Paul Tudor Jones sees potential market rally after late October
Investing.com -- The third-quarter earnings season kicked off this week at a key moment for markets, with momentum now being fuelled less by macro signals and more by AI-driven optimism and stock-by-stock differentiation.
With official economic reports largely suspended due to the government shutdown, Barclays strategists argue that “earnings are set to take center stage, potentially pivotal for sustaining the rally,” marking what it describes as a “show-me moment” for AI-fueled euphoria.
Options markets are already signalling high expectations. In the U.S., the non-weighted median implied earnings move across more than 700 liquid names stands at 5.5%, the fifth-highest reading in a decade and still elevated even after adjusting for the spike in the VIX.
Strategists flag that “options are indeed priced for outsized moves in US & EU, thus setting the stage for continued stock dispersion.”
The team led by Anshul Gupta notes that in 2025, implied earnings moves have consistently overshot realised outcomes, with the gap particularly wide in sectors such as Materials and Staples. Tech remains the outlier, with implied volatility in line with two-year realised averages.
For the first time since the second quarter of 2024, option markets are pricing a larger earnings-related move for the so-called Magnificent 7 stocks relative to the rest of the market, with a median implied swing of 6.1%.
Implied moves for Mag7 have risen even as implied moves for the broader market eased, pointing to a highly concentrated expectation setup. Barclays links this to investor positioning that assumes another outsized reporting season from Big Tech, after these companies drove most of the positive surprises last quarter.
In Europe, around 65% of Stoxx 600 market cap is due to report over the next five weeks, with implied moves at 4.5% — near two-year highs and above realised swings seen in recent quarters.
Industrials, Consumer Discretionary and Financials show the richest volatility expectations, while Tech, Telecom and Real Estate screen as relatively muted despite having participated in the year-to-date rally.
Last quarter, earnings misses in Europe were punished more severely than beats were rewarded, a pattern Barclays suggests could repeat if expectations are not met. The implied dispersion reflects a market increasingly focused on stock selection as policy shocks, tariff risk and AI-driven narratives fuel differentiation.
Strategists point to sharply lower index and sector correlations and a wide spread between single-stock and index volatility as evidence that investors are positioning for larger idiosyncratic reactions rather than broad index direction.
Despite last week’s tariff scare and one of the largest one-day SPX sigma moves in a century, they argue that volatility remains contained and its Equity Euphoria Indicator is still well above long-term averages, underlining the persistent bullish sentiment among retail traders.