Stocks closed mixed yesterday with the tech-heavy Nasdaq and S&P 500 down -1.25% and -0.47% respectively. The other indexes (Dow, small-cap Russell 2000 and mid-cap S&P 400), closed modestly higher.

Stocks came under pressure early with both oil and yields rising. But by the end of the day, both were lower.

Middle East concerns continue to influence oil prices. And worries over escalating tensions are the catalyst. But absent that, the supply picture is looking better, especially after reports the other week that Middle East crude exports rose to 16.3M barrels per day, which is the highest since the war began. That's approximately 80% of pre-war levels. Volume out of the Strait of Hormuz is only back at 40% of pre-war levels. And that's with Iran exports effectively at zero. But other Middle East routes used by Saudi Arabia, the UAE and Oman, to name a few, have increased significantly, putting combined shipments at just 20% below the pre-war baseline.

Yields continue to rise. But it's feeling overdone. The 10-year got as high as 5.33% midday, before erasing those gains by day's end to close at 5.23%. But with the spread between the Fed Funds Rate (3.88%), and the 10-yr at 135 basis points, it's completely within the historical norm. Because historically, over the past 40 years (1985-2025), the spread between the two has been 100 to 150 bps, with the median at 120 bps. So I contend that the recent rise in yields is simply a normal reversion to the long-run median spread of 120 bps.

Plus, with easing inflation per the latest PCE Index, the probabilities for a rate hike at the next Fed meeting at the end of the month have completely flipped, going from nearly 70% for a hike, to now over 82% for a pause.

But the biggest drag on the market yesterday was probably the disappointing revenue report from OpenAI. They reported $50 billion in annualized revenue at the end of Q3, falling short of the $68 billion that was expected based on previous reports. (The higher number that was reported late last month included gross revenue from partners bundled together.) But it seemed like an overreaction given OpenAI's 77% total run-rate growth in Q3, and 107% enterprise run-rate growth.

Anthropic, by comparison, at the end of July, reported a $65B run-rate. But leaked financials showed 2025 at just $4.6B in rev and a net loss of -$42B.

While those companies remain private (although both are preparing big IPOs), we'll get a chance to see how public AI companies (and all companies, of course) did when Q3 earnings season begins in two weeks.

The EPS growth rate for the S&P 500 is expected to be another stellar one with estimates pointing to 24.6% growth.

With one more day to go, the big 3 indexes (Dow, S&P and Nasdaq) are all on pace to close higher for the week. If so, that'll be 4 up-weeks in a row for the Nasdaq.

A little bit of good news could help solidify that today.

Best,