Steve Weiss: Your investment setup for the week ahead

If you stayed long volatility into the week, you mitigated some of the hits your portfolio took as market leadership rolled over, specifically technology, the drubbing it took occasioned by Ericsson's disappointing report and forecast of weakness in telecom infrastructure spending. Rates held mostly firm all week, the U.S. 10 year rising within a breath of 1.80 percent mid-week prior to the release of the FOMC minutes from the September meeting. All in, take a nothing done for rates as they subsequently retrenched before ending the week ever so slightly higher, catalyzed by solid Producer Price Index and Retail Sales reports on Friday. Citi , JPMorgan and Wells Fargo each reported strong earnings relative to muted expectations, differing metrics driving the beat and to varying extents. Initial positive response exhibited in 2 to 3 percent price gains dissipated somewhat as the trading session wore on as did overall market levels. Nonetheless, for fundamental reasons the bank reports were indisputably better than expected. The bar has been set fairly high for this reporting period with the downside earnings revisions entering this period more modest on average than the prior one, five and 10 year periods. However, the nervousness around earnings coming into Friday was palpable, particularly with a view that margins had peaked and the relevant experience of those first to report — Honeywell , Ericsson, Fortinet , Alcoa and serial offender Illumina — all disappointing in large magnitude and broadly across sectors. Thus, rather than the usual resetting of expectations through modeling, price action has seemingly filled that role albeit to a modest extent. Between valuations and the elections, it was a week consumed by the how did we get here conversations, more so referencing the latter, specifically our very own versions of Dilma Rousseff and Kim Jong-un. Just as sentiment toward the asset class could not get any worse, long/short equity hedge fund performance continued to bounce back from the depths of disfavor, significantly outperforming the broad indices. As I wrote in May calling the bottom in hedge fund performance, I did so in expectation of correlations breaking down, fundamental investing returning to some degree, the maturation of the economic cycle and the Fed showing us the pathway to the end of easy money. Those factors are in place. The industry still has too much capacity, favoring investments in smaller funds and making it difficult for all but the most skilled of a certain size to generate returns worthy of their fees or, for that matter, any fees. As noted, earnings season got off to a poor start but made a comeback on Friday. Ericsson and Samsung were the first to spoil the party, albeit for different reasons, the former attributing their sobering earnings commentary to a slowdown in telecom infrastructure spending pending the next product cycle that is still a few years out. Samsung did their part by terminating the Note 7, presumably causing a backup in the supplier channel since not all of their demand will go to Apple . It's no secret that cell phones have built in obsolescence but consumers and airlines prefer a softer, less immediate approach than explosions and fires. On the healthcare side, biotech had a terrible week and the aforementioned Illumina missed their fourth consecutive quarter crushing the stock (at some point perhaps they get rewarded for consistency?). However, these are all one offs and a pattern has not yet been formed from which to cull the ingredients of a major market correction due to earnings revisions. Alternatively, it would be unwise to be cavalier about risk within the framework of a skittish market, high valuations and the uncertain outcome of the presidential election as well as the determination of who will control Congress. In their 10th annual report measuring stress (who knew?) The American Psychological Association noted that 52 percent of Americans polled stated the election "is a very or somewhat significant source of stress in their lives." The APA did not reveal if Melania Trump was one of the respondents. The Fed minutes offered no surprises except to those still on the fence about a rate hike in December since a reading of the text indicates that September was indeed a very close call. You may recall that my expectation was a move in September, tempered somewhat by FOMC dove Lael Brainard's last minute, unscheduled speech. I still can't help but feel that off-line conversations were had to hold off any action until after the election results. Clearly, November is off the table as it should be given the proximity to Election Day. The markets were nonplussed in reaction to the on balance hawkish minutes; when taken in conjunction with Fed Fund Futures over 60, the 10 year yield at 1.76 percent and the slaughter of yield equities, it must be assumed that a December Fed move is at least partially priced into the market. China's issues, on the other hand, just won't go away, their import/export numbers on Thursday showing an economy still atrophying. The import numbers were particularly weak, especially when taken in conjunction with a currency that continues to devalue. The incredible amount of stimulus they have injected into the economy as well as their apparent willingness to ignore mountains of debt, a large portion of which is non-performing, presages anything but a fairy tale ending. The rally in hard commodities and related equities has been built on unstable moorings, the reason they were the worst performers this past week. Of course, as only China can do, they made reparations to their market with very strong inflation numbers on Friday, driving indices higher. Rocky. Has been, will be. Not bearish, not bullish. I imagine if the Michael Douglas movie Wall Street were to be remade today, instead of cocaine being the drug of choice, they would instead be popping Dramamine to quell the nausea caused by the incessant volatility of the markets. Perhaps, the indices would get into the act as well, their bipolar behavior on full display Thursday during a peak to trough move of 2 percent surely worthy of such a diagnosis. These moves are likely here through at least the first week of November. Valuations at the index level remain fair to fairly full while bargains remain underneath. Recognizing that there is always another hill to climb, I do see equities grinding higher and am willing to deploy capital as situations present themselves. Some interesting, non-correlated opportunities continue to find their way to my desk, most not worthwhile, but every so often of interest, continuing to fill the unintended void created by Dodd-Frank. Looking abroad, the setup for shorting London real estate against Frankfurt or Munich property, despite cracks in Merkel's coalition, seems to be attractive albeit obvious. In the meantime, I counsel patience. Every time the market looks like it is running away, it provides another opportunity. At least that's how it has been for 18 months. (Mr. Weiss is the managing partner of Short Hills Capital Partners, a hedge fund advisory firm and asset manager primarily established to invest on behalf of one of the industry's most successful hedge fund managers. He has held senior management positions at SAC Capital, Salomon Brothers, Lehman Brothers and MSW Asset Management. He is the author of two investment books and a novel, is a visiting teaching fellow at UNC's graduate business school, Kenan-Flagler, and a CNBC contributor appearing regularly on "The Halftime Report.")

Yongyuan Dai | Getty Images

If you stayed long volatility into the week, you mitigated some of the hits your portfolio took as market leadership rolled over, specifically technology, the drubbing it took occasioned by Ericsson's disappointing report and forecast of weakness in telecom infrastructure spending. Rates held mostly firm all week, the U.S. 10 year rising within a breath of 1.80 percent mid-week prior to the release of the FOMC minutes from the September meeting. All in, take a nothing done for rates as they subsequently retrenched before ending the week ever so slightly higher, catalyzed by solid Producer Price Index and Retail Sales reports on Friday. Citi, JPMorgan and Wells Fargo each reported strong earnings relative to muted expectations, differing metrics driving the beat and to varying extents. Initial positive response exhibited in 2 to 3 percent price gains dissipated somewhat as the trading session wore on as did overall market levels. Nonetheless, for fundamental reasons the bank reports were indisputably better than expected.