The Market Outlook for the Week Ahead, or Holding the Basketball Down

I have a feeling that the stock market is being impaired, like holding a basketball underwater.

While the indexes are at an all-time high, too many stocks have been flatlining since August. Look at your own portfolio and you’ll see what I am talking about. And the deeper you push the basketball down, the stronger it bounces when it is finally released.

The government shutdown is what is holding the market back, which could stretch into 2026. Remove that impediment and the basketball, and the markets will go soaring.

That certainly applied to the Magnificent Seven last week, which brought in decidedly mixed results. Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL), and Nvidia (NVDA) knocked the cover off the ball, while Meta (META), Microsoft (MSFT), and Tesla (TSLA) disappointed.

My call to buy Apple LEAPS in August is now looking especially prescient. Since then, the shares have risen by 38.5% from $200 to $277. The earnings call last week was more revealing than usual.

For a start, (AAPL) has $120 billion in cash, which it can use to buy back its own stock. Since buy-backs started in 2012, its total shares have been shrunk by an amazing 44%. Also, in 2012, it started paying a dividend, and since then, those payments have reached a staggering $994 billion. The iPhone 17 is selling better than any consumer product in history.

The company’s earnings came in stellar last quarter because while its competitors are spending trillions on AI, Apple isn’t. That allowed earnings at Apple to pop, while those at Meta (META) disappointed. In fact, expenses at Meta are rising faster than revenues for the first time in two years, leading to last week’s $111, 14.6% selloff.

Of course, Meta will someday have a massive AI presence, while Apple won’t. But Apple can buy its way out of this shortfall any time it wants by simply using its cash mountain to buy a competitor.

And people were selling short Apple shares under $200 last summer? Go figure.

Fed Chair Jay Powell showed a remarkable ability to kill off the bond market rally by opining that “an interest rate cut in December is not necessarily a sure thing.” That bumped ten-year US Treasury yields (TLT) back up to 4.11%.

You have to love Netflix (NFLX) for its announcement on Thursday for a 10:1 share split. The shares immediately rocketed by $45 on the news. This is the third split in the company’s history, which now totals 19:1.

I have been following this company since founder Reed Hastings first mailed a DVD in a birthday card envelope just to test the concept. It has been a permanent compounder ever since.

The Q3 earnings were actually quite good, but were clouded by a Brazilian tax issue that accounted for a minuscule 0.2% of its earnings. It wasn’t even (NFLX) that lost the case; it was another foreign company. But in a market that is living day to day, terrified of a crash any second, even the slightest surprises are overly punished. Take the gift and buy (NFLX) on dips, now down 18% from the June high.

This is the first time in my long career that continuous Fed interest rate cuts didn’t ignite a monster runaway rally in the bond market. In fact, bonds have been mired in a tedious $10 range, and I’ll be committing my cash elsewhere. I see bonds as a “no-win” trade, heads I win, tails you lose. You’re risking $10 to make $1. Of course, the reason is the $42 trillion National Debt and the $10 trillion that has to be financed in 2026.

For those who have profitably read this letter for decades solely for my ability to send out bond trades, I’m sorry. I call them as I see them.

With the markets full of noise on a daily basis, it is easy to miss some of the smaller ones. Rocket Mortgage (RKT) is one of those that, along with Zillow (Z), is gradually taking over the real estate market. With the real estate market finally recovering after a four-year hiatus, that is not a bad play to make.

I knew I should be paying attention to this company when I noticed that its billionaire founder, Dan Gilbert, started buying up the greater part of downtown Detroit, Michigan, in the early 2010s by simply paying the outstanding taxes due on each property. That eventually led to a recovery of the city.

Zillow is the most competitive in offering online mortgages. If your house can stand up to a “drive-by” appraisal (done by an algorithm, not a human), you should probably borrow there. It has dealt with high interest rates by offering low-cost adjustable-rate loans, which pass the interest rate risk on to the borrower. If the Fed keeps cutting interest rates, the conventional 30-year fixed-rate mortgage will make a big comeback. Rocket is the ultimate falling interest rate play. Buy (RKT) on dips.

October closed out up a healthy +3.11%. That takes us to a year-to-date profit of +59.36%. My trailing one-year return stands at +81.51%. That takes my average annualized return to +50.97%, and my performance since inception reaches a new all-time high of +811.25%. These are all non-compounded numbers.

I now hold three long positions in Netflix (NFLX), Goldman Sachs (GS), and Zoom (ZM). That leaves me 30% long and 70% in cash awaiting the next market bottom, where I will try to buy into the year-end rally.

Some 63 of my 70 round-trip 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.

Fed Cuts Interest Rates by 25 Basis Points. More importantly, the Fed is ending quantitative tightening or letting its existing bond holdings mature without replacing them with new buys. Weirdly, it was a data-free statement due to the government shutdown. Let the money printing begin!

Netflix Announces 10:1 Share Split, sending the shares up $45. When you own great companies, all the surprises are to the upside. Investors were suddenly reminded that the company is still growing at a prodigious rate. The streaming giant previously split its stock 2-for-1 in 2004 and 7-for-1 in 2015.

Alphabet Beats, taking the stock up 5%, Meta, and Microsoft disappoint. Google parent Alphabet (GOOGL) reported third-quarter revenue and earnings on Wednesday that surpassed Wall Street’s expectations following several AI deals involving its cloud segment. The stock jumped more than 5% Thursday morning following the results. Meta (META) and Microsoft (MSFT) shares fell after earnings because expenses are rising faster than revenues, due to their massive AI capex.

Home Prices are Lagging Inflation, which means that homeowners’ net equity is falling. Home prices nationally rose 1.5% in August compared with the same month last year, down from the 1.6% annual gain recorded in July, according to the S&P Cotality Case-Shiller U.S. National Home Price NSA Index. While home prices aren’t yet falling, they’re weakening — rising at a slower pace than the current 3% rate of inflation. That means that housing wealth eroded in real terms for the fourth consecutive month, according to the index.

US Nuclear Generation Set to Soar. As surging demand driven by data centers strains grids across the country and a wave of tech companies signs deals to source power from the zero-carbon resource. The consumer brownouts are coming. A flurry of announcements in nuclear energy investments – most recently an $80 billion U.S. government partnership with the owners of Westinghouse Electric – underscore the rising interest in the sector. The power industry is grappling with increasing electricity demand from energy-intensive data centers, rising temperatures, and electrification. Buy (CCJ) on dips.

Nvidia Rocks, taking the stock up 5%. Market cap is approaching $5 trillion. Nvidia is at the core of the global rollout of AI and is striking deals while navigating a U.S.-China trade war that could determine which technology from the two countries is most used around the world. The Santa Clara, California, company’s stock has surged 50% in 2025. Its market capitalization closed above $4 trillion for the first time in July. The supercomputers Nvidia is building for the Energy Department will, in part, help the U.S. maintain and develop its nuclear weapons arsenal. The largest of the supercomputers will be built with Oracle and contain 100,000 of Nvidia’s high-end Blackwell AI chips.

ADP to Publish Private Payroll Weekly to help compensate for the loss of all government data resulting from the endless government shutdown. U.S. private payrolls increased by an average of 14,250 jobs in the four weeks ending October 11, the ADP National Employment Report’s inaugural weekly preliminary estimate showed on Tuesday. ADP said in a statement it would publish a weekly preliminary estimate of the ADP National Employment Report every Tuesday, effective October 28, based on its high-frequency data.

Cameco Rockets, up an eye-popping 32% in a week, long recommended by Mad Hedge as part of the “New Nuclear” trade. Westinghouse Electric Company, Cameco, and Brookfield Asset Management today announced that the United States Government has entered into a strategic partnership to accelerate the deployment of nuclear power. At least $80 billion of new reactors will be constructed across the United States using Westinghouse nuclear reactor technology. These new reactors will reinvigorate the nuclear power industrial base. Hold your (CCJ) longs and LEAPS.

Apple Tops $4 trillion in Market Cap, with the shares at $277. The rally comes on the back of stronger-than-expected demand for its latest iPhone lineup, with the iPhone 17 series outselling the iPhone 16 range by 14% over their first 10 days on sale in the US and China. Apple’s ascension to the $4 trillion market capitalization comes just months after Nvidia Corp. became the first company in history to achieve the milestone, and Microsoft Corp. briefly cracked the mark in July.

Tesla Loses One Million EV Sales, over Elon Musk’s extremist political views. The Yale University researchers linked the drop to Musk’s increasingly partisan behavior, including his roughly $300 million in donations to Republican candidates as well as leadership of the Department of Government Efficiency (DOGE) under Trump. The drop in international sales has been especially severe. Avoid (TSLA).

My Ten-Year View – A Reassessment

We have to substantially downsize our expectations of equity returns over the next four years. 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, November 3, the US Vehicle Sales are released.

On Tuesday, November 4, at 8:30 AM EST, the JOLTS Job Openings Report will be announced.

On Wednesday, November 5, at 8:15 AM, the ADP Employment Change is disclosed.

On Thursday, November 6, at 8:30 AM, Initial Jobless Claims are released….maybe?

On Friday, November 7, the crucial Nonfarm Payroll Report for October will be missing, thanks to the government shutdown. At 10:00 AM EST, we obtain the Baker Hughes Rig Count.

As for me, when you’re 6’4” and 190 pounds, there are not a lot of things that can seriously toss you around. One is a horse, and another is a wave.

It was the latter that took me down to Newport Beach, CA, to a beachfront house for my annual foray into body surfing. Newport Beach has some of the best waves in California.

This is the beach that made John Wayne a movie star.

John, whose real name was Marion Morrison, grew up in a Los Angeles suburb and won a football scholarship to the University of Southern California. While still a freshman in 1925, he went bodysurfing at Newport Beach with a carload of buddies. A big wave picked him up and smashed him down on the sand, breaking his right shoulder.

At football practice, there was no way a big lineman could block and tackle with a broken shoulder, so he was kicked off the team and lost his scholarship.

He still had to eat, so he resorted to the famed student USC jobs bulletin board, which I have taken advantage of myself (it’s where I got my LA coroner’s job).

The 6’4” Wayne was hired as a stagehand by up-and-coming movie director John Ford, himself also a former college football star. In 14 years, Wayne worked himself up from gopher to extra, to a leading man in 1930, and then his breakout 1939 film, Stagecoach.

During WWII, Wayne, too old, was confined to entertainment for the USO shows and making propaganda films while the rest of his generation was at the front. He never recovered from that humiliation and spent the rest of his life as a super patriot.

I saw John Wayne twice. My uncle Charles, who was the CFO of the Penn Central Railroad in the 1960s, made a fortune selling short the stock right before it went bankrupt (maybe that was legal then?). He bought a big beach house on California’s Balboa Island, right next door to John Wayne’s.

One day, the family was cruising by Wayne’s house, and he was sitting on his front patio in a beach chair. Then one of our younger kids shouted out, “he’s bald,” which he was. Wayne laughed and waved.

The second time was in the early 1970s. I was walking across the lobby of the Beverly Hills Hotel with the movie star and Miss America runner-up Cybil Shepherd on my arm. He walked right up to us and, with a big smile, said, “Hello, gorgeous”. He wasn’t talking to me.

I learned a lot about Wayne from my uncle, Medal of Honor winner Mitchell Paige, who was hired as the technical consultant for the 1949 film Sands of Iwo Jima and spent several months working closely with him. The lead character, Marine Sargent John Striker, was based on Mitch.

Film critics complained that Wayne couldn’t act, that he was just himself all the time. But I knew my uncle Mitch well, a humble, modest, self-effacing man, and Wayne absolutely nailed him to a tee.

The Searchers, made in 1958, directed by John Ford, is considered one of the finest movies ever made. I show it to my kids every Christmas to remind them where they came from because we have an ancestor who was kidnapped in Texas by the Comanches and survived.

John Wayne was a relentless chain smoker, common for the day, and lung cancer finally caught up with him. His first bout was in 1965 when he was making In Harm’s Way, the worst war movie he ever made. His last film, The Shootist, made in 1978, was ironically about an old gunslinger dying of prostate cancer.

John Wayne hosted the 1979 Academy Awards, rail thin, racked by chemotherapy and radiation treatments. He died a few months later after making an incredible 169 movies in 50 years.

John Wayne was one of those people you’re lucky to run into in life. He was a nice guy when he didn’t have to be.

As for those waves at Newport Beach, I can vouch that they are just as tough as they were 100 years ago.