The Market Outlook for the Week Ahead, or It’s All About Interest Rates

Up until October 28, the market has been discounting another cut in interest rates by 25 basis points at the next Fed meeting on December 10. Since October 28, the market has been backing out that expectation, giving us a 4.4% correction in the S&P 500 (SPY).

The sell-off had been led by the Magnificent Seven, where the gains have been the greatest, and anything interest rate sensitive, like housing. Some stocks like Meta (META), Robinhood (HOOD), CoreWeave (CRWV), Bitcoin (BTC), and Oracle (ORCL) have cratered by 25% or more.

Last week, the probability of that rate cut fell below 50% in the futures market, giving what had been a nice rally a stiff slap in the face with a wet kipper.

And let me give you the good news first. If the Fed ends up NOT cutting rates, most of the correction that will follow is already done. Nobody wants to miss the hyper-liquidity surge and money printing that will take place in 2026, which is always good for equities. Then we will start discounting the January 28, 2026, rate cut, which a collapsing jobs market will demand.

Even without a rate cut, quantitative tightening is set to end on December 1, opening the way for a massive expansion of the Fed balance sheet from the present $6.6 trillion. A lot of this money ends up in the stock market, by hook or crook.

Also, the US effective corporate tax rate falls from 21% to 10%, a big earnings stimulus. Corporate investment is now 100% deductible in the year money is spent, like this year, instead of depreciating it over 30 years. So any selling that takes place will be limited to a few short-term traders and some tax-loss selling. Every dip like we saw on Friday, and the buyers pounce like a mountain lion on an evening female jogger in California.

And the bad news? The Fed decision is 3 ½ weeks away, which opens the way for a lot of sideways churning, volatility spikes, and overreaction to minor news items.

Further adding to the confusion is that the Fed has to make these tough decisions while flying blind in the data darkness. I’ve done a lot of flying blind in my time, and believe me, it’s no fun.

With the government slowly reopening in fits and starts, we will start getting current economic data for the first time in two months. Expect inflation and unemployment to both rise. From the market’s point of view, no news was good news. It’s possible that GDP growth shrank from a 3.6% rate in Q2 to zero.

The end of the shutdown reopens the money tap from Washington to the heartland. The Treasury balance sheet has jumped from $600 billion to $689 billion since the government shutdown started because it isn’t spending. That was money not entering the US economy.

Finally, I was going through a box of my mother’s things, who passed away 9 years ago, when I found an amazing letter. When I was nine years old, I was so concerned about wildfires in the Los Angeles area that I wrote a letter to then-governor Edmund G. “Pat” Brown. Incredibly, he answered. He assured me that all available resources were being committed. I guess it’s a sign of a past age. A copy of the letter is below.

So far in November, I am up +0.05%. That takes us to a year-to-date profit of +57.75%. My trailing one-year return stands at +78.65%. That takes my average annualized return to +50.91%, and my performance since inception reaches a new all-time high of +811.30%. These are all non-compounded numbers.

I now hold three November long positions in Netflix (NFLX), Goldman Sachs (GS), and Zoom (ZM), which all expire in five trading days. I added another two longs in Morgan Stanley (MS) and BlackRock (BLK) with December expirations. That leaves me 50% long and 50% in cash awaiting the next market bottom, where I will try to buy into the year-end rally.

I am betting big that the interest rate-sensitive trade will continue. With the deep in-the-money call spreads I use, we should make a maximum profit on every trade, whether we grind sideways before the big move or not.

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.

Government Shutdown Ends, which the stock market clearly sniffed out with a monster mid-day rally last Friday. Open the cash tap, with the withheld $90 billion in government spending over the past month, triggering a market correction. It may take up to two weeks to get the airlines back to normal.

ADP Drops 12,000 Private Sector Jobs Last Week. U.S. firms were shedding more than 11,000 jobs a week through late October, payroll processor ADP said on Tuesday in its latest real-time estimate of job market trends. Though the ADP Report last week estimated the U.S. overall added 42,000 jobs in October versus the month before, the new estimates show how hiring trends are evolving on a week-to-week basis – in this case, pointing to further weakening in a labor market being closely monitored by Fed policymakers.

No Economic Data for October. Data on the U.S. unemployment rate for October may never be available after the weeks-long federal government shutdown. The household survey wasn’t conducted in October, so we’re going to get half the employment report. We’ll get the jobs part, but we won’t get the unemployment rate. And that’ll just be for one month. We probably will never actually know for sure what the unemployment rate was in October.

The CPI Rose by 0.3% in October, the same as in September, maybe, according to private sources. We’ll never know for sure since the government didn’t collect the data. The Bureau of Labor Statistics will need some time to measure inflation after the latest, record-breaking lapse in federal funding.

Home Foreclosures Jump 20% in October. There were 36,766 U.S. properties with some type of foreclosure filing in October — such as default notices, scheduled auctions or bank repossessions. That was 3% higher than September and a 19% jump from October 2024 and marked the eighth straight month of annual increases.

David Tepper Likes Regional Banks, as well as industrials and financials. His Appaloosa hedge fund bought into several old-economy, industrial, and financial stocks in the third quarter and shook up his technology exposure, regulatory filings show. Tepper opened stakes in a host of regional banks and increased his positions in stocks such as Goodyear Tire & Rubber (GT) and Whirlpool (WHR), regulatory filings show. At the same time, he reduced his holdings in several mega-cap tech stocks and zeroed out positions in Oracle (ORCL) and Intel (INTC). What is Tepper’s largest position? China’s Alibaba (BABA).

Bernstein Targets a $134 FOR NETFLIX on a split-adjusted basis. Despite the streaming giant’s recent stock fall, Bernstein SocGen Group reaffirmed its Outperform rating and $1,390 price target for Netflix, Inc. (NFLX). Following its third-quarter earnings announcement, Netflix’s stock fell 10% in spite of meeting market forecasts with a 17% year-over-year revenue growth and achieving a 34% EBIT margin (excluding the impact of Brazil).

Bitcoin Dives to $92,500, While Other Cryptos are Rising. That’s because of a headlong rush out of Bitcoin into stablecoins, the new hot thing. Markets are stabilizing… as liquidity cautiously rebuilds across digital and traditional assets. Across markets, risk appetite is returning—but measuredly so. Avoid (MSTR).

Auto Loan Defaults Hit Record High. The share of subprime borrowers at least 60 days behind on their auto loans rose to 6.65% in October, the highest level on record, according to Fitch Ratings data going back to the early 1990s. The “K” shaped economy is getting worse.

Waymo Robotaxis Expands to Freeway Use in San Francisco, representing the most advanced use of the vehicles. Los Angeles and Phoenix are also included. Until now, they have been limited to surface streets while Beta testing. Waymo is the only company that runs a paid robotaxi service in the U.S. without safety drivers or in-vehicle monitors. It has a robotaxi fleet with more than 1,500 vehicles. Waymo is currently providing one million rides a month throughout its network.

University of Michigan Consumer Sentiment Hits the Lowest on Record. The November survey showed the index of consumer sentiment at 50.4, down a startling 6.2% from last month, and it plunged nearly 30% from a year ago. Economists were caught off guard. Those polled had expected a slight month-to-month increase for a reading of 54.2. That’s what happens when people’s stocks plunge and they can’t fly anywhere.

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 17, no government economic data will be released because of the government shutdown.

On Tuesday, November 18, at 8:30 AM EST, the ADP Private Jobs Report is announced.

On Wednesday, November 19, at 8:15 AM EST, the Fed Minutes from the last meeting will be disclosed.

On Thursday, November 20, at 8:30 AM EST, Initial Jobless Claims are released….maybe? We also get Existing Homes Sales.

On Friday, November 21, Retail Sales are published. At 10:00 AM EST, we obtain the Baker Hughes Rig Count.

As for me, it’s been 11 years since my old friend Robin Williams passed away, and it still tugs at my heart. I heard about it while on my nightly hike on the nearby Tahoe Rim Trail at 9,000 feet.

His mother lived directly next door to my family in San Francisco for many years. A petite widow in her late seventies, we often looked in on her and invited her into our community social group. More than once, I came home to find my late wife chatting with her in the living room over a cup of tea.

Robin, ever the dutiful son, thanked me on many occasions. He volunteered to appear at fundraisers at my kids’ schools. Needless to say, he was a huge hit and brought in buckets of money.

To describe Robin as a giant in his industry would be an understatement. No one could match his stream of consciousness outpouring of originality. I know some Disney people who worked with him on the Aladdin animated film, where Robin played the genie, and he drove them nuts.

The script was just a starting point for him. You just turned him on, and it was all peripatetic improvisation after that. This forced the ultra-controlling producers to draw the animation around his monologue, no easy trick.

When I attended the London premiere of Aladdin, the audience sat with their jaws dropped, trying to decode cultural references that were being fired at them a dozen a minute.

It is safe to say that Robin fought a lifetime battle with drug addiction. He only got out of rehab a year before he died for the umpteenth time. Robin ran at 100 mph, and he needed something to calm him down.

His depression had to be severe. People who knew him well believe that his comedy evolved as a way of dealing with it. He used jokes as weapons to keep the demons at bay. Perhaps that is the price of true genius. In the end, it was probably genetic.

This has been reaffirmed by the many comedians I have met during my life, including Groucho Marx, Bob Hope, George Burns, Jay Leno, Chris Rock, and many others (I saw Jay again last summer at the Pebble Beach Concours d’Elegance vintage car show).

Robin was a very wealthy man, at one point owning a $25 million mansion in San Francisco’s tony Pacifica district on the sea. He left behind a wife and a young child. He was at the peak of his career, with another movie coming out at Christmas, A Night at the Museum III, and a sequel to Mrs. Doubtfire in the works.

These are not normally the circumstances where one takes his own life. One can only assume that to do what he did, he had to be suffering immense pain. Recently, his wife presented evidence that Robin was suffering from a rare form of dementia.

Who knows?

He will be missed.