Good morning investors,
Markets extended their decline for a third straight day Monday with the Dow dropping 550 points. Bitcoin fell below $90,000, briefly turning negative for the year, as risk appetite evaporates ahead of Wednesday's Nvidia earnings. Home Depot missed again this morning and cut guidance, confirming the housing freeze persists. Yet beneath the surface, Strategy bought $835 million in Bitcoin and corporate buyers continue accumulating the IBIT ETF - smart money is buying this panic. This includes Harvard holding substantial quantities of IBIT.
Opening Bell: Tech Exodus Accelerates
S&P ($SPY ( ▲ 0.23% )) futures fall 0.5% for a potential fourth straight decline with Nasdaq ($QQQ ( ▼ 0.32% )) futures down 0.6% and Dow ($DIA ( ▲ 1.36% )) futures plunging 316 points. Nvidia slides another 1% premarket, now down 8% this month ahead of tomorrow's earnings. Palantir drops 2% while Amazon and Microsoft each fall over 1%. The systematic tech unwinding continues regardless of fundamentals.
Home Depot shares fell 2% after missing earnings at $3.74 versus $3.84 expected for the third consecutive quarter. Full-year EPS guidance cut to down 5% from down 2% as CFO Richard McPhail admits "it's hard to identify near-term catalysts" for improvement. The housing market remains frozen despite rate cuts - the deferral mindset persists.
Bitcoin's Technical Reset
Bitcoin ($IBIT ( ▼ 0.74% )) touching $89,259, its lowest since April, marks a complete round trip from October's $126,000 peak. Now briefly negative for 2025, the cryptocurrency leads the risk-off trade as leverage unwinds. Yet Strategy's $835 million purchase during yesterday's carnage shows conviction buyers emerging at these levels.
The IBIT ETF continues seeing institutional accumulation despite price weakness, with large corporations buying the dip while retail panics. This divergence between price action and institutional flows suggests the technical reset creates opportunity rather than regime change. Bitcoin historically leads tech by weeks; its stabilization would signal broader market bottoming.
Thiel Dumps, Buffett Buys
Peter Thiel's fund liquidating its entire Nvidia position sent the chipmaker down 2% Monday while Berkshire's $4.9 billion Alphabet stake pushed Google up 3%. Big investors effectively function as market influencers, their moves creating self-fulfilling momentum regardless of underlying merit.
Buffett choosing Google over other AI plays validates its reasonable valuation relative to growth. At 25x forward earnings with 15% revenue growth and dominant search positioning, Alphabet offers AI exposure without bubble multiples. The endorsement from tech-averse Berkshire suggests Google represents the conservative AI play.
We also saw Stanley Drunkenmiller make his move into the AI trade based on his 13F filing. He bought Google, Amazon and Meta.
Pichai's Bubble Admission
Alphabet CEO Sundar Pichai telling the BBC that today's AI boom contains "irrationality" and no company will be "immune" if bubbles burst marks unusual candor from a mega-cap CEO. His acknowledgment that excesses exist while maintaining long-term conviction exemplifies the nuanced reality - transformative technology experiencing speculative excess.
This differs from dotcom CEOs denying bubbles existed even as stocks collapsed. Pichai's balanced assessment suggests maturity in acknowledging risks while believing in structural change. Google's diversified revenue streams provide cushion that pure-play AI companies lack.
Home Depot's Housing Reality
Three consecutive earnings misses confirm housing's deep freeze continues despite Fed easing. Average tickets rose 1.8% but transactions fell 1.6% as consumers defer major projects. Management's admission that anticipated second-half acceleration failed to materialize destroys the "rate cuts cure everything" narrative.
The "deferral mindset" gripping homeowners since mid-2023 shows no signs of breaking. Government shutdown, layoffs, declining home values, and minimal storm activity compound weakness. Pro-focused acquisitions provide some offset but can't compensate for frozen DIY demand. Housing-related names remain uninvestable until turnover unfreezes.
Klarna's Public Debut
Klarna exceeded Q3 expectations with $903 million revenue versus $882 million expected in its first report as a public company. U.S. gross merchandise volume surged 43% as the Klarna Card reached 4 million customers since July. The buy-now-pay-later leader validates fintech disruption continuing despite broader tech weakness.
The $95 million net loss improving from breakeven year-ago shows path to profitability. Fair financing GMV tripling demonstrates demand for alternative credit products as traditional lending tightens. Klarna succeeding while established finance struggles reinforces sectoral disruption themes transcending market cycles.
Fed's December Dilemma
Markets now price sub-50% odds of December cuts versus 90% a month ago as divided officials send mixed signals. Governor Christopher Waller's Monday comments that weak labor justifies easing clash with broader committee hesitation. Wednesday's October minutes and Thursday's delayed September jobs report could clarify or confuse further.
The data vacuum from shutdown complications makes policy decisions even murkier. ADP's weekly employment update today provides interim visibility but lacks official weight. Markets hate uncertainty more than bad news, and the Fed's inability to commit either direction amplifies volatility.
Final Thought
Four consecutive down days feel terrible but represent normal consolidation after six monthly gains. Bitcoin's crash, Thiel's exit, and Home Depot's miss create maximum pessimism precisely when positioning clears for year-end advances.
Nvidia's Wednesday report becomes binary - beat and relief rally or disappoint and accelerate the flush. Either outcome provides clarity currently lacking. The company likely delivers solid results but high expectations leave little room for error. More important than the numbers will be Huang's commentary on Blackwell demand and 2026 visibility. We do get an insight into Nvidia's earnings at the other mega cap tech earnings, so I do still believe that Nvidia earnings don't show us much that we haven't already seen.
Use this weakness to build positions in strong companies, favoring quality of earnings in this more volatile environment. Avoid leverage, stay selective, and remember that November consolidation sets up potential December strength. Stay committed to your plan and don't change due to a headline you see on tv. every hedge fund manager or portfolio manager is selling there book, and often the advise is not right for all.
As always, feel free to reach out with questions about navigating these volatile markets.
Best regards,
Dan Sheehan
This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.