The Market Outlook for the Week Ahead, or Reality Strikes!

The 50,000-foot view on the economy has suddenly become so clear. It came to me yesterday when I was climbing the 10,785-foot-high Mount Rose in Nevada, which offers the finest views of Lake Tahoe and the northern half of the state.

The US economy went into recession on January 1 when companies froze new capital investment, awaiting the policies of a new administration. That recession was masked by consumers who kept happily spending, believing that the new policies would work.

The corporate freeze was extended on April 2 when punitive tariffs of 150% or more were announced. Suddenly, a global trading system that took 80 years to build was demolished. The price for these developments brought us a recessionary -0.50% shrinking of the economy in Q1.

Companies responded by rushing imports to beat the tariffs before they came into force on August 1. That created a one-time only surge in growth, which delivered the 0.75% jump in GDP we saw in Q2. That helped drive the stock market to new all-time highs as recently as Thursday. The problem is that many companies now have enough inventory to last until 2026, so their spending will stop. From August 1, much more expensive imports will drop to near zero.

The inflation anticipated by tariffs actually started in April. Since then, the Consumer Price Index has shown three consecutive months of increases, with June delivering a hot 0.3% jump. If you don’t believe me, try shopping at Safeway and leaving without getting skinned alive.

We harshly learned a lot during the Pandemic and the Great Inflation of the 1980s, when prices were running away at a 14.8% rate. Once one company raised prices, all its competitors rushed to match them, whether they were justified or not. Paul Volcker’s Fed was only able to kill that inflation by raising interest rates to a heart-stopping 19%.

Tariffs are now in place and changing by the day. A 50% tax on imported coffee from Brazil? Coffee addicted Jack Reacher would be spurred to violence. You can count on a 0.1% rise in inflation for each 1% increase in tariffs. Some 15% has been added to tariff rates, or $530 billion in new taxes for you, implying a 1.5% increase in inflation in the coming months, from 2.7% to 4.2% and beyond. Will Jay Powell cut interest rates in the face of relentlessly rising inflation? I doubt it. The next Fed governor might, but we won’t know that until May.

What really threw the fat on the fire for this scenario was the Nonfarm Payroll Report for June, which came in at a weak 73,000. What really set people’s hair on fire was the downward revisions for May and June of an incredible 258,000, the worst since the Pandemic. That sets job growth so far for 2025 at near zero.

Those of us who hang on to every economic data release like life preservers are not surprised by the revisions. It made no sense that every other data point was going to hell in a handbasket while the government jobs data held up mysteriously well. All that has happened is that the jobs data has come in line with everything else.

The delays in reporting might be ascribed to the Bureau of Labor Statistics losing 75% of its staff this year. The head of the Bureau, Dr. Erika McEntarfer, was fired anyway, the same day by tweet, for essentially telling the truth and relaying numbers from the 50 states. This does not augur well for the reliability of future data on which we investors base decisions.

Suddenly, investors were confronted with a reversal in an economy that was growing modestly to one that is shrinking dramatically. The glass has gone from half full to half empty. Strategists are going to start revising down year-end stock market targets as fast as they revised them up in the spring. I told a financial advisor friend of mine the other day to enjoy his vacation in Michigan because he is going to have to work very hard to earn his crust of bread when he gets home.

I thought we got off cheaply with a mere $159.63 point, or a 2.3% plunge in the S&P 500 on Friday. Worse will come in the weeks ahead. It sets up a long-awaited test of the 50-day moving average at $5,863 at a minimum, down 8.39%, and the 200-day moving average at $4,800, the worst, down 25%, in case things really get out of control… again. The high for August is almost certainly in place, and possibly the high for the year.

At this point, let me give you the usual disclosures, provisos, and warnings. I have long had a talent for seeing into the future. Like Cassandra, who was given the gift of prophecy by Apollo and who foresaw the death of her brother Hector at the hands of Achilles and the fall of Troy, this is not always a good thing. On Wall Street, there is another term for “early” and that is “wrong”. More than a few analysts have been dragged off to insane asylums, screaming that the stock market was wrong.

What I have given you is a thoughtful mathematical and economic analysis that has a high probability of taking place. But as a 55-year Wall Street veteran, I can tell you that the market is driven by stories and not economics. Thoughtful mathematical and economic analysis takes a distant second place.

Maybe that’s why I’m so good at trading. I am a storyteller myself, and I can recognize great themes that the masses will believe and buy into when I hear them. 100 story-driven buyers will overwhelm one fact-hugging seller any day if the week, which is why I sometimes have to tear my hair out.

Investors who traded off the economic data since April were punished. But now the hard data is catching up with the soft data, with poor numbers that the soft data were predicting all along, and they may be about to get rewarded.

When markets come back sometime in the future, there are several crucial stories they will come stampeding back into.

AI is the big one and will continue for another decade. Look no further than Microsoft (MSFT), which just delivered blowout earnings, announcing spectacular growth numbers one normally associates with small-cap hyper-growth companies, not a $4 trillion one. Cloud growth was up 25%, while its Azure cloud business gained 34%. Microsoft’s Copilot AI app now has a staggering 800 million users. It’s a gigantic new business line that sprang up out of nowhere practically overnight. AI capital spending is rising 40% in 2026. The whole hypergrowth story for AI is real.

If you are looking for a bargain up-trending AI play, look at Amazon (AMZN), which sold off 9% on its earnings. It has the lowest price-earnings multiple of the Magnificent Seven. They are both a major AI investor and beneficiary.

For the last three years, the technology half of the economy has been stimulated at the expense of the non-technology half. If the dead half of the economy starts to recover, it could give us another leg to the bull market, which will eventually take us to new highs.

There! That’s my bull case.

What else happened when the Nonfarm Payroll revisions were announced? The probability of a September rate cut soared instantly from 40% to 90%. That set all of the interest rate plays on fire. Those include bonds (TLT), REITs (CCJ), homebuilders (DHI), (LEN), (KBH), mortgage lenders (RKT), and all the downstream real estate plays. This is about 20% of the economy that has been in a Depression for the last three years, and is all bombed out and cheap. The view here is that even if we don’t get rate cuts in September or December, they will occur sometime soon.

What else does well when interest rates fall? Precious metals, which will face less competition from yields. Gold (GLD) and silver (SLV) have been in a four-month sideways consolidation and are ripe for an upside breakout. So are miners like Barrack Mining (B) and Newmont Mining (NEM).

My July performance is running hot again with a blockbuster +7.26% gain, taking us to new all-time highs on all metrics. That takes us to a year-to-date profit of +52.43%. My trailing one-year return rose to +96.41%. That takes my average annualized return to +51.32%, and my performance since inception finally topped +804.32%. These are all non-compounded numbers.

Suddenly, going into August with 70% cash is looking like a stroke of genius. I used the tariff-driven 22% crash in copper to pick up a position in producer Freeport McMoRan (FCX). My short in Tesla (TSLA) vaporized, while my long in Netflix (NFLX) held up well. Staying liquid while the Volatility Index ($VIX) hugged $14 looked especially wise on Friday when it rocketed up to $22. That leaves me 70% in cash, 10% short, and 20% long.

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.

Fed Leaves Interest Rates Unchanged, the expected outcome. An improvement in Q2 GDP was the final nail in the coffin for a cut. I don’t expect the Fed to cut rates in 2025 with inflation rising.

Nonfarm Payroll Comes in at a Disastrous 73,000 in July, taking the headline unemployment rate up to 4.2%. Big downward revisions were announced for the previous months of 253,000. The second half slowdown and the recession are here. Economically sensitive stocks are in free-fall, while interest rate-sensitive stocks are soaring. It’s the worst run of 3-month job gains since the pandemic. Sell rallies.

US Q2 GDP Growth Rate Grows by 0.75%, or 3.0% on an annualized rate. U.S. economic growth rebounded more than expected in the second quarter, but that grossly overstated the economy’s health as declining imports accounted for the bulk of the improvement and domestic demand rose at its slowest pace in 2 1/2 years.

Global Tariffs Kick In, shrinking world economic growth by 1% and increasing inflation by 1.5%. Very few deals were cut, and nothing in writing, just verbals, and they may all get overturned by the courts in months. The cost to the economy will be high. Retailers, the auto industry, agriculture, and Apple (AAPL) are getting killed. The war in the world is on.

Apple to Build Second Bay Area Campus for $900 Million. Apple shelled out $350 million for the neighboring 615 and 625 North Mathilda Avenue buildings and finalized a $166.9 million deal for the Cupertino Gateway complex just south of Apple Park. With this latest acquisition, Apple’s Bay Area real estate spending for the year is nearing $900 million, going against the broader trend of shrinking physical footprints in the post-COVID era, even as return-to-office efforts have brought more workers back to the region. It’s a big vote of confidence in Apple’s future.

S&P Case Shiller Falls for the First Time in Years, with their National Home Price Index, down 0.3%. New York City and Chicago showed healthy gains, while Tampa, San Francisco, and Dallas saw a fall. High interest rates are certainly taking their pound of flesh.

Palo Alto Networks (PANW) Buys CyberArk (CYBR) for $20 Billion. Cybersecurity deal activity has been robust in recent years as large corporations have increased spending on security tools. The consolidation of the industry will continue.

Pending Home Sales Drop by 0.8% in June and 2.8% YOY on a signed contract basis. Active listings are up 29% YOY. Mortgage applications are down 5% on the month. The Great Depression in housing continues.

Housing Posts Worst Spring Selling Season in 13 Years. Spring is traditionally the busiest season in real estate, not unlike Christmas for retailers. And while the most unaffordable housing market in decades has sidelined all but the most determined buyers, there were signs earlier this year that conditions were right for a rebound. Buy homebuilding like (DHI) on dips. Interest rate cuts are coming.

Visa (V) Beats, buts disappoints on guidance. The payments processing company kept its full-year forecast for net revenue growth unchanged, sending shares of the company down nearly 2% in extended trading. Analysts expect a potential spending slowdown in the back half of 2025 as consumers front-load expenses on products, which they expect to become costlier once tariffs take effect.

Trade Deficit Hits Two-Year Low, as imports collapse. While the unexpected contraction reported by the Commerce Department on Tuesday could prompt economists to upgrade their gross domestic product estimates for last quarter, the steep decline in imports flagged slowing domestic demand.

Boeing (BA) Improves, but the shares fall. Their quarterly loss more than halved and was much smaller than analysts expected as the U.S. planemaker ramped up jet deliveries, recovering from a regulatory crisis and a major strike that halted most production last year. The results highlighted Boeing’s efforts to cautiously increase monthly output this year, following years of quality issues and production delays on its flagship 737 MAX. Increased deliveries mark a pivotal step in Boeing’s effort to rebound from years of production disruptions and crises that piled on debt, increasing the urgency of accelerating output to restore financial stability. Buy (BA) on tips.

Newmont Mining Blows Out Earnings, with the shares jumping 6%, and announcing a $3 billion share buyback. Gold hit $3,440 an ounce during the quarter, creating a huge tailwind for earnings. The miners are finally outperforming the barbarous relic. Buy (NEM) on dips.

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, August 4, at 8:30 AM EST, Factory Orders are released.

On Tuesday, August 5, at 7:30 AM, the ISM Services PMI is announced. Two days of the Fed meeting begin.

On Wednesday, August 6, at 7:00 AM, we get Mortgage Applications.

On Thursday, August 7, we get Weekly Jobless Claims.

On Friday, August 8, at 10:00 AM, we get the Baker Hughes Rig Count.

As for me, upon graduation from high school in 1970, I received a plethora of scholarships, one of which was for the then astronomical sum of $300 in cash from the Arc Foundation.

By age 18, I had hitchhiked in every country in Europe and North Africa, more than 50. The frozen wasteland of the North and the Land of Jack London beckoned.

After all, it was only 4,000 miles away. How hard could it be? Besides, oil had just been discovered on the North Slope, and there were stories of abundant, high-paying jobs.

I started hitching to the Northwest, using my grandfather’s 1892 30-40 Krag & Jorgenson rifle to prop up my pack and keeping a Smith & Wesson .38 revolver in my coat pocket. Hitchhikers with firearms were common in those days, and they always got rides. Drivers wanted the extra protection.

No trouble crossing the Canadian border either. I was just another hunter.

The Alcan Highway started in Dawson Creek, British Columbia, and was built by an all-black construction crew during the summer of 1942 to prevent the Japanese from invading Alaska. It had not yet been paved and was considered the great driving challenge in North America.

The rain started almost immediately. The legendary size of the mosquitoes turned out to be true. Sometimes, it took a day to catch a ride. But the scenery was magnificent and pristine.

At one point, a Grizzly bear approached me. I let loose at a shot over his head at 100 yards, and he just turned around and lumbered away. It was too beautiful to kill.

I passed through historic Dawson City in the Yukon, the terminus of the 1898 Gold Rush. There, abandoned steamboats lie rotting away on the banks, being reclaimed by nature. The movie theater was closed, but years later was found to have hundreds of rare turn-of-the-century nitrate movie prints frozen in the basement, a true gold mine.

Eventually, I got a ride with a family returning to Anchorage hauling a big RV. I started out in the back of the truck in the rain, but when I came down with pneumonia, they were kind enough to let me move inside. Their kids sang “Raindrops keep falling on my head” the entire way, driving me nuts. In Anchorage, they allowed me to camp out in their garage.

Once in Alaska, there were no jobs. The permits required to start the big pipeline project wouldn’t be granted for four more years. There were 10,000 unemployed.

The big event that year was the opening of the first McDonald’s in Alaska. To promote the event, the company said it would drop dollar bills from a helicopter. Thousands of homesick people showed up, and a riot broke out, causing the stand to burn down. It was rumored their burgers were made of moose meat anyway.

I made it all the way to Fairbanks to catch my first sighting of the wispy green contrails of the northern lights, impressive indeed. Then began the long trip back.

I lucked out catching an Alaska Airlines promotional truck headed for Seattle. That got me free ferry rides through the inside passage. The driver wanted the extra protection as well. The gaudy, polished tourist destinations of today were back then pretty rough ports inhabited by tough, deeply tanned commercial fishermen and loggers who were heavy drinkers, always short of money. Alcohol features large in the history of Alaska.

From Seattle, it was just a quick 24-hour hop down to LA. I still treasure this trip. The Alaska of 1970 no longer exists, as it is now overrun with summer tourists. It now has more than one McDonald’s. And with runaway global warming, the climate is starting to resemble that of California than the polar experience it once was.