To The Moon

Although the U.S. government shutdown has had little impact on equity markets so far, October still carries a fair amount of uncertainty. Major indexes continue to hit new highs, but the VIX volatility index appears to be forming a bottoming pattern, rising in tandem with the market in recent sessions — a sign that investors are quietly hedging against potential turbulence ahead.

All eyes are now on key September macroeconomic data, including Nonfarm Payrolls, CPI, PCE, and wage growth. If inflation remains stubbornly high, the Federal Reserve’s path toward further rate cuts may become contentious. Whether the Fed can deliver its planned three cuts totaling 75 basis points this year remains a central question. With only two FOMC meetings left (Oct. 29 and Dec. 10), any surprises — such as a pause in October or a lack of clear guidance for December — could pressure the recent rally in growth stocks.

Earnings Season Set to Drive Volatility

The third-quarter earnings season kicks off in mid-October, historically the most volatile of the four reporting periods. In the two weeks leading up to earnings, a mix of critical economic data and a brief news vacuum could lead to heightened activity in small-cap names.

Key themes to watch this season include:

1. Earnings vs. Expectations: After several quarters of profit recovery, expectations are high. The ability of companies to beat these forecasts will be closely watched.

2. Forward Guidance: As markets digest the “soft landing” narrative, Q4 guidance will be crucial in shaping sentiment.

3. AI & Capex: Tech giants’ commentary on cloud computing, AI infrastructure, and cost discipline will likely sway semiconductor and growth sectors.

4. Sector Divergence: Consumer discretionary demand is showing signs of cooling, while industrials and energy may benefit from stable pricing and infrastructure investment.

Institutional Views: Cautious Optimism with a Focus on Stock Selection

Investment banks have mixed views heading into October:

• Goldman Sachs upgraded global equities to “Overweight” for the next three months, citing improving growth momentum, reasonable valuations, and expected policy support. However, Goldman warned that earnings season volatility could intensify, as October tends to be the choppier part of the year.

• BlackRock highlighted that broad market exposure may be less reliable this cycle due to policy, geopolitical, and macro uncertainties. Active stock selection could be more critical for generating alpha.

• Charles Schwab noted that while markets are pricing in further rate cuts by most central banks (except Japan), U.S. equity volatility may increase, leading to a “two steps forward, one step back” pattern.

• Vanguard expects value stocks to modestly outperform growth in the medium term, though both styles remain volatile. It also pointed to structural factors—such as debt levels, productivity trends, and policy shifts—that will shape interest rate trajectories beyond the short term.

• BofA Merrill Lynch cautioned that concentrated positions in mega-cap tech could pose systemic risks if any of these companies deliver disappointing results.