Wall Street trading desks turn bullish, say not to bet against Big Tech earnings, rate cut

Wall Street firms, including JPMorgan, are advising against shorting the market, adopting a tactically bullish stance as the S&P 500 recently hit all-time highs following favorable inflation data. This week is critical, with the Federal Reserve widely expected to cut benchmark rates by 25 basis points and five Magnificent Seven companies (Alphabet, Meta, Microsoft, Apple, Amazon) reporting earnings, which analysts anticipate will exceed expectations. Despite concerns about a potential government shutdown limiting catalysts post-this week, market positioning is noted as under-risked, and hopes for a US-China trade agreement further support continued upward momentum.

Analysis

Wall Street firms, including JPMorgan, have adopted a "tactically bullish" stance, advising clients against shorting the market despite recent volatility, as the S&P 500 reached all-time records following favorable September consumer inflation data. The market's immediate focus is on two significant catalysts this week: the Federal Reserve's two-day meeting and five key earnings reports from Magnificent Seven companies.

The Federal Reserve is widely expected to lower benchmark rates by 25 basis points to a range of 3.75%-4.00% by Wednesday, according to the CME FedWatch tool, though Fed Chair Powell's post-decision outlook may be constrained by delayed economic data due to the government shutdown. Concurrently, earnings from Alphabet, Meta, Microsoft, Apple, and Amazon are anticipated to exceed expectations, reinforcing the positive sentiment.

While a crucial US-China trade meeting between President Trump and President Xi is scheduled, preliminary negotiations have "derisked" its outcome. However, Barclays warns that a prolonged government shutdown could lead to a dearth of market catalysts post-this week, potentially leaving the market "under-risked" until Nvidia's mid-November earnings, despite current bullish momentum.

Key Decisions for Investors

• Monitor Fed Chair Powell's post-decision press conference for forward guidance, especially concerning economic policy given potential data limitations from the government shutdown
• Evaluate Magnificent Seven earnings reports closely for individual company performance and broader market sentiment indicators, as they are widely expected to exceed expectations
• Assess the outcome of the US-China trade talks for potential market implications, considering the "derisked" nature of preliminary negotiations
• Consider the market's "under-risked" positioning and potential lack of catalysts post-this week, as highlighted by Barclays, which could imply increased sensitivity to negative news or a need for caution