Market · No. 2

Sun, Oct 4, 2026

Highlights

Bullish

QQQ closed the week +1% at a record high, with SOX leading at +3.5%; since the Leopold low, SOX is +25.7%, the CPU basket +43.3%, and optics +39.4%
The author is more bullish on the AI superintelligence (SI) semiconductor trade than at any point since early summer, with all 5 unresolved debates turning bullish
(1) OpenAI ARR approached $70B at the end of September, while Anthropic ARR may accelerate on Opus 5.5; (2) Open-source versus frontier gap: FUNDA expects it to widen to 6-12 months; 75% of TMTB poll respondents expect widening over the next 6 months
(3) Power shortages are largely priced in, with consensus around 20GW (estimates reaching 25-30GW); semis gained ~10% over two weeks while WULF/CIFR/CORZ/APLD fell 9-14%; (4) Consumer agents (Muse, Grokbot, OpenAI Dots) are becoming the next source of compute demand after coding; (5) SI safety concerns have peaked, with a joint White House safety agreement
Semis rebounded 15%+ after falling ~5% on September 14; NVDA and TSM hit record highs, with analog and semiconductor equipment joining the rally; the author sees the clearest path since June into Anthropic's pre-Thanksgiving IPO
Risks: the average S&P constituent is ~20% below its high, narrowing market breadth, elevated oil prices, and midterm elections; also includes a 7-point thesis on SHOP benefiting from agentic commerce

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Mixed

S&P 500 spot diverged this week from cross-asset signals in bonds, rates, crude, and sentiment; implied volatility remained in the low double digits, VIX fell to December holiday-like lows, and the index traded in a narrow range of roughly 20bps
The index is driven by "AI vs. non-AI"; the top 10 contributors are expected to account for more than two-thirds of S&P earnings growth this quarter; Barron's cover calls the market "divided" (high dispersion, low breadth)
Options strategy: do not rely solely on cheap SPX hedges; recent activity has favored IWM downside, HYG/TLT convexity, and single-stock protection; March SPX ex-AI 85% puts cost 132bps (versus 1.01% for SPX), and 80% puts cost 93bps (versus 0.71% for SPX)
RTY futures shorts are at extremes, and a sharp decline in yields could trigger a squeeze; hedge with a dual-digital option on IWM>108% and 10y SOFR<35bps (10:1 payout); March SPX<96% and USO<90% costs 6.1% (16:1 payout)
Prime brokerage data: fundamental long/short funds cut net leverage for a third consecutive week to the lowest since Liberation Day, near a 5-year low, while gross exposure remains high; hedge funds rotated into TMT in September while net selling nearly every other sector; NDX hit a record high this week, and long-only investors resumed buying semis (MU earnings, NVDA buybacks)

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