The Machines Sold. Now the Calendar Takes Over

• Morgan Stanley's latest research backs up UBS's flow work and my midterm analysis: the selloff is in its final phase.

• Fear hit an extreme last week, with the VIX jumping 70% in a day and Goldman's panic gauge posting its largest two-day swing on record.

• With forced sellers nearly tapped out, hedge funds light on tech, and the calendar turning favorable, the S&P 500 looks set for a steady rally in 2027.

Nobody rings a bell at the lows, but the market does leave fingerprints...

On Monday, I highlighted that the programmatic selling was beginning to get exhausted. UBS's Rebecca Cheong had flagged that the forced unwinds from CTAs and risk-control funds was getting close to done, with the telltale signs of a bottom starting to form. Her read was that a low could come as soon as the start of this week.

The market didn't wait long to agree. Through Thursday's close, the S&P 500 is up 2.9% this week and the Nasdaq Composite has gained 3.2%. And that's with the market's most important AI stock going the other way.

Now Morgan Stanley's Mike Wilson has reached the same place from a different direction. His team says the correction has entered its final phase. That lines up with what Cheong was seeing in the flows. It's also what my own work said about the midterms - that the tide should turn once the vote was behind us.

Here's my call: the bulk of the damage should be done. We may still get one more test of the lows. If we do, it's one to buy, not fear. Based on what I see, the S&P 500 is set up for a steady rally into year-end and 2027.

But don't take my word for it, let's look at what the data's telling us...

Let’s start under the surface. Wilson's team argues this correction began in June, when earnings revisions for chip stocks peaked. Since then, the Philadelphia Semiconductor Index has fallen about 40%. Most stocks were struggling while a handful of giants held the index up. Last week's drop finally pulled the S&P 500 down to meet the rest of the market. And at 18 times forward earnings, it now trades near Liberation Day levels.

Fear spiked and faded just as fast. The VIX jumped 70% in a single day last Thursday. It went from 16.61 to 28.18, its highest close since late March. A week later, it's back at 18.70, after giving back more than 80% of that spike...

Goldman Sachs' Vol Panic Index backs that up. On the same day the VIX spiked, Goldman's gauge shot up to 9.57 out of 10. That’s the high end of its range and firmly in panic territory. That came just one day after one of its biggest drops ever, making it the largest two-day swing on record. Investors went from relief to outright panic in 48 hours. That kind of whiplash is what capitulation looks like.

The flows tell the same story. Wilson's case for one more dip rests on the same systematic selling Cheong has been tracking, and that supply is running thin. Cheong flagged the next CTA sell trigger for the S&P 500 at 7,348. The index never got there. Monday's low was 7,422.

Hedge funds look washed out, too. Goldman's prime brokerage data shows technology was the most heavily sold sector in the world in the week through November 5. Relative to holdings, it matched the biggest tech-selling weeks Goldman has tracked since 2016. Four of the five largest have come in just the past five months. Hedge funds' U.S. tech allocation has fallen to 14.4%, near its lowest level in years. When the fast money is that light, there isn't much left to sell - and there's plenty of room to buy back...

The charts show it, too. The S&P 500 never closed below its 200-day moving average during the selloff, and it now sits just 0.4% under its 100-day. Meanwhile, the Nasdaq has closed back above its 200-day two days running...

And here's where it gets interesting. This rally happened while Nvidia was in free fall. Its board opened an independent investigation into CEO Jensen Huang last weekend, and on Thursday he stepped down. Nvidia fell 11.7% this week and closed 32% below its October 6 high. A hit like that to the market's AI bellwether could easily have dragged the whole index down. Instead, the rest of the market kept climbing.

That brings me to the calendar. Wilson's team points out that markets traded poorly into the midterms, as they usually do. That's a big reason they've tended to do well in the six to 12 months after. It's exactly the pattern I laid out last week - year two of the cycle is often rough, and year three has historically been the best. Meanwhile, UBS expects corporate buybacks to jump to $35 billion to $55 billion per week starting next week.

Now, the risks. Wilson still sees a possible retest of last week's lows, maybe dipping into his 7,100 to 7,300 support range. That's a classic bottoming pattern, not a breakdown. The wildcard is a more hawkish Fed, which could drag the process into December.

Here's the bottom line. Cheong saw it in the flows. I saw it in the calendar. Wilson sees it in breadth and valuations, and the hedge fund data backs it up. Different lenses, one conclusion: the forced selling is nearly exhausted, the reset has played out, and the next six to 12 months have historically favored buyers. That's the recipe for a steady grind higher in the S&P 500, not a straight-line sprint.

Nvidia is the lesson in all of this. Even the most dominant company carries risks no spreadsheet can model. You can't control what happens inside one boardroom. You can control how much of your portfolio rides on it. Diversification is what let investors ride out an 11.7% weekly drop in the market's most important stock and still finish the week ahead.

Morgan Stanley's advice is to add quality cyclicals - names that have already de-rated and are still posting strong earnings revisions. I agree. Don't wait for a perfect low. The machines already sold, the calendar is on our side, and Wall Street's biggest research desks are lining up behind the same call. That should underpin a steady long-term rally in the S&P 500.

Five Stories Moving the Market:

SpaceX and Tesla are progressing in their merger negotiations, setting the stage for a combination that could redefine the limits of global dealmaking; Elon Musk’s two largest companies could announce what would be the biggest-ever deal as soon as in December – Bloomberg. (Why you should care – the push to get a deal done by December suggests both companies want to lock it in while the regulatory backdrop is still favorable, and a closing window like that tends to speed up big M&A, which can be a tailwind for the stock market)

U.S. President Donald Trump directed Vice President JD Vance to shift his focus away from the Iran war and instead devote himself to fighting what the president says is corruption and crime in Democratic-controlled cities and states – AP News. (Why you should care - pulling Vance off the Iran talks lowers the odds of a near-term peace deal, which could push oil prices higher and, by raising inflation expectations, lift Treasury yields too)

Colette Kress, who was named interim chief executive of Nvidia, is a longtime lieutenant of departing CEO Jensen Huang and oversaw the chipmaker’s finances during its climb to becoming one of the world’s most valuable companies; a veteran of the tech industry, Kress joined Nvidia in 2013 after holding finance roles at Cisco, Microsoft and Texas Instruments – WSJ. (Why you should care - handing the top job to a trusted insider who knows the business and its biggest customers points to continuity, which can help steady the stock ahead of next week’s earnings while the board searches for a permanent CEO)

Nvidia’s board has begun searching for a permanent successor to Jensen Huang and is weighing both insiders and outsiders; analysts and investors want a leader who understands the technology, has a clear vision and has strong financial skills, since Nvidia is now a major investor in the AI boom as well as its leading chipmaker - Reuters. (Why you should care – the job calls for a proven leader with deep technical knowledge, financial discipline and a spotless reputation, and the right pick will go a long way toward restoring investor confidence in the stock)

U.S. previously owned home sales fell last month to a 16-year low as a cascade of negative news on mortgage rates and inflation deterred would-be buyers; contract closings in October decreased 5.5% to an annualized rate of 3.75 million, according to the National Association of Realtors – Bloomberg. (Why you should care – as homes sit unsold, the growing supply should start to weigh on prices, and cooler home prices eventually feed into lower shelter inflation, which is one of the biggest pieces of CPI and a key factor in how far the Fed can cut rates)

Economic Calendar:

ECB's Elderson (Executive Board Member) Speaks (1:50 a.m.)

ECB's Schnabel (Executive Board Member) Speaks (2:10 a.m.)

Switzerland - PPI for October (2:30 a.m.)

France - CPI for October (2:45 a.m.)

Spain - CPI for October (3 a.m.)

IEA - Monthly Oil Market Report (4 a.m.)

China - New Loans for October (4 a.m.)

Eurozone - GDP for Q3 (5 a.m.)

Eurozone - Employment Change for Q3 (5 a.m.)

Eurozone - Trade Balance for September (5 a.m.)

U.S. - PPI for October (8:30 a.m.)

U.S. - Core PPI for October (8:30 a.m.)

Canada - Wholesale Sales for September (8:30 a.m.)

Fed's Collins (Boston, Non-Voter) Speaks (9:10 a.m.)

Fed's Bowman (Board, Vice Chair for Supervision) Speaks (10:50 a.m.)

Fed's Daly (San Francisco, Non-Voter) Speaks (12 p.m.)

U.S. - Baker Hughes Rig Count (1 p.m.)

Fed Releases Balance Sheet Updates on Commercial Banks (4:15 p.m.)

Fed's Jefferson (Board, Vice Chair) Speaks (7 p.m.)