Trading in the Dark: How Markets Found Their Footing Without a Map

Corporate Overview

Markets are supposed to hate uncertainty. Yet here we are, Day 20-plus of a full government shutdown, zero official economic data since October 1st, and the S&P 500 is flirting with records.

The BLS is dark. CPI delayed until Friday. Jobs report? Gone. The Fed's October meeting is five days away and they're flying blind. But earnings season showed up with a vengeance—and suddenly, nobody cares about the missing macro data. GM crushed guidance. Coca-Cola exceeded estimates. Regional banks proved they aren't the next SVB. Corporate America just gave the market exactly what it needed: proof that the economy works even when the government doesn't.

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Stock of the Week: Cleveland-Cliffs (CLF)

Sector: Basic Materials | Market Cap: $7.9B | Yield: 1.1%

The rare earth supply chain just became a national security issue, and Cleveland-Cliffs dropped a bombshell on Monday: they're pivoting to produce rare earth materials from their existing mining operations. The stock surged 21% in a single session.

Here's the macro setup: Trump threatened 100% tariffs on China over rare earth export controls. China controls 90%+ of global rare earth processing. The Pentagon needs these materials for F-35s, cruise missiles, and semiconductors. Suddenly, any domestic producer with rare earth optionality is strategic infrastructure.

CLF's core steel business benefits from infrastructure spending and potential auto sector stabilization as EV supply chains localize. Add the rare earth wildcard, and you've got a company at the intersection of reshoring, defense priority, and commodity scarcity—all while trading at less than 6x forward earnings.

Risks to watch: Steel demand is cyclical and sensitive to macro slowdowns. Rare earth production is capital-intensive and years from meaningful revenue. China could dump pricing to kill competitors.

Verdict: We're long because it's essential. When Washington wakes up to supply chain vulnerability, Cleveland-Cliffs isn't a trade—it's a necessity. The tariff threat is real, reshoring is policy, and this company just positioned itself at the center of both.

📉 Market Snapshot (Week of October 20-24)

This was a choppy week that ended in modest gains across major indices, masking significant intraweek volatility. The S&P and Nasdaq posted small gains while the Dow added 0.31%, all hovering near record territory. The Russell 2000 showed relative strength with approximately a 1.0-1.3% weekly gain, signaling continued rotation into small caps as investors position for potential Fed rate cuts and domestic economic resilience.

The 10-year Treasury yield held steady at 4.00%, down slightly from the week's highs as markets digested mixed signals on inflation and Fed policy ahead of Friday's delayed CPI release. WTI crude jumped to nearly $62 after U.S. sanctions on Russia's largest oil companies Rosneft and Lukoil were announced Wednesday, raising supply concerns despite muted demand signals.

Gold's wild ride was the week's standout story—the metal crashed 6.3% on Tuesday (its worst single-day drop since 2013) after nine consecutive weeks of gains, closing the week down 1-2% around $4,080-4,117 as Trump's softening rhetoric on China tariffs reduced safe-haven demand. Bitcoin recovered from midweek weakness to close around $110,000-111,000, up 1-2% for the week, boosted by Trump's pardon of Binance founder CZ announced Thursday and renewed optimism ahead of the Trump-Xi meeting.

The message: volatility is rising (VIX around 17-18 by Friday close, down from earlier highs), but markets are betting on de-escalation in the China trade war, continued Fed accommodation, and strong enough earnings to justify current valuations. The rotation from mega-cap tech into small caps and the historic collapse in gold both signal growing confidence that the worst-case scenarios are off the table—at least until the November 1st tariff deadline provides the next catalyst.

📊 Market Commentary

The Data Blackout Is the Story

We're operating without official economic statistics for the first time in modern market history. No jobs data. No retail sales. The CPI—delayed nine days—finally drops Friday, three days before the Fed's October meeting. This isn't just inconvenient; it's structurally destabilizing. The Fed's entire mandate is "data-dependent," and the data doesn't exist.

What filled the void? Corporate earnings. And they've been shockingly solid. Of the 12% of S&P 500 companies that reported through October 21st, earnings growth is tracking 8.5% year-over-year—ahead of the 7.9% expectation coming into the quarter. Revenue beats are above historical averages. The economy, at least at the corporate level, is holding up.

But here's the problem: private-sector data proxies—ADP payrolls, credit card spending, freight tonnage—are giving wildly divergent signals. Without the BLS anchor, markets are trading on vibes and executive commentary. That's not sustainable. Uncertainty is expensive, and the VIX spiking to 20+ (from sub-15 a month ago) tells you institutions are hedging for something breaking.

China's Rare Earth Gambit Backfires

October 10th was the inflection point. China announced sweeping export controls on rare earth minerals and technologies—materials critical for EVs, semiconductors, defense systems, and smartphones. Trump responded within hours: 100% tariffs on Chinese goods, effective November 1st, "over and above" the existing 30% rate. Markets cratered. The S&P fell 2.7%. The Nasdaq dropped 3.6%. Two trillion in market cap evaporated in a day.

Then something interesting happened. Trump blinked first—sort of. By Friday, he called the tariffs "probably not sustainable" and confirmed he'd still meet Xi Jinping in South Korea. Treasury Secretary Bessent floated extending the current tariff truce beyond 90 days if China walked back the rare earth controls. Monday, Trump signed a rare earth supply deal with Australia, creating leverage against Beijing. Gold—the ultimate geopolitical hedge—collapsed 7% in a day as safe-haven flows reversed.

The tactical takeaway: this is negotiation theater. China overplayed its hand, Trump countered with maximum leverage, and now both sides have an off-ramp before the November 1st deadline. But the strategic lesson is bigger: rare earth dependence is now a visible national security crisis. Domestic supply chain investment is policy, not speculation. That's why Cleveland-Cliffs surged 21%. That's why MP Materials got a $400 million Pentagon equity stake. The reshoring trade just got turbocharged.

Earnings Season: Defense and Industrials Are the Story

Netflix beat. Tesla reports Wednesday. But the real alpha signal this week came from the old economy: General Motors raised full-year guidance and the stock surged 15%. Coca-Cola topped estimates and reaffirmed growth. Lockheed Martin crushed earnings and lifted forecasts. 3M—a barometer for industrial demand—beat on both lines and raised its 2025 outlook.

What's happening? The market is pricing in two realities: first, consumer spending is sticky despite inflation and rate uncertainty. Second, defense and infrastructure spending is structural, not cyclical. Northrop Grumman raised its profit forecast for the second straight quarter, citing Middle East and Ukraine demand. These aren't momentum trades. These are companies benefiting from multi-year procurement cycles and government contracts that don't care about Washington gridlock.

The VIX Is Screaming and Nobody's Listening

Realized volatility is low. Implied volatility (VIX) is high. That gap—the widest in months—is institutions hedging for something they see coming. VIX hit 29 intraday last Friday before settling near 21. October VIX futures trade at a steep premium to front-month contracts, a signal that big money expects turbulence post-Fed meeting on October 28-29.

Here's why that matters: when institutions hedge aggressively but retail keeps buying, one side gets crushed. The playbook since 2023 has been "buy the dip." But dips require liquidity, and liquidity dries up fast when market makers pull back. We've seen this movie before—February 2018, August 2024. Complacency into volatility spikes ends badly for late entrants.

The Fed Cuts Again (Probably)

CME FedWatch puts a 99% probability on a 25bp cut at the October 28-29 meeting. That would bring the funds rate to 4.5-4.75%, down 75bp from the cycle high. The market expects at least one more cut in 2025, possibly in December. But here's the twist: the Fed has zero fresh data to justify this move. CPI comes out Friday—three days before the meeting. If it runs hot, does Powell pause? If it's cool, does he accelerate cuts? The timing couldn't be worse.

Adding complexity: the Fed's "data-dependent" rhetoric rings hollow when the data is delayed or missing. Powell will lean on corporate earnings commentary and private-sector proxies, but that's a terrible way to set monetary policy. Expect dovish forward guidance paired with caution on future cuts. Translation: they'll cut in October because they said they would, but they're flying blind after that.

Trump's Tariff Policy Is Chaos by Design

Here's what we learned this week: Trump's tariff threats are negotiating tactics, not policy. He floated 100% on China, then walked it back. He signed a rare earth deal with Australia to box in Beijing. He mused about cooking oil embargoes and port fees, then dropped them. The goal isn't economic coherence—it's leverage maximization.

Markets hate uncertainty, but they've learned to trade through Trump's tactics. The playbook: sell the threat, buy the walk-back. That worked again this week. But the structural shift is real. Tariffs aren't going to zero. Reshoring is bipartisan policy. Supply chain localization is accelerating regardless of noise. The volatility is the feature, not the bug.

🧭 Tactical Map: Where to Lean In

• Defense and aerospace primes: Northrop, Lockheed, RTX. Multi-year procurement visibility, bipartisan budget support, geopolitical tailwinds.

• Domestic rare earth and critical minerals: CLF, MP Materials, Arcadium Lithium. Strategic necessity > market volatility.

• Small-cap domestic cyclicals: Russell 2000 breakout signals rotation into economically sensitive names that benefit from reshoring and lower rates.

• Select regional banks: Credit fears were overblown. Zions and Western Alliance bounced hard after proving losses were idiosyncratic, not systemic.

• Cash and short-duration Treasuries: 5% yields with Fed cuts coming. Dry powder for volatility is alpha.

🔍 Theme to Watch: Reshoring as Geopolitical Imperative

Rare earths are the new oil. Whoever controls processing controls technology. China has that monopoly, and they just reminded the world what leverage looks like. But here's the alpha: the U.S. response isn't tariffs alone—it's capital deployment. MP Materials got Pentagon equity. Australia got a White House deal. CLF pivoted into rare earth production overnight. This is industrial policy moving at wartime speed.

Long-term implication: domestic materials, advanced manufacturing, and infrastructure adjacent to critical supply chains will outperform for years. This isn't a trade; it's a structural repricing of strategic assets. Gold's collapse this week signals the market believes de-escalation is coming. But even if Trump and Xi shake hands, the policy shift is permanent. Dependence on foreign supply chains for defense-critical materials is over. Invest accordingly.

📅 Forward View: October 28 - November 1

Key Events:

• Friday, Oct 24: Delayed September CPI (exp: 3.1% YoY, core 3.1%). Hot print derails Fed dovish narrative. Cool print confirms another cut.

• Monday, Oct 27: Durable goods orders (August). First hard data in weeks.

• Tuesday-Wednesday, Oct 28-29: FOMC meeting. 99% probability of 25bp cut. Powell's presser will dance around data blackout.

• Thursday-Friday, Oct 30-31: Trump-Xi meeting in South Korea at APEC. Risk event. Either tariff de-escalation or November 1st deadline becomes real.

• November 1: Trump's 100% tariff deadline on China (if no deal). Also the rare earth export control enforcement date.

Technical Levels:

• S&P 500: Support at 6,640. Resistance at 6,800 (psychological). Below 6,600 opens a gap to 6,400.

• 10Y Yield: Holding ~4.00%. Break above 4.10% pressures equities. Drop to 3.85% signals hard landing fear.

💬 Final Words

Markets just proved they don't need the government to function—they just need earnings, liquidity, and a Federal Reserve willing to cut. This week's action confirmed the rally is narrow, fragile, and built on hope that Trump and Xi find an exit ramp before November 1st. But here's the thing: whether they shake hands or throw punches, the structural shift toward reshoring and domestic critical infrastructure is irreversible. The volatility is noise. The reallocation of capital into strategic assets is signal.

Daly Asset Management exists because the old model—pay 1% to sit in passive beta and hope for the best—is finished. The alpha lives in the chaos, in the sectors consensus ignores, and in the systematic discipline to rotate when the data changes. No hidden fees. No hand-holding. Just compounding.

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Disclosures: This newsletter is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Always conduct your own due diligence or consult with a financial advisor before making investment decisions.