Another drama filled weekend/I'm feeling big moves in next two weeks/Other good stuff

According to PredictIt, Trump's odds of winning have slipped by 3 pts from Saturday to 61%. Harris has jumped to 39%. With my back of the envelope economic analysis/guesses, and of course depending on how Congress shakes out in terms of control, I don't expect a change in the corporate tax rate regardless of who wins. Debts and deficits are going to continue to skyrocket regardless of who wins. If Trump wins, we'll get a full extension of the 2025 tax cuts but a possible slew of tariffs, more protectionism and likely a weaker dollar. If Harris wins (assuming she's the nominee), some of those Trump tax cuts will not be extended and we'll get only some tariffs but still a lot of protectionism and possibly a weaker dollar. With respect to the regulatory state, the Chevron Supreme Court overrule will send more authority over to Congressional lawmaking and judicial discretion and away from the Executive Branch, thus limiting the ability of either to act but Trump will do his best to ease the burden while Harris will do the opposite. Either way, I think up until the election markets are going to trade more so on the trajectory of inflation, earnings, the economy and what the Fed does. 

Trump in white, Harris in blue

I feel like we're headed for some big market moves over the next two weeks as we digest a flood of earnings, and particular from the biggest cap names. I always like to say that valuations don't matter until they do and all of a sudden they have in both directions. The biggest names are finally being questioned in terms of whether all this AI spend will deliver suitable returns and whether they will be impacted by the broader economic worries at the same time the stocks have little valuation support if they disappoint and the small and mid cap names are finally being discovered for the bargains that many of them are. Also, notwithstanding some shaking of the tree in those big names, and a VIX  on Friday that closed at the highest level since April, the level of bullishness is dangerously high (from a contrarian standpoint). The updated Citi Panic/Euphoria index, seen over the weekend, rose to a fresh multi year high at .56 from .52 in the week prior. The threshold for Euphoria is .41. 

Thanks to my friend Michael Green who showed me this chart on Friday highlighting the valuation divergences in the broad large cap market relative to the biggest names. 

I'll reiterate our positive and long stance on oil and gas stocks as the crude oil rig count keeps on dropping. Though down just 1 rig w/o/w, at 477 it is the least since December 2021. The natural gas rig count has rebounded this month by 6 rigs but at 103 it's down from 160 early last year.