Dear Trader,
The VIX had a wild ride this week.
Monday started with the market still digesting Fed Chair Kevin Warsh's hawkish tone from Friday in Jackson Hole.
Then renewed fears over Iran ran oil toward $90 and pushed the 10-year to yields we haven't seen since 2023.
Stock and bond volatility climbed to their highest level in a month.
That reversed hard Wednesday and bled into Thursday on very little catalyst. The rally back caught me by surprise. I didn't expect it to turn that fast.
What bounced hardest is where I went looking for this week's Ticker Highlight Show pick.
Financials came back harder than any other sector. Higher yields and a Fed that might hike on September 16 make a fine place to find companies that earn money when cash moves around. Below, the one I want to own and the one I'd short.
Morgan Stanley Built a Two-Month Base
Morgan Stanley (MS) is the one to love.
MS doesn't live on a loan book. It makes its money on trading, wealth management and underwriting, and all three do better when volatility shows up and money starts moving.
The chart is why I want it now. MS topped at 232.25 on July 15 and has traded sideways ever since. That range has squeezed down to nothing.
When money comes back into financials, stocks coiled this tightly make the fastest moves.
Aon Is Borrowing $17 Billion Into This
Aon (AON) is the one to leave, and I'd short this bounce.
On Monday, Aon agreed to buy USI Insurance Services from KKR for $17 billion in cash, including debt, and it plans to fund the whole thing with new borrowing. That's the company's second enormous broker deal in two years, after it paid about $13.4 billion for NFP in 2024. Call it roughly $30 billion committed to the same idea.
The stock fell about seven percent that day.
Here's why I like selling the bounce for a trade.
Aon is pausing share buybacks so it can prioritize paying the debt down, and management doesn't expect the deal to add to adjusted earnings until 2028. Shareholders carry the cost now and get paid in two years.
Longs are looking to leave and I’m betting there is more selling to come.
Enjoy the Journey,
Tim