confidence that this segment would restart growth. This slowdown is more than counterbalanced by IBM's Artificial Intelligence (AI) business, which saw a 12% jump, reaching $9.4 billion. The transcript suggests that investors recognize the strength of IBM's AI business, leading to a recovery in its stock price after the initial dip.

Hiring and the Future of Computer Science

Arvind Krishna also emphasized IBM's commitment to hiring computer science majors, stating, "if our rivals choose not to hire them, Liz, we'll take them all." This indicates a strong demand for computer science talent, even with the rise of AI, suggesting that AI does not negate the need for fundamental computer science expertise.

Market Overview and Earnings Season

The market is described as "jampacked" with news, including Tesla earnings, rising oil prices, and anticipation of the delayed September Consumer Inflation (CPI) data. The Chicago Board Options Exchange (CBOE) is noted as a hub where options traders are betting on these events. Intel and Ford are among the companies scheduled to report earnings after the bell. Despite a previous day's sell-off, the market appears to be reacting positively to earnings, with major indices showing week-to-date gains.

Trading Sentiment and Market Outlook

Scott Bauer, from Prosper Academy, describes the current trading sentiment as "pretty optimistic," even after initial market reactions to news about potential US-China meetings. He contrasts the current optimism with earlier in the week and the previous week when the VIX hit a "two handle" (over 20), leading to retail buying of upside VIX calls. Bauer characterizes the current optimism as "cautiously optimistic but very, very optimistic." He notes that negative earnings prints from companies like Tesla (which later turned around) and Netflix (still down) do not necessarily set the landscape for the upcoming week. Bauer believes that "next week is really going to be the tell-all for this earnings season."

Consumer Price Index (CPI) and Inflation

The upcoming release of the September Consumer Price Index (CPI) is a major focus. The data, which was delayed, is expected to provide an indication of consumer inflation. Inflation is described as "sticky," with year-over-year core CPI expected to come in at 3.1%. However, there's an acknowledgment that the data is old, and its impact might be tempered by discussions about its relevance and reliability, especially in the context of the Federal Reserve's decision-making.

Federal Reserve and Interest Rate Expectations

There is a strong expectation of a Federal Reserve rate cut. Fed Funds Futures show a 99% probability of a rate cut being announced the following Wednesday. This is significant for businesses, particularly small and mid-caps, that need to borrow money.

Russell 2000 and Treasury Yields

The Russell 2000 index, representing small-cap stocks, has shown a recent uptick, hitting several records in the past few weeks. There has been a significant increase in call buying for the Russell 2000 over the last couple of weeks, even with market pullbacks. This activity reflects expectations for rate cuts not only in the upcoming week but also in December, with probabilities well into the 90% range.

Treasury yields are also on the move. The 10-year yield had moved slightly higher earlier in the day, coming off a one-year low. The volatility index (VIX) appears to be calming down. The 10-year yield was noted at 3.998%.

Conclusion

The market is navigating a complex landscape characterized by strong performance in quantum computing and AI, alongside ongoing earnings season and anticipation of key economic data like the September CPI. While there are concerns about specific segment slowdowns (e.g., IBM's Red Hat), the overall sentiment appears cautiously optimistic, driven by expectations of Federal Reserve rate cuts and continued demand for technology talent. The upcoming week is anticipated to be crucial in defining the trajectory of the earnings season.