Market sell-off and opportunities: Coherent in focus

The post-election rally many investors had expected quickly gave way to panic. On Thursday, heavy losses at several hedge funds and their efforts to reduce risk intensified the selling. All eleven S&P 500 sectors declined, including the most defensive, leaving few places to hide in equities. These sharp sell-offs create opportunities. Historically, some periods of panic have been followed by strong medium-term rebounds. We look to buy shares at more attractive prices when companies’ underlying prospects remain sound. To discuss these opportunities and our approach, get in touch.

Under the Spotlight

Coherent (COHR)

We bought Coherent before its quarterly earnings release, then added to our position after the shares fell.

The company makes optical components that transmit data using light. Its prospects depend heavily on the development of data centres and their growing connectivity needs.

The results released on November 4, covering the first quarter of fiscal 2027, show strong growth:

• Revenue: US$2.37 billion, up 50% year over year.
• Adjusted earnings per share: US$2.09, compared with US$1.16 a year earlier.
• Adjusted gross margin: 40.6%, compared with 38.7%.
• Data Center and Communications segment revenue: approximately US$1.95 billion, up 79% and accounting for 82% of total revenue.

This segment now accounts for most of the company’s revenue. Connectivity demand will therefore be crucial to what comes next. Sales and gross margin are improving; to maintain that pace, Coherent will need to deliver its products and operate its new production capacity efficiently.

The investor presentation provides more detail on the outlook:

• Revenue expected next quarter: US$2.55 billion to US$2.75 billion.
• Adjusted earnings per share expected next quarter: US$2.28 to US$2.48.
• New PhotonLink agreement: approximately US$20 billion over five years, with related revenue expected to begin ramping up in early 2028.

The agreement gives a clearer picture of the revenue the company could generate over the next few years. The rollout schedule will still matter: commitments must turn into deliveries, then revenue and cash receipts.

This expansion also requires substantial spending:

• Quarterly capital expenditures: US$775.5 million.
• Operating cash flow: −US$92.7 million.

It will therefore be important to track the cash the company actually generates from its sales. The return on this spending will depend on how fully the new facilities are used and the margins they produce.

At Thursday’s close:

• Share price change during the session: −12.98%.
• Valuation: approximately 35 times trailing twelve-month reported earnings, according to Yahoo Finance.

The shares fell with the sector, even though results and guidance exceeded the expectations reported by Investor’s Business Daily. Customer demand, competition and financial obligations also remain risks to watch.

Early Friday quotes at 9:47 a.m. ET, according to Yahoo Finance:

• Coherent share price: US$189.57.
• Change from Thursday’s close: +11.67%.

The shares have recovered part of Thursday’s decline. These rapid moves give a sense of the nervousness across the sector.

We used Thursday’s decline to buy again. As part of our active management approach, we continue to monitor growth, the company’s ability to carry out its industrial projects and available cash.

Theme of the Week

Professional investors caught off guard

On Wednesday, the rally seemed to vindicate the major trading desks that had expected stocks to rise after the midterm elections. The next day, the S&P 500 lost 4.4% and the Nasdaq Composite, 5.5%. Many professional investors, including several hedge funds, were caught off guard.

A historic decline in technology stocks

According to MarketWatch, three market segments had their worst session since March 2020 on Thursday:

• Nasdaq-100: −6.4%.
• S&P 500 Information Technology sector: −7.3%.
• Philadelphia Semiconductor Index: −12.3%.

The S&P 500, for its part, had its worst session since April 2025. The comparison with the pandemic therefore applies to the technology segments listed above.

Doubts had already been building for several weeks. How much will financing AI infrastructure cost, and what profits will these projects generate? The election results added concerns about new restrictions on data centre construction. Investors then reassessed the outlook for a sector that had contributed heavily to the stock market’s rise.

The way funds had positioned their portfolios helps explain the size of the shock. According to Goldman Sachs’ John Flood, quoted by Reuters, several managers had reduced their exposure before the elections. They bought shares during Wednesday’s rally, then sold some of them as early as Thursday. They missed part of the rise before being hit by the decline.

The losses have been substantial. According to Goldman Sachs estimates reported by Reuters, technology funds that bet on both rising and falling share prices lost more than 4% on Thursday. Their year-to-date returns were estimated to be close to zero, after reaching approximately 24% in June. Losses accumulated over several months, together with Thursday’s sell-off, would therefore have erased their gains for the year.

Three managers scale back their operations

Even before Thursday’s sell-off, several funds had begun reducing their activities in response to accumulated losses:

• Walleye Capital: after losing 5.9% in October, its worst month since March 2020, the manager plans to return some capital to investors. It is also sharply reducing its internal team that bets on both rising and falling share prices.
• Engineers Gate: the manager has decided to close a large part of its Synthesis strategy, which combines stock selection by investment professionals with quantitative models. It is retaining five portfolio managers in that business.
• Samlyn Capital: down approximately 5% year to date at the end of October, the firm is now focusing on financial stocks. Senior staff and members of teams covering other sectors are leaving the company.

These three managers were already under pressure before Thursday. The losses cited refer to October or to year-to-date returns through the end of October.

Situational Awareness remains active after its July crisis

Leopold Aschenbrenner’s fund also shows the risks of a concentrated portfolio financed with borrowed money. The investor letter reviewed by Reuters on July 31 reports:

• Decline in portfolio value in July: 67%.
• Year-to-date return at that point: still approximately +80%, following very strong gains in the first half.

Losses mounted quickly as selling in the market became more difficult. The fund sold most of its publicly traded stock portfolio to Citadel and announced that it had eliminated its borrowing. Borrowing can trigger margin calls: lenders demand additional collateral, which can force a manager to sell.

The fund nevertheless continued operating. Options purchases were reported in September. On October 29, Investing.com, citing Bloomberg, reported that it was seeking investor capital to participate in a Fluidstack funding round. This was therefore a crisis in July, separate from Thursday’s sell-off. It shows that a manager can still believe in an investment and have to sell it to meet lenders’ requirements.

When several managers reduce their positions at the same time, their selling can weigh on the same stocks. Understanding market moves therefore also means considering the constraints that funds face.

Portfolios are also becoming more alike. According to PivotalPath, the ten largest multi-strategy funds increasingly hold the same stocks. When they sell, the same companies can be affected. Bloomberg also highlights the role of strategies that automatically adjust their exposure to market fluctuations. If volatility rises, these strategies can add to the selling.

A chain reaction can then develop: prices fall, volatility rises and some strategies have to reduce their exposure, prompting further sales. According to analysts quoted by Reuters, some investors also tried to sell ahead of the portfolio adjustments expected near the end of the session. Part of the decline may therefore reflect these management constraints, alongside concerns about companies’ prospects.

The VIX rises as demand for protection returns

The VIX, calculated from S&P 500 options, measures the size of the price swings expected over the next thirty days. It gives a sense of the uncertainty investors anticipate, but does not predict whether prices will rise or fall.

The change in sentiment between Wednesday and Thursday was striking:

• Wednesday’s close: 16.61, after falling 20.3% during the session.
• Thursday’s close: 28.18.
• Thursday’s increase: +11.57 points, or +69.7%.
• Historical reference: the VIX closed at 82.69 on March 16, 2020.

Post-election relief quickly gave way to demand for protection. According to MarketWatch, the VIX recorded its largest daily increase in nearly two years on Thursday. The rise was all the more pronounced because the index started from Wednesday’s relatively low level.

This increase in the cost of protection can also be accompanied by selling from strategies that are sensitive to volatility. That helps explain why declines can accelerate within a single session. The VIX, available liquidity and companies’ prospects will help show whether tensions are easing.

Early Friday data show some easing:

• VIX at 9:33 a.m. ET: 26.12, down approximately 7.3% from Thursday, according to Yahoo Finance.

The VIX remains well above Wednesday’s level, however. Protection costs less as technology stocks rebound, but it is still too early in the session to conclude that calm has returned.

At Pratte, our investment approach remains the same: buy at a discount when our analysis shows no change in the reasons we invested. Provided those conditions still hold, the more markets decline, the more portfolio risk we take on. This allows us to add to our positions at more attractive prices and take advantage of the opportunities that arise.

Corporate Earnings

Strong results meet high expectations

As we explained in last week’s analysis (in French), revenue growth must also produce profits and cash. This week’s earnings show that strong performance does not always lift a stock when investors already expect a great deal.

Apple continued to grow:

• Quarterly revenue: US$114.5 billion, up 12%.
• Earnings per share: US$2.10, up 14%.

The company warned, however, that more expensive memory chips would weigh on gross margin during the holiday quarter. Sales are growing, but profitability will be under pressure.

AMD reported a record quarter on Tuesday evening:

• Revenue growth: 45%, to US$13.4 billion.
• Data centre revenue growth: 97%.

Yet the shares were caught in Thursday’s sector sell-off. Over short periods, a company’s results and its share price can move very differently.

Palantir nearly doubled its revenue year over year:

• Revenue: US$2.313 billion, up 96%.
• U.S. commercial revenue growth: 148%.

The shares still fell on Tuesday after the release, despite a revenue outlook above the expectations reported by Reuters. Even strong growth is not always enough when expectations are high.

Results were more mixed at Qualcomm and Shopify:

• Qualcomm: quarterly revenue down 8% under U.S. accounting standards.
• Shopify: revenue up 32% and a free cash flow margin of 22%.

Qualcomm’s handset chip sales missed expectations. At Shopify, the free cash flow margin measures the share of revenue left as cash after capital expenditures.

AppLovin stood out:

• Revenue growth: 55%, to approximately US$2.2 billion.
• Net income growth: 72%.
• Thursday’s share price change: +31%.

Its earnings were well received, even during a difficult session for the broader market.

Economy

U.S. employment surprises to the upside

The U.S. labour market was unexpectedly strong in Friday morning’s report:

• Jobs added in October: 165,000, compared with 65,000 expected.
• Unemployment rate: 4.1%, compared with 4.2% in September.
• Revisions to August and September job gains: +84,000 in total.
• Hourly wages: +0.4% month over month and +3.1% year over year.

Professional services, health care and transportation were among the contributors to October’s gains. The economy is holding up better than expected, but that strength makes a rapid easing of inflationary pressures less likely. According to the Financial Times, U.S. bond yields and the dollar rose after the release. For stocks, a solid economy is encouraging, but high financing costs can weigh on companies.

Strong employment can support consumer spending, while rising wages may lead investors to expect interest rates to stay high for longer. Companies spending heavily on AI will therefore need to keep showing that they can finance their growth and generate profits and cash from it.

Canada and Oil

Budget, jobs and oil draw attention

In Canada, the federal budget tabled on Thursday proposes C$142.1 billion in spending over five years to, among other things, attract capital, support innovation and develop infrastructure. It remains to be seen how much this spending will actually stimulate investment and productivity.

Friday morning’s employment figures nevertheless show a Canadian economy that remains fragile:

• Net employment change in October: −4,700 jobs, compared with an expected increase of 13,600.
• Unemployment rate: 6.7%, compared with 6.5% in September.
• Private-sector employment: −53,000 jobs.
• Public-sector employment: +50,000 jobs.

Total employment changed little, but the details matter: public-sector hiring largely offset private-sector job losses.

The contrast with the United States is clear. In Canada, weak employment calls for support for growth, while energy prices continue to complicate the fight against inflation.

Oil also moved sharply. Brent lost 8.7% on Wednesday as hopes for a resolution to the conflict with Iran revived after the U.S. elections. It recovered 3.9% on Thursday, with supply risks still present. These swings directly affect companies’ costs and the inflation outlook.

Market Summary

At Thursday’s close, the S&P 500 had lost 2.99% since the previous Friday, the Nasdaq Composite, 4.41%, and the Dow Jones, 0.48%. The S&P/TSX was nearly unchanged for the week, despite falling 2.03% on Thursday.

All eleven S&P 500 sectors ended Thursday lower. Nvidia lost 9.3% in a particularly difficult session for major AI-related stocks. U.S. bonds, meanwhile, attracted investors seeking safety.

Friday morning’s rebound remains uneven. The S&P 500 and Nasdaq Composite are rising alongside technology stocks, while the Dow Jones and S&P/TSX remain lower. Weekly losses have narrowed, but have not been erased. The U.S. ten-year yield and the U.S. dollar are also rising after the strong jobs figures: financing costs remain a concern. The gap between the Nasdaq and Dow shows that the recovery is concentrated in certain sectors.

Markets by the Numbers

Weekly changes as of November 6, 2026 — early trading

Quotes from 9:32 to 9:47 a.m. ET, compared with October 30. Some quotes are delayed. Friday’s changes are calculated from Thursday’s close or settlement.

Quotes: Yahoo Finance and TMX Money.

Stocks in Brief

Each change below refers to the session indicated.

• Apple (AAPL): −1.9% on Tuesday.
  The shares fell after the warning about memory chip costs and their effect on holiday-quarter margins.
• AMD (AMD): −17.3% on Thursday.
  The shares fell sharply with the semiconductor sector after the company reported a record quarter on Tuesday evening.
• Qualcomm (QCOM): −9.5% on Thursday.
  Handset chip sales disappointed as the sector was also under pressure.
• Shopify (SHOP, U.S. listing): −8.7% on Tuesday.
  The shares fell after the release, despite quarterly revenue growth of 32%.
• AppLovin (APP): +31.0% on Thursday.
  Revenue and earnings exceeded expectations. The board also authorized an additional US$3.2 billion in share repurchases.

Looking Ahead to Next Week

Inflation takes centre stage

After employment, attention will turn to U.S. inflation. October consumer prices will be released on Tuesday, November 10 at 8:30 a.m., followed by producer prices on Friday, November 13. These figures will help shape interest rate expectations. Cisco will report on Thursday, November 12 after the close. Its comments on equipment demand and technology spending will help track AI investment. Developments in the Middle East will also remain on the watch list.