The Market Outlook for the Week Ahead, or The Looking Glass Market

We all read Alice in Wonderland when we were kids. In it, Alice enters a strange world where everything is the opposite of reality. Chess pieces can walk, and cats can talk.

Traders these days can be forgiven for believing that they have also stepped through the looking glass and entered a strange world where up is down, expensive is cheap, and IPO’s which offer zero added value see their shares rocket on the first day.

The big conundrum is how high a market can go when the economy is clearly headed into a recession. The short answer is that stocks can go up quite a lot in a looking glass world.

Try as I may, it is tough to find positive data points on the economy. Real estate is in free fall, agriculture looks like a Great Depression replay, and international tourism has virtually disappeared. Foreign trade is a disaster area. If you work in construction or restaurants, your life is hell. The 14%-15% earnings growth reported in Q1 will likely drop to zero by year-end. But if you are in a Bitcoin business, it is boom times.

The 23% rally we have seen off the April 9 (SPY) 4,800 bottom has been one of the most dramatic in history. It has also been one of the narrowest. The bull was led really by just 50 technology stocks we all know and love. The other 450 companies in the S&P 500 are still down on the year, with the indexes at all-time highs.

The “Wall of Worry” has crumbled and disappeared.

Erratic government policies are to blame for this extreme volatility, which changes by the day, if not by the hour. One minute, there is a 145% tariff on imports from China and a complete cutoff of rare earth supplies to US technology companies; the next minute, there isn’t.

My old friend Ken Griffin at Citadel tells me this has been the most difficult trading year in his company’s 25-year history because the swings in basic economic assumptions have been so wide and violent. Same-day options are driving the market, greatly increasing any downside volatility, like we saw in 1987, 2000, and 2025.

I agree.

Most concerning is the flow of money into crypto plays, which are sucking in much of the speculative money in the market. That’s why gold (GLD) has sold off 5% in the past two weeks, with hot money moving over to more fashionable digital plays.

Some of the recent crypto IPO’s have been laughable in their pretensions. Circle International Group (CRCL) promises to issue stablecoins based on US dollars. In other words, you are taking on the credit risk of a small startup to own a US dollar just so it can be cheaply transferred. Yet the shares soared from $31 to $300 after it went public, giving it a market capitalization of an eye-popping $50 billion.

This will end in tears.

When the entire crypto industry was worth only $2 trillion, it could have all gone to zero and not have much effect on the economy, which it almost did. It was mostly Millennials who got wiped out, betting their life savings on hopes and prayers and then finding themselves in court, vainly trying to get their money back.

Now, the total crypto market is worth $7 trillion and is growing rapidly. If it gets much bigger and then all that money gets lost, it could trigger another Great Depression. Past periods of uncertainty brought a flight to safety. Now there is a flight to crap.

It all underlines the extreme short-termism of the modern business. It’s become a “take the money and run” economy. Tough luck for your retirement fund if you forget to sit down when the music stops playing.

It all sets up a trading range for the S&P 500 for the rest of 2025 of 5,500 to 6,500. I expect some kind of weakness in the summer. Then we get a grind up to year-end.

AI stocks will be the leaders and will dominate the global economy for the next decade. That’s why investors are willing to look through trade wars, the Iran War, and a war on immigrants, and hope for the best. Financials will follow on the promise of future deregulations, which will assure another financial crisis down the road.

Cybersecurity will be another big frontrunner. Algorithms are becoming so sophisticated that enormous expenditures will be required to keep the bad guys at bay. Cybersecurity spending could be an incredible 10X AI spending. Morgan Stanley estimates that spending will increase from $15 billion in 2021 to $135 billion by 2030. CrowdStrike (CRWD), the current leader, has become a big winner for Mad Hedge this year.

The Cybersecurity industry is made up of 4,000 players, most of which are small and private. Five big companies dominate: CrowdStrike (CRWD), Palo Alto Networks (PANW), Fortinet (FTNT), Zscaler (ZS), and Broadcom (AVGO), and will eventually gobble up the rest, leading to trillion-dollar market valuations. It’s the old concentration play again.

An interest rate cut from the Fed by year-end to get the US out of recession is another stimulus for traders. That brings me to a sector I abandoned last October and left for dead, the homebuilders. With rate cuts a certainty by May 2026 at the latest, you might start thinking about buying bombed-out homebuilders’ names now. Investors are dying to pick up any sector that hasn’t doubled in the last three months, which has growth potential. I’m talking about (DHI), (KBH), (PHM), and (LEN).

My June performance rocketed up to +15.32%, taking us to new all-time highs on all metrics. That takes us to a year-to-date profit of +45.01%. My trailing one-year return exploded to a record +100.46%. That takes my average annualized return to +51.14%, and my performance since inception to +796.90%. These are all non-compounded numbers.

It was a week when the market ground up every day except for Friday. I stopped out of my long in gold (GLD) for a small loss. I then jumped into another short position in (TSLA), which then immediately fell apart. That leaves me with 90% cash and 10% short Tesla. The June 20 option expiration saw us bring home maximum profits in (MSTR), (TSLA), (BA), (WPM), (AAPL), (TLT), (QQQ), AND (SPY).

Some 63 of my 70 round trips in 2023, or 90%, were profitable. Some 74 of 94 trades were profitable in 2024, and several of those losses were really break-even. That is a success rate of +78.72%.

Try beating that anywhere.

My Ten-Year View – A Reassessment

We have to substantially downsize our expectations of equity returns in view of the election outcome. My new American Golden Age, or the next Roaring Twenties, is now looking at multiple gale-force headwinds. The economy will completely stop decarbonizing. Technology innovation will slow. Trade wars will exact a high price. Inflation will return. The Dow Average will rise by 600% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old. My Dow 240,000 target has been pushed back to 2035.

On Monday, June 30, at 8:30 AM EST, the Dallas Fed Manufacturing Index is printed.

On Tuesday, July 1, at 7:30 AM, the Jolts Job Openings Report is announced.

On Wednesday, July 2, at 1:00 PM, we get the Challenger Job Cuts.

On Thursday, July 3, we get Weekly Jobless Claims. We also get the Nonfarm Payroll Report for June.

On Friday, July 4, the US has a National Holiday. All markets are closed.

Punitive Tariffs Return on July 9, possibly bringing the stock rally to a grinding halt. Yes, that would include the 145% tariff for China. Countries are hesitant to sign deals without knowing how these sectoral levies will impact them, and some, like India, are pushing for commitments from Washington that any deal will match the best agreement offered to any other nation.

Consumer Sentiment Improves, in June to a four-month high, with the final June sentiment index increasing to 60.7 from 52.2 a month earlier. Consumers expect prices to rise 5% over the next year, down from 6.6% in May, and they see costs rising at an annual rate of 4% over the next five to 10 years. Despite the improvement in sentiment, consumers remain anxious about the potential impact of tariffs, and their views are still consistent with an economic slowdown and an increase in inflation to come. It’s really very simple: rising share prices make people more confident.

US Equity Funds See Sixth Weekly Outflow, as of June 25, as investors took profits near record highs and stayed on edge ahead of key growth and inflation data. According to LSEG Lipper data, investors withdrew a net $20.48 billion from U.S. equity funds during the week, posting their largest weekly net sales since March 19.

Bitcoin Buying Firms are Multiplying. Over the past year, the number of bitcoins held by companies has jumped nearly 170 per cent. A total of about 130 listed firms hold a combined $87bn of bitcoin, equivalent to about 3.2 per cent of all the bitcoins that will ever exist. MicroStrategy (MSTR) started the trend and now holds a heart-stopping $33 billion in Bitcoin. Among those pivoting to a “bitcoin treasury” strategy is the Trump family media firm. While some firms’ main focus is on buying bitcoin, others are hoarding it while still running other, larger business lines.

As for me, to say that I was an unusual hire for Morgan Stanley back in 1983 was an understatement, a firm known as being conservative, white shoed, and a paragon of the establishment. They normally would not have touched me with a ten-foot pole, except that I spoke Japanese when they wanted to get into Japan.

Of 1,000 employees, there were only three from California. The other two were drop-dead gorgeous Stanford grads, daughters of the president of the Philippines, hired to guarantee the firm’s leadership of the country’s biannual bond issue.

When the book Liar’s Poker was published, many in the company thought I wrote it under the pen name of Michael Lewis. Today, the real Michael lives a few blocks away from me, and I kid him about it whenever I bump into him at Whole Foods.

At one Monday morning meeting, the call went out, “Does anyone have a connection with the Teamsters Union? I raised my hand, mentioning that my grandfather was a Teamster while working for Standard Oil of California during the Great Depression (it was said at the time that there was never a Great Depression at Standard Oil. It was true).

It turned out that I was virtually the only person at Morgan Stanley who didn’t have an Ivy League degree or an MBA.

My boss informed me that “You’re on the team.”

At the time, the US Justice Department had seized the Teamsters Pension Fund because the Mafia had been running it for years, siphoning off money at every opportunity. I made the pitch to the Justice Department, a more conservative bunch of straight arrows you never saw, all wearing dark suits and white business shirts.

It was crucial that we won the deal as Barton Biggs was just starting up the firm’s now immensely profitable asset management division, and a big mandate like the Teamsters would give us instant credibility in the investment community.

We won the deal!

Once the papers were signed, the entire Teamsters portfolio was dumped in my lap, and I was ordered to fly to Las Vegas to investigate. It didn’t hurt that I was half Italian. It was thought that the Teamsters might welcome me.

The airport was still a tiny, cramped affair, but offered an abundance of slot machines. Steve Wynn was building The Mirage Hotel on the strip. Howard Hughes was still holed up in the penthouse of the Desert Inn. Tom Jones, Frank Sinatra, Siegfried & Roy, Wayne Newton, and Liberace had star billing.

It turned out that the Teamsters Pension Fund owned every seedy whorehouse, illegal casino, crooked bookie, and drug dealer in town. If you wanted someone to disappear, they could arrange that too. As Lake Powell has dried up, missing persons started reappearing.

I returned to New York and wrote up my report. I asked Barton to sign off on it, and he said, “No thanks, you own this one.”

So it was with a heavy heart that I released a firmwide memo stating that employees of Morgan Stanley were no longer allowed to patronize the “Kit Kat Lounge”, the “Bunny Farm”, the “Mustang Ranch”, and 200 other illicit businesses in Nevada.

I never lived down that memo.

I actually knew about some of these places a decade earlier because they were popular with the all-male staff of the Nuclear Test Site, where I had once worked an hour north of Las Vegas as a researcher and mathematician.

Then later in the early 2000’s I had to drive my son from Lake Tahoe to the University of Arizona, and we drove right past the entrance to the Nuclear Test Site. The “Kit Kat Lounge”, the “Bunny Farm” were long gone, but the Site access had improved from a dusty, potholed dirt road to a four-lane superhighway.

That’s defense spending for you.

Even today, 40 years later, my old Morgan Stanley friends kid me if I know where to have a good time in Vegas, and I laugh.

But whenever I ride the subway in New York, I still get on at the front of the train, just to be extra careful. Accidents can happen.