Dear Valued Clients and Friends –
I had to submit today’s Dividend Cafe about 90 minutes before the market close due to a post-close speaking engagement, so if something massive happened in markets after I did, forgive me. We go all around the horn today, and there are some very important things to be covered.
Dividend Cafe on Friday went deep into the midterm election results and what they all mean (and don’t mean) for markets. The written version is here (my favorite), the video is here, and the podcast is here.
Off we go …
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Market Action
- Markets opened up +400 points this morning and continued higher throughout the day. The post-election erratic behavior of huge days up or down continues.
- The Dow closed +1,104 (+2.15%), with the S&P 500 +2.35%, and the Nasdaq +2.74%
*CNBC, DJIA, November 9, 2026
- A theory that has been working its way around is that last Thursday’s hyper-volatility in tech was at least partially related to a hedge fund or two that were having to unwind positions after some big losses in AI-related trades. A few comments are in order:
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- We are told that Walleye Capital and Lone Pine Capital were selling positions after a bad October. It is a tad confusing why Nov. 6 would have been the specific D-day when Nov. 5 had been a big rally day and most of the losses had been in October.
- According to Goldman Sachs prime brokerage data, tech-focused hedge funds were, in aggregate, even on the year after October. Yes, from their peaks, losses had been severe, but it is hard to extrapolate forced selling at scale from a few very small hedge funds where aggregate returns on the year were flattish
- Now, leveraged ETF’s – that is a different matter all together. Nomura estimates that there was $47 billion of forced selling into the close Thursday from levered ETFs.
- We do not have any evidence of any large hedge fund liquidation or even systemic margin calls
- Regardless of what last Thursday was or wasn’t, it is imperative that people understand: ample financial leverage exists across risk assets, particularly the AI trade, to leave markets vulnerable to the reality of forced selling and systematic deleveraging. Thursday may not have been that, but another day in the future certainly will be.
- The ten-year bond yield closed today at 4.87% (+2 basis points) on the day
- Top-performing sector for the day: Industrials (+3.78%)
- Bottom-performing sector for the day: Energy (+0.41%)
- Please be very careful about all the reports that say “the S&P 500 multiple is now down to ___” or, “the Nasdaq forward price-earnings ratio is now ___”, or “Nvidia is trading at a very low ___.” None of these things are true when they are using FORWARD multiples unless the FORWARD earnings estimates are correct, and the entire issue right now – the massive begging of the question – is what the forward expectations ought to be given re-pricing and re-assessing in AI. It is one of the reasons we always used TRAILING earnings results to price equities – because FORWARD estimates are so fallible. Now, of course, they have NOT been off for quite some time, and in fact, often saw estimates understate what they proved to be. But when one says, “Nvidia’s P/E ratio is now ___” they are not making a valuation call; they are making an earnings and fundamental call that they are disguising as a valuation call. It is dishonest, and potentially dangerous.
Top News Stories
- The stunning news last night of Nvidia CEO Jensen Huang having an affair with an alleged Chinese spy dominated the news overnight and this morning. All things being equal, I am shocked the stock was only down -6%. Would this not have been a huge market rally day, I could have seen this easily a down -10% or more event.
Public Policy
- The election results have been well-covered in Friday’s Dividend Cafe and my 2Way interview. And now we see President Trump has moved Stephen Miller to the Chief-of-Staff role (replacing Susie Wiles), suggesting that a more collaborative relationship with Congress is hardly forthcoming.
- While I do not expect any new legislation after the new Congress is installed, the lame duck session between now and early January may be the last chance for any legislative priorities to receive attention for some time. The bipartisan permitting reform is a pro-growth piece of sensible legislation that is supposed to be passed soon. We shall see. A defense budget is needed between now and January 3 (one is certainly not going to happen after that).
- The Wall Street Journal suggested a bill to index capital gains for inflation in the lame duck session, and it is a completely common-sense idea … But I am highly skeptical that it can get done now. It would have taken an organized effort and priority earlier in the year to pull it across the finish line.
- How bad was it for Republicans last week? Despite redistricting to fortify Republican districts, the Democrats held 12 districts that were intended to be gerrymandered, while winning the five they gerrymandered in California, and actually winning one in Utah that was supposed to be redistricted by Republicans for Republicans. I am almost positive that has never happened in two hundred years of gerrymandering history.
- On an ISSUE and POLICY basis, the Silver Bullet approval polling had net approval for the President at -46% on inflation, -28% on the economy overall, and -27% on trade, indicating a multi-causal explanation for the results.
- I do not expect any Presidential appointments to be confirmed for the next two years (after the lame duck session ends), and I do not expect any Congressional legislation to be signed into law for two years.
- I don’t want to just casually cover it in the fifth bullet point of the third section of a Monday Dividend Cafe, but I do plan to devote a Friday Dividend Cafe in the reasonably near future to the subject of policy ramifications of the 2028 election. It sort of violates one of my own rules to do this, in so much as two years in American politics can be an eternity. But on the other hand, the drama of what happened last week suggests that 2028 may not be the 50-50 proposition we have seen in the last three Presidential elections. And with the margins now achieved in both chambers of Congress, I want to address the possibility of non-divided government in two years. But I won’t do it here, and I won’t do it to scare people into updating their estate planning two years in advance. That said, a few things will be addressed from an economic and a planning standpoint (when they can be addressed thoughtfully).
Economic Front
- The BLS jobs report on Friday was better than expected (165k), and the last two months’ revisions were to the upside (whereas lately revisions have mostly been to the downside). The ADP private sector was not as strong but still comfortably positive. The Household Survey number was extremely strong. The private-sector BLS numbers have been double the ADP number over the last three months, which is odd.
- Peter Boockvar pointed out that the U6 unemployment rate jumped all the way to 7.9% (from 7.6%), where those working part-time who want full-time work are included.
- The number of “firings” has decreased substantially year-over-year (down -71% from where it was a year ago), according to the Challenger Survey.
Federal Reserve
- Expectations for a rate hike next month sit at 76%, a tad higher than where they were at the low point last week. The expectations were 84% last Monday, went to 68% in the huge market sell-off on Thursday, and met in the middle of the high and low after the jobs number Friday.
- I understand all of the arguments for and against what I am about to say, both in terms of what will be (or not), and what ought to be (or not). But I simply do not believe the Fed will hike if the AI stock market story continues as it has as of late. A strong recovery or bounce would change things, but I think the Fed hiking rates in the midst of the sole story of economic growth tightening in violent fashion within financial markets (debt and equity) is just not going to happen. But I do not bat a thousand in predicting what the Fed will do.
Oil and Energy
- WTI Crude closed at $87.02/barrel (-3.82%)
- Midstream was pummeled last week in the aftermath of the elections.
Ask TBG
| “If you could pass anything to help the economy between now and the end of this session of Congress, what would it be?” ~John W. |
| Indexing capital gains to inflation, hands down. For both moral and economic reasons … |
On Deck
- Tuesday, the CPI number for October will be released.
- On Wednesday this week (the 11th), the stock market is open, but the bond market (and banks) are closed for Veterans Day.
- Also, on Wednesday this week, clients will receive their Weekly Portfolio Holdings Report per usual.
- Dividend Cafe on Friday will look at a classic, systemic mistake so many investors make.
More to Chew on
- This WSJ article on AI funding makes me wonder: where have I heard that before?
I am speaking at an investment event in Washington, D.C. today and headed back to NYC early in the morning. Reach out with any questions, any time, and have a wonderful Monday night.
With regards,
David L. Bahnsen
Managing Partner, CIO
The Dividend Cafe features research from S&P, Baird, Barclays, Goldman Sachs, and the IRN research platform of FactSet.
