The S&P 500 paused its slide this week after an AI-driven sell-off, but a run of catalysts starting Friday could test that calm. CNBC's Paulina Likos points to France's credit rating review, Anthropic's S-1 filing, big-tech earnings, Iran tensions and a Fed meeting.
The S&P 500 fell 1.1% last Friday as a final wave of AI selling hit the market, and the pause that followed looks fragile. Markets stopped sliding this week as tech found its footing, but CNBC's Likos sees a real danger that the market suddenly snaps and suffers a major drop.
Volatility and thin trading raise alarms
The part of Friday's move that worries Likos was the Cboe Volatility Index jumping from under 16 to over 22 in two hours. She reads it as a sign of significant investor fear and demand for options hedges. According to SpotGamma, only nine days since 1990 have seen a larger jump in the VIX on a smaller drop in the S&P 500.
Trading has also thinned. On Oct. 12, the SPDR S&P 500 ETF Trust (SPY) saw its lowest full-day volume since 2003, and Likos notes that reduced liquidity can precede big gaps lower in prices.
France, AI and the Fed
First comes France. Moody's reviews its Aa3 long-term sovereign bond rating this Friday, which carries a negative outlook, raising the chance of a credit rating downgrade. Likos suggests watching the spread between German and French 10-year yields, currently 159 basis points.
Next, the AI trade faces two tests. The official filing of Anthropic's S-1 could come as early as Friday, and the size of its IPO raise will be key for markets. Then, from Oct. 28 to Nov. 3, about half of the S&P 500 by market capitalization reports earnings, including Alphabet, Microsoft, Amazon, Apple and AMD.
The Fed meets Oct. 28. Fed Vice Chairman Philip Jefferson and New York Fed President John Williams are taking a wait-and-see approach, so odds of a hike are low, according to Likos. She also says markets could struggle to understand a pause after September's hotter than expected inflation report, and she advises watching the number of dissenting votes.
Likos warns that a combination of these catalysts could prove toxic, because financial risks act as multipliers rather than additions when sentiment turns.
Source: CNBC
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