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It’s been an intense past 96 hours for Electronic Arts Inc. (EA). On Friday, the company released the latest version of its soccer video game, EA Sports FC 26, formerly EA Sports Fifa. Then on Monday, it announced a deal to go private for $55 billion in the largest leveraged buyout on record.
The company explained that a consortium including Saudi Arabia’s Public Investment Fund, Silver Lake Management, and Affinity Partners will acquire 100% of EA (with PIF rolling over its existing 9.9% stake) for a 25% premium to the Friday opening share price. The buzz from recent game releases, including the iconic Madden NFL, added to gossip about the transaction to push up EA’s shares 15% on Friday:
This follows underwhelming buyout activity this year. Funds raised $192 billion in the first half compared to an average of $202 billion from 2022 to 2024, according to With Intelligence:
It’s also the clearest sign yet that the long-anticipated Trump 2.0 deal boom is beginning to take shape. PitchBook private-equity analyst Kyle Walters notes that the deal reflects a lifting of uncertainty, as investors gain clarity on tariffs and grow more confident that the Fed will ease:
Just as important, Walters says that the 25% premium suggests investors won’t be dissuaded by rising valuations.
The deal is a culmination of trends in the $178 billion gaming industry over the last half-decade. During the pandemic lockdowns, gaming surged in popularity. Playtime increased, and pop culture embraced the medium as film and television adaptations topped global charts. Studios poured money into ever more ambitious titles.
Now the surge has turned to glut. Faced with an oversupply of expensive new releases, players are increasingly sticking with old favorites. The result: disappointing sales, sweeping layoffs, and the closure of once-promising studios. Fortunately for EA, with four games among the industry’s top 10 sellers, they are a force to reckon with. Konvoy’s Jason Chapman told Bloomberg TV that the preference for old titles makes the EA transaction a game changer:
The deal is also a fresh landmark in Corporate America’s move away from public listings. Publicly traded studios, Chapman notes, often find the unforgiving quarterly cycle leaves little room for long-term bets on new titles. That helps explain why Microsoft acquired Blizzard, giving it space to innovate outside the public spotlight.
Meanwhile, Securities and Exchange Commission Chair Paul Atkins, writing in the Financial Times, said it was only a matter of time before public companies were freed from mandatory quarterly disclosures. As Points of Return mentioned here, the idea espoused by President Donald Trump is far from terrible. Atkins said the commission should let markets determine the cadence of reporting:
It’s still unclear whether loosening reporting requirements will ultimately benefit American companies. But when firms like EA decide being public isn’t worth the hassle, it’s a sign that something needs to be done.
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- Pot stocks lit up today, with the Amplify Alternative Harvest ETF ($MJ) surging +26.7%, logging its best day since August, when it saw a similar-sized +27% rally. It's now sitting just -4% below a 52-week high, closing at its highest since November.
- As Conrad points out, today's surge occurred on the heaviest volume in more than a year. The primary trend remains lower, but $MJ is firmly above a rising 20-day moving average, and the 200-day moving average has curled higher since August.
- Pot stocks remain unloved after years of dismal performance and head-fakes. Yet, the group is exhibiting relative strength with $MJ up +46%YTD, while the broader Health Care sector ($XLV) is down -1.2%.
“Big bull markets always find a way to keep you frightened and OUT. Big bull markets are devils with no conscience - to get in you have to ‘close your eyes, and just do it’. Not easy, but in this business, nothing is easy except losing money."
- Richard Russell
US Bonds
- Treasury market implied volatility at multi-year lows ($MOVE).
- US 10yr Note
$TNX
+20 bps since Fed rate cut on 9/17. - US credit spreads are historically tight. Confidence or complacency?
- Bond fund flows remain strong, especially relative to equities.
- Oct FOMC target rate probability remains virtually unchanged since Sept meeting i.e. it's very likely we see 25bp cut.
- Dec FOMC target rate probability softened over the last week. To 64% from 78%.
- US
$AGG
26-week rolling correlation to US Stocks
$SPY
at -0.40. Bonds are adding diversification benefit.
US Stocks
- The smaller the better in September! Microcaps
$IWC
+17% QTD, compared to +12% for smallcaps
$IWM
and +7.4% for largecaps
$SPY
. - US market successfully bucked the seasonal trend.
- Fund flows are picking back up, but inst. positioning remains light.
- Sentiment is mixed - "What goes up, must come down... right?!"
- $VIX
below 20, low vol regime. - Valuations are rich +
$SPX
10% away from the 200-day average. - Stocks remain sensitive to rate uncertainty.
Non-US Stocks
- US Dollar Index
$DXY
positive QTD. Expect more mean reversion in Q4. - Developed Europe sending mixed signals.
- Japan continues to trend and China is breaking out.
- EM equity outperforming QTD despite higher
$DXY
.
Commodities & Crypto
- Crude oil in a downtrend - weighing on index return.
- Precious metals go parabolic.
$GOLD
$SILVER - Agriculture struggles on a relative basis
$DBA
$DBC - Crypto remains in an uptrend.
- Alt-coins take a breather - megacaps outperform in Sept.
- We were told stocks would sell off in August and September.
- Equity indexes all over the world ripped higher.
- That's the signal.
It comes from the tendency for stocks to sell off during the period between the two holidays. Since 1970, the S&P 500 has fallen an average of 0.4% during this period, dropping 57% of the time.
But rather than focusing on the selling part of the equation during Rosh Hashana, I'm here to talk about buying during Yom Kippur, which is this Wednesday night-Thursday morning.
As my friend Jeff Hirsch points out in "The Stock Trader's Almanac", the S&P 500 rallies 70% of the time from Yom Kippur to Passover, with an average return of 6.4% and a median return of 7.7%.
"Buy in October and Get Yourself Sober"
Jeff Hirsch is a man of many great quotes. He's the Yogi Berra of Technical Analysis.
His old saying, "Buy in October and get yourself sober," has helped me over many years, particularly in more recent years when the market has really ripped in Q4.
This quote is based on the tendency for stocks to bottom out around October and rip into the fourth quarter.
In fact, according to our friends over at Carson Group, the fourth quarter is by far the best for stocks – with positive returns 80% of the time and an average gain of 4.2% going back all the way to 1950.
October has a reputation for being volatile, as many of the market's greatest crashes have happened during the month.
Believe it or not, the first half of October is actually the third-best half month of the year, with a median return of 1.3%.
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This week, we enter one of the most bullish periods in the calendar.
Historically, we want to buy stocks on Yom Kippur – that's this Wednesday and Thursday.
The fourth quarter of the year is historically the best quarter – that starts tomorrow.
The third-best two-week period of the year starts this week.
And, most importantly, the market has blatantly ignored the seasonal weakness we've historically seen during August and September.
This is probably the most bullish part of it all.
Ignoring Seasonal Weakness
Those of you who have been following me for years already know we don't want to buy or sell stocks ahead of seasonally strong or weak periods just because history says that's the higher probability.
It's actually the exact opposite. We want to observe after the fact to see if stocks respected or ignored seasonal trends.
In other words, did stocks sell off during what is historically a bull period? Or did stocks rally during what was supposed to be a weak period?
That's the signal.
And that's what we just saw during what is historically the worst two-month period of the year.
Here's a chart showing performance for various sector and index funds since August 1:
We were told stocks were going to sell off in August and September. But the S&P 500 and the Dow Jones Industrial Average each rallied more than 5%.
The Nasdaq-100 was up more than 6%, and the Russell 2000 was up double-digits.
Meanwhile, Asia was up 13%, Africa was up 15%, and Latin America led the way, rising almost 16% during this period.
Stocks ripped when they weren't supposed to.
That's the signal.
Buy Yom Kippur.
| Speculative growth is back in the driver’s seat with the flagship ARK fund kicking off the week with fresh cycle highs on both absolute and relative terms. We’ve been leaning back into this theme since early September, and this is just the latest piece of evidence that suggests we should keep pressing it. Crypto stocks have delivered big gains and continue to. Space and new nuclear names are heating back up. And quantum is the best basket of momentum out there right now. This is the same kind of environment where I find myself pulling up my drone watchlist more and more. We highlighted a handful of setups from this group of stocks back in July, just as they started to catch a bid. That was a false start, but after coiling up for a few more months, this group is taking off now. Here’s our Custom Drone Index breaking out of a textbook continuation pattern. |
| This is exactly the sequence we look for in speculative growth: explosive rallies, digestion through volatility compression, and then clean resolutions higher in the direction of the primary trend. That’s all characteristic of a healthy recharge, not trend exhaustion. We believe drones are among the top places to be in speculative growth, yet these stocks are receiving zero attention The leaders are perfectly actionable right now, so I think it’s worth reiterating two of our favorites. First, this is Unusual Machines $UMAC: |
| UMAC is following through on a VWAP pinch pattern, with volatility compressed but curling higher off multi-month lows. I’m long above 13, targeting 20. Over longer timeframes, I’m looking for 32. Next is Red Cat Holdings $RCAT: |
| RCAT is pressing against the upper bounds of an almost year-long base. The stock has tested its pivot highs multiple times over the past few weeks but has been unable to break through. I think it gets the job done any day now. I like buying strength above 11.75, with a target of 18.75. Over longer timeframes, our objective is 30. We’ve had tremendous success trading options in speculative growth stocks this year, and we think the current setups in RCAT and UMAC have outlier profit potential. We’re long calls in both these stocks, and I like the way we’re looking with plenty of time to go until expiration. And while we’ve already taken profits in some, both of these positions are currently trading slightly below what we initially paid for them. In other words, the calls are cheaper than they originally were, and the charts look better. I’ll be looking to add exposure in the coming days. |
jog on
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