The Market Outlook for the Week Ahead, or The View from the Andes

I  am writing this to you from a $13 a day dive hotel walking distance from Cusco airport in Peru. I am returning from another bucket list item, climbing Machu Picchu, which, 500 years ago, was a royal Inca retreat.

I was headed back to Lima to complete my research on the lithium mines here when my flight was cancelled. Next flight: 9 hours later, hence the dive hotel, which did not include a toilet seat in the bathroom.

Such is the life of John Thomas.

Since this was a travel day, I hadn’t expected to post a new letter today. But given the importance of the Supreme Court decision on Friday, I’ll go the extra mile.

I caught instantaneous news of the momentous decision on my phone while driving from one Inca village to the next (They are now called Quechuan) at 12,000 feet high, whenever I could get a signal.

Yes, the Incas have the Internet!

I had been expecting a negative ruling all along and alerted you several times through this letter. The right to tax is clearly a power of Congress. To the 75% of the market who actually read the constituent (Those were the betting odds), the announcement was a yawn.

To the 25% who didn’t, it was a shocker. That explains why the news generated only a 231-point gain in the Dow Average on the flash. Ìt should have been up 2,000 points. Warning: when you throw good news on a market, and it fails to appreciate, you dump it.

I can summarize the many Concierge member calls I received during my mountainous journey in two words: Now what?

Let me start with a one-liner. You just got a tax cut of $500 billion per year. Those companies that already paid the tax will get a refund of $175 billion, and you probably own the shares of several of these. Inflation will fall, but probably not until the summer.

All of this money has to be borrowed by the US government, adding $5 trillion a year to the current $38 trillion national debt. The big surprise on Friday was not how little stocks rose but how little bonds fell.

Flat bond prices against rocketing debt can only happen in one circumstance: The US economy is headed into recession. If this possibility sets off alarm bells, rings the collision bell, and sends out a mayday to you, you are not alone.

Recent data releases bear this out. Last week, we learned that the US GDP was growing at a near recessionary 1.4%. Consumer inflation expectations, the Fed’s favorite measure of future prices, ballooned to 0.4% in December. There was zero job growth in 2025, and manufacturing lost 80,000 jobs. The trade deficit is exploding, meaning we are buying a lot more stuff from foreigners than we are selling back to them. The mass deportation of minimum wage immigrants will probably cost the US another 1.0% of GDP growth this year.

It would be easy to say that the Supreme Court decision rolls back the clock to a year ago, when the tariff threat began. Fat chance! The same day, Trump announced a new 10% tariff in an attempt to run around the Supreme Court decision.

The next day, he raised it to 15%. That promises to extend the trade war at least another year and cost the US GDP another 1% of growth. The harsh reality is that we have a president who will do everything in his power to bring international trade to a grinding halt, and he believes he has a lot of power. 

The thousands of companies that went bankrupt as a result of the tariffs will never return.  Former shareholders in Foot Locker who were forced to sell out for pennies on the dollar aren’t getting their money back.  The two million small businesses that went under are probably gone for good. America’s brand as a trade counterparty has been permanently damaged.

There are only a handful of investments that look good in the wake of all of these developments: gold (GLD), silver (SLV), copper (FCX), and uranium (CCJ). I can tell you, even from my remote dive in the Andes, that demand for all of these is increasing. The AI buildout hasn’t slowed an iota, and investors are still starved for safe assets to buy. 

At this point, reviewing last week’s market action is kind of pointless because it has been rendered meaningless and out of date by the Supreme Court action. But I’ll do it anyway.

The technical deterioration of the market continues unabated. The 50-day moving average, once support for the S&P 500 (SPY), is now resistance. The bloodbath in software and tech is still taking a grim toll. Only semiconductor stocks continue to prosper. 

In the meantime, money is pouring into Europe and emerging markets at record levels. Gold and silver seem to be inching up from an intermediate bottom.

Uranium is as hot as ever on exploding electricity demand and prices. Google got a nice pop on a Gemini upgrade. Similarly, utilities (XLU)  had a good week. With oil prices hitting a six-month high on Iran war fears, energy (XLE) was another good performer

Well, I’m finishing up this letter on my long-delayed LATAM flight. Taking off from 11,000 feet, we used the entire runway, and I wouldn’t be surprised if someone’s laundry was flying from the plane’s tail.

Wouldn’t you know, I was seated next to an Incan. As my Quechuan language ability is somewhat limited, we conversed in Spanish. It turns out I am the most interesting man he has ever met.

Imagine that!

February stands at +0.25%. My 2026 year-to-date number remains at +2.22%. That takes my trailing one-year return to +59.06% and my average annualized return to +50.48%, and my performance since inception reached a new all-time high of +816.18%. These are all non-compounded numbers. The past 24 consecutive months have all been profitable.

With the market topping out, short positions are begging for attention. But who wants to sell short in front of falling interest rates, a weak currency, and the biggest government stimulus since WWII? That is the dilemma facing most traders today. Still, I managed the courage to add one short position in the S&P 50,0 which is trading around breakeven.

Some 65 of my 79 round trips in 2025 were profitable. That is a success rate of 82%. We were up every month for the second year in a row in one of the most difficult trading years in market history.

Try beating that anywhere.

AI Worries Still Drag on the Market. US equity futures declined as artificial-intelligence concerns damped sentiment, with Wall Street poised to resume trading after a holiday break. US Treasuries (TLT) edged higher, and gold slid. Contracts on the Nasdaq 100 index retreated 0.8% and those on the S&P 500 dipped 0.4% as all members of the Magnificent Seven US tech stocks declined in premarket trading. A gauge of perceived risk in US high-grade corporate credit reached its highest since Nov. 25. Spot gold dropped toward $4,900 an ounce.

Oil (USO) Rises 1%, as Iran-US nuclear talks continue. Why are we having nuclear talks when the US destroyed all its weapons-grade uranium in a bombing raid? All oil rallies are temporary as massive supply will hit the market on a Venezuela output recovery and a Ukraine peace deal. Avoid all oil plays.

Why has Volatility Suddenly Increased? About 30% of S&P 500 stocks moved over 20% in three months, double the 15% average, despite low market volatility. AI demand boosts chip makers, while software stocks have crashed; commodity miners and some consumer discretionaries also have fallen. Increased inflows into hedge funds, with $3.5 billion in stock purchases this year, are exacerbating extreme stock price movements.

US Trade Deficit Explodes. The U.S. trade deficit swelled in December, closing out a year in which the imbalance was essentially unchanged despite efforts by the Trump administration to close the wide gap. Closing out a tumultuous year in the global marketplace, the goods and services in December totaled $70.3 billion, the Commerce Department reported Thursday. That marked an increase of $17.3 billion from November and was well above the Dow Jones consensus estimate of $55.5 billion.

Weekly Jobless Claims Plunge. The number of Americans filing new applications for unemployment benefits fell more than expected last week, consistent with a stabilizing labor market. Initial claims for state unemployment benefits dropped 23,000 to a seasonally adjusted 206,0000 for the week ended February 14, the Labor Department said on Thursday. Economists polled by Reuters had forecast 225,000 claims for the latest week. Last week’s drop marked a significant decline in claims since they jumped to 232,000 at the end of January.

Solar (TAN) Abandons Silver, as costs soar. Copper is much cheaper. Solar panel producers are intensifying efforts to replace silver with alternatives such as copper after silver rallied 130% over the past year, squeezing margins already under pressure from production overcapacity, particularly in China. Silver is the greatest contributor to the increased cost of manufacturing solar panels. The cost of solar panels has increased 7-15% over the last 12 months.

Pending Home Sales Dive. Contracts to purchase previously owned U.S. homes unexpectedly fell in January, with realtors blaming low housing inventory. The pending home sales index dropped 0.8% last month to 70.9, the National Association of Realtors said on Thursday. Economists polled by Reuters had forecast contracts, which become sales after a month or two, rising 1.3%.

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, February 23, at 8:30 AM, US Factory Orders are out.

On Tuesday, February 24, at 8:30 AM EST, the ADP Private Employment Report weekly is announced. We also get the S&P Case Shiller National Home Price Index.

On Wednesday, February 25, at 8:30 AM EST, Industrial Production. We also get Nvidia earnings out after the close.

On Thursday, February 19, Weekly Jobless Claims are published.

On Friday, February 20, the Producer Price Index.

At 10:00 AM EST, we obtain the Baker Hughes Rig Count.

As for me, I am often kept awake at night by painful arthritis and a collection of combat injuries, and I usually spend this time thinking up new trade alerts.

However, the other night I saw a war movie just before I went to bed, so of course, I thought about the war. This prompted me to remember the two happiest people I have met in my life.

My first job out of college was to go to Hiroshima, Japan, for the Atomic Energy Commission and interview survivors of the first atomic bomb 29 years after the event. There, I met Kimie Yamashita, a woman in her fifties who was attending college in Fresno, California, in 1941, and spoke a quaint form of English from the period. Her parents saw the war and the internment coming, so they brought her back to Hiroshima to be safe.

Her entire family was gazing skyward when a single B-29 bomber flew overhead. One second before the bomb exploded, a dog barked, and Kazuko looked to the right. Her family was permanently blinded, and Kazuko suffered severe burns on the left side of her neck, face, and forearms. A white summer yukata protected the rest of her, reflecting the nuclear flash. Despite the horrible scarring, she was the most cheerful person I had ever met, and even asked me how things were getting on in Fresno.

Then there was Frenchie, a man I played cards with at lunch at the Foreign Correspondents Club of Japan every day for ten years. A French Jew, he had been rounded up by the Gestapo and sent to the Bergen-Belsen concentration camp late in the war. A faded serial number was still tattooed on his left forearm. Frenchie never won at cards. Usually, I did because I was working the probabilities in my mind all the time, but he never ceased to be cheerful, no matter how much it cost him.

The happiest people I ever met were atomic bomb and holocaust survivors. I guess if those things can’t kill you, nothing can, and you’ll never have a reason to be afraid again. That is immensely liberating.

Kimie Yamashita in Hiroshima

 

 

 

 

 

 

 

 

 

 

 

 

 

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader