Daily Newsletter 11/7/25
Before the opening today, U.S. stock futures are mostly lower. This follows a challenging week marked by declines in major tech and AI stocks amid concerns about valuations and economic uncertainties including labor market weakness and an ongoing government shutdown. The market sentiment remains cautious ahead of the opening bell.
Is the pullback over? The cause of the market weakness was unclear when we observed a broad sell-off in equity indices Tuesday. The immediate trigger was Palantir’s stock decline, despite its strong sales and earnings beats and raised guidance. Concerns centered on Palantir’s high valuation, but that explanation seemed incomplete.
The true cause was a liquidity scare. A spike in the SOFR – Fed Funds spread, indicating a liquidity squeeze in the financial system. Such squeezes can disrupt asset prices and investor risk appetite. This one was linked to temporary month-end funding imbalances, and the spread returned to normal the next day.
When the Secured Overnight Financing Rate (SOFR) is higher than the federal funds rate (FFR), it indicates tightening liquidity in short-term funding markets. Normally, SOFR trades below the federal funds rate because it is secured by Treasuries, making it safer than the unsecured borrowing that the FFR represents. When SOFR exceeds FFR, it suggests that there is a scarcity of high-quality collateral (like Treasuries) or that banks are facing increased demand for secured funding, causing repo rates to rise above unsecured rates. This situation signals stress or imbalances in funding markets, leading to tighter financial conditions. It can disrupt asset prices and risk appetite, and often reflects temporary liquidity squeezes linked to events like month-end funding pressures. While not necessarily a systemic crisis, a higher SOFR than FFR is a warning sign of market plumbing stress and reduced reserve elasticity in the banking system.
At the last FOMC meeting, the Fed announced the end of quantitative tightening (QT), expressing worries about reserve levels in the banking system. This episode serves as a reminder to policymakers about the importance of maintaining smooth functioning in the banking system’s plumbing. Undoubtedly, this mini-crisis will pass as the Fed is actively monitoring the situation.
This suggests the pullback could be temporary and driven by technical liquidity issues rather than fundamental problems with companies like Palantir.
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UVIX
28 NOV 25 8 Long Call Premium: $2.09 Delta: 0.73 10/29/25 10:33am
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ARGENTINA
Monitoring Argentinian stocks for re-entry, focusing on ARGT, BBAR, BMA, GGAL, and YPF. No new positions yet—awaiting optimal entry points. Will share live trade updates. Recent election gains and BBAR options boosted profits. Argentina strategy remains strong.