AI Earnings Take Over Wall Street—But Credit Markets Hold the Real Clue

👋Hello and Welcome to Monday! 🌅 

Here’s what’s on deck this week:

• Bond markets close Tuesday for Veterans Day; stock markets stay open.

• Despite the weekend of deal-making in Washington, the focus remains on earnings amid ongoing economic data delays.

• Disney, CoreWeave, Sony, Cisco, and Applied Materials report this week.

• Small business optimism survey may show pressure from rising costs.

• Treasury budget report gives fresh insight into tariff revenue.

Let’s dive in!💦💦

💵What’s the market pricing in for the week ahead?

Grab your coffee and your calendar…

Because of the Veterans Day holiday, bond traders get a four-day week, while equity traders grind on as usual.

Markets are higher this morning amid optimism that the 39-day US shutdown could soon come to an end, after a weekend of deal-making in Washington. As of now, though, several key economic reports remain delayed, shifting investors’ attention to something Wall Street never stops caring about: earnings.

Big names step onto the earnings stage—Disney, CoreWeave, Sony, Cisco, and Applied Materials—giving everyone something to argue about on X.

Also on deck: a reading on small business optimism—showing how rising costs may be squeezing mom-and-pop shops—and the Treasury’s monthly budget report, which hints at how much revenue the U.S. is pulling in from tariffs.

Click here 👈to learn more about our charts.

AI is still the main character in the markets—and CoreWeave is kicking off the week as the opening act. The data-center upstart, which went public earlier this year, has already pulled off the stock market version of a glow-up: shares have more than doubled. Thanks to partnerships with Nvidia (AI silicon royalty) and Meta (king of targeted ads and questionable bracelets), investors are betting CoreWeave isn’t just riding the AI wave—it’s selling the surfboards.

On Tuesday, Oklo steps up. The nuclear-power startup is expected to show growth tied to feeding energy-hungry AI data centers. Yes, we’ve apparently reached the point where AI earnings season now includes a nuclear company.

Midweek, Cisco reports after nearly doubling its AI revenue target last quarter—because even the internet needs an internet upgrade for AI. And Thursday brings Applied Materials, the chipmaking equipment giant currently navigating U.S. restrictions on selling gear to China. (Nothing says “earnings drama” like geopolitics.)

Also on Thursday, Disney takes the mic. The mouse has been busy—rolling out an ESPN standalone app and trying to gobble up NFL Network like a late-night snack.

Other companies popping into the earnings group chat include:

• Circle (the stablecoin shop behind USDC)

• Flutter (parent of FanDuel, the reason your friend cares about obscure NBA games)

• Rocket Lab (shoots satellites into space)

• On Holdings (makers of pricey, cloud-like running shoes that your knees will thank you for)

And just when you thought we were done talking about AI, AMD is hosting an analyst day Tuesday, where CEO Lisa Su is expected to drop more details on the company’s AI roadmap.

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

Shares of this week’s biggest reporting company (Cisco Systems) have a history of moving a bit less than the market expects during the trading session immediately following earnings.

Of the 20 largest companies reporting earnings this week, Sony Group’s ADR shows the strongest likelihood of moving more than the market expects during the trading session immediately following earnings (keep reading below the next table for more details on how this is calculated).

Conversely, of the top 20 companies reporting this week, Global Foundries has a history of remaining within its post-earnings expected range (keep reading below the next table for more details).

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

Since the tariff tantrum lows of April, pullbacks in the benchmark S&P 500 have remained brief and shallow. Even as momentum and the number of stocks participating in the rally (i.e., breadth) have diverged in recent weeks, any technical damage has remained minimal.

When it comes to yellow flags, momentum and breadth are among the most widely used indicators. But the real “canary in the coal mine” that many professional traders and investors use to confirm when real trouble might be brewing for risk assets is high-yield credit spreads.

Since junk-rated companies sit at the edge of financial resilience, their borrowing costs spike early when credit conditions sour, making spreads a fast, forward-looking gauge of weakening risk appetite. In other words, when credit investors start demanding a bigger safety premium to get paid, it’s often the first alarm that the broader market’s default risk is increasing, liquidity is tightening, or the economy is becoming stressed—often before equities crack.

The chart below shows the Bank of America (BofA) High Yield Index (blue line) against the S&P 500 (green line). The green arrow shows risk premiums on high-yield bonds coming close to their tightest (lowest) levels of the year as recently as September.

As we start the second full week of trading in what is historically the strongest month of the year for equities, stocks are responding favorably this morning to news of a possible end to the shutdown. Also, spreads have not widened significantly since their September lows.

While these are all very favorable signs, active traders should be keeping an eye out for possible signs that credit spreads are continuing to widen, especially after the divergence (new stock market high vs. wider spreads) that occurred in late October (red line). That’s because this chart also shows instances where past divergences have preceded prolonged stock market corrections.

The Bottom Line

The recent widening in credit spreads remains under control as the benchmark S&P 500 continues to hold key levels of price support. Given the slowing momentum and poor breadth that accompanied the S&P 500 at its late-October highs, however, the potential exists for the pullback from those highs to be the most prolonged since the start of the post-April rally.

As long as the Bank of America (BofA) High Yield Index does not continue to rise (widen) uncontrollably from here, the odds favor a continued stock market correction that remains relatively controlled and orderly, rather than something more precipitous.

Not surprisingly, with the CBOE Volatility Index (VIX) recently trending toward three-week highs, the expected price range for all 11 sector ETFs continues to expand.

Technology (XLK), consumer discretionary (XLY), and energy (XLE) continue to show expectations for the largest price swings this week.

Conversely, utilities (XLU) now join real estate (XLRE) and healthcare (XLV) as the sectors that are expected to house some of the smallest price moves.

Monday

• Top Earnings: CoreWeave, Occidental Petroleum, Rocket Lab, AST Space Mobile, Tyson Foods

Tuesday (Stock market is open, bond market is closed)

• AMD 2025 analyst day

• NFIB small business optimism

• Top Earnings: Sony Group, Oklo, Nebius Group

Wednesday

• Top Earnings: Cisco Systems, Manulife Financial, Flutter Entertainment, Tencent Music, Circle Internet Group, On Holding

Thursday

• Monthly U.S. federal budget

• Shutdown-delayed data: Consumer Price Index, Initial jobless claims

• Top Earnings: Walt Disney, Applied Materials, Brookfield, JD.com

Friday

• Shutdown-delayed data: Retail sales, Producer Price Index, Business inventories

• Fed Speakers: Kansas City Fed President Jeff Schmid, Dallas Fed President Lorie Logan

Volatility, as measured by the VIX, spiked up to the 22.70 area which has acted as resistance many times in the past, before reversing lower on Friday.

While this may set the stage for volatility to subside a bit this week, we won’t get excited about a prolonged period of lower volatility until VIX (19.08 as of Friday’s close) gives up its stubbornly elevated stance above the 50-day moving average at 17.31.

Until this happens, daily moves remain prone to outsized swings.

📋Here’s a curated list of top value-added insights that uncover what’s happening way beyond the usual financial media headlines.