Euphoria or Exhaustion? The S&P’s Mood Swing Continues

👋Hello and Happy Monday! 🌅 

Here’s what’s on deck this week:

• The S&P 500 has reached a key statistical extreme for the first time in 9 months

• September jobs report drops Friday, offering fresh insight into a cooling labor market.

• Fed officials and investors eye unemployment after the central bank’s first rate cut of 2025.

• Nike, Tesla, Carnival, and Conagra headline a busy earnings week across multiple sectors.

• A potential government shutdown looms if lawmakers miss Tuesday night’s funding deadline.

Let’s get going.▶️▶️

💵What’s the market pricing for the Week?

Is the job market really losing steam—or is the Fed just being cautious? We’ll find out Friday when September’s employment report hits, giving investors a clearer read on whether the recent uptick in unemployment is a blip or the start of something bigger.

That report kicks off a packed week for economic data and Fed chatter. Expect fresh takes from policymakers on the economy’s direction, plus updates on consumer confidence, home prices, factory orders, and construction spending.

Meanwhile, markets are also bracing for a potential government shutdown if Congress doesn’t seal a deal by Tuesday night.

The S&P 500 did manage a small rebound on Friday—snapping a three-day slide—but it still closed the week -0.31% lower.

Click here 👈to learn more about our charts.

📊On the corporate side, Nike, Carnival, Conagra Brands, and Tesla are all stepping up to the earnings plate.

Nike’s Tuesday earnings will test whether its turnaround plan is really working. The sneaker giant’s last report showed smaller-than-expected declines in both sales and profits, and investors will be watching to see if CEO Elliott Hill’s strategy is starting to gain traction.

Tesla’s quarterly deliveries, due Thursday, could bring an upside surprise as buyers rush to cash in on EV tax credits before they expire. Shares of the electric vehicle maker have been running hot lately.

Cruise operator Carnival reports Monday, hoping to extend its recent streak of strong results. And on Wednesday, Conagra—the parent company of Slim Jim—will reveal if it can shake off last quarter’s 4% sales decline.

🤔Which companies are poised to possibly over/underreact to earnings this week?

Based on the stock’s previous post-earnings responses, shares of this week’s biggest reporting company (Nike) have shown a tendency to move beyond the implied range following earnings (keep reading below the next table for more details on how this is calculated).

RPM International, another of this week’s larger companies to report earnings, has shown an ever greater tendency to move beyond the price range that market makers are expecting.

At the opposite end of the spectrum, PayChex and Carnival have a tendency to remain within their post-earnings expected ranges (keep reading below the next table for more details).

👇 Below, is a look at this week’s biggest earnings reports, sorted by market cap.

For active traders looking for actionable insights, the highlighted columns on the table above show the implied (expected) post-earnings move for each company, along with the Average 1-Day Realized Volatility Post Earnings Ratio (1D RV).

📈Implied Move: The market’s best guess at how much a stock will swing after earnings.

📊1D RV: A powerful tool that represents the post-earnings price move divided by the expected price move over the past 12 quarters. In other words, it measures how good (or bad) the market is at pricing each company’s earnings.

💵When you see a ratio >1.0, indicates that, historically, the earnings are mispriced and the stock moves MORE than the market anticipates, favoring straddle buyers.

🪝A ratio <1.0 tells the opposite story, meaning the stock historically moves LESS than the market anticipates, which favors straddle sellers.

Happy hunting.

Note: We’ve been working hard on a new premium Substack product that we plan to launch in the next few weeks. In a nutshell, this product will offer Wall Street-level insights designed to help stock and options traders understand both price and time-related risks. During the leadup to this launch, we’re excited to start sharing small segments of this new product each week.

The Market’s Walking a Tightrope—And Jerome’s Watching Below

After a brief pullback from fresh record highs last week, this morning S&P 500 futures (+0.46% as of this writing) look ready to make another run to fresh highs.

Following the latest record highs set last Monday, the S&P 500 witnessed a 3-day slide and landed right back where it was before the Fed cut rates. Essentially, the market’s mood has shifted from “soft landing” optimism to “are we in a bubble?” anxiety, as Jerome Powell himself recently stated that “Equity prices are fairly highly valued.”

Statistically, there is no denying that the market is stretched. Specifically, the S&P 500 close greater than 2 standard deviations above its widely followed 200-day moving average last Monday. This was the first such development since late December 2024.

But it is also noteworthy that the S&P 500 quickly closed back below this important level the following day. It’s important because, statistically, this is a signal that the potential for additional mean reversion has increased.

On the chart directly below, to match the conditions similar to what occurred last week, we used red circles to mark previous instance where the S&P 500 closed above the top 2 standard deviation band for the first time in at least 6 months, while trading at an all-time high, then closed back below this key statistical level.

To better clarify the results, we then developed the following table.

Translation: While similar mean reversion signals have popped up before major tops, the majority were just noise in the broader bull market narrative.

For this to remain the case this time around, bulls likely need to defend last week’s S&P 500 low (6569.22) to prevent a deeper pullback from developing.

As equity market volatility (the CBOE Volatility Index - VIX) remains compressed, the S&P 500’s weekly performance is likely to remain normally distributed until the VIX pushes back above the 20 area.

Click here 👈to learn more about our charts.

The S&P 500 did show heightened volatility during this past Thursday’s session. When all was said and done, however, the benchmark index never closed below levels that would trigger a major volatility-based sell signal.

The way we view it on a near-term basis, a move of 1 volatility measures the S&P’s average true range (ATR) over a rolling 21-day (one month of trading) period. Therefore, any movement within a 21-day ATR ranges is considered normal.

While Thursday’s sell-off did extend beyond 2 volatility on an intra-day basis, indicating abnormal near-term volatility, the fact that the S&P 500 was able to rally late on Thursday, preventing a > 2 volatility close, means that the average price ranges shown on this next graph can still be helpful for context over the coming week.

Monday

• Pending home sales (August)

• Federal Reserve Speeches: Cleveland Fed President Beth Hammack, New York Fed President John Williams, St. Louis Fed President Alberto Musalem, Atlanta Fed President Raphael Bostic, Fed Governor Christopher Waller23456

• Top Earnings: Carnival, Jeffries Financial, Vail Resorts

Tuesday

• Job openings (August)

• U.S. federal government funding deadline

• Federal Reserve Speeches: Chicago Fed President Austan Goolsbee, Vice Chair Philip Jefferson

• More Data to Watch: Consumer confidence (September), S&P Case-Shiller home price index (July), Chicago Business Barometer (PMI) (September)

• Top Earnings: Nike, Paychex, Lamb Weston

Wednesday

• ADP employment report (September)

• More Data to Watch: Construction spending (August), S&P final U.S. manufacturing PMI (September), ISM manufacturing PMI (September)

• Top Earnings: RPM International, Acuity, Conagra, Cal-Maine Foods

Thursday

• Initial jobless claims (Week ending Sept. 27)

• More Data to Watch: Factory orders (August)

• Key Earnings: Angio Dynamics

• Tesla's Q3 deliveries expected

Friday

• U.S. employment report (September)

• Fed Reserve Speeches: Vice Chair Philip Jefferson

• More Data to Watch: S&P final U.S. services PMI (September), ISM services PMI (September)