The Market Outlook for the Week Ahead, or The Yearend Rally Has Started

Like the rest of you, I have spent the last two months tediously grinding sideways, or at worst, suffering small corrections.

Traders, investors, and retail have been playing a waiting game; waiting for the Fed to lower interest rates, the government shutdown to end, and the markets to digest the enormous gains since April.

The waiting game is now over. The year-end rally everyone has been waiting for is over.

As to why the rally is starting now is due to a confluence of disparate events. The immediate cause was the Consumer Price Index released on Friday, which came in exceptionally soft at 3.0%. Never mind that it was two weeks late, constructed by only a skeleton staff at the Bureau of Labor Statistics, deeply flawed, and probably fake. It is what the traders and preprogrammed algorithms wanted to hear. If you are waiting for truth, accuracy, or reality to come out of the stock market, it is going to be a very long wait.

It doesn’t hurt that the Federal Reserve is lowering interest rates on Wednesday by 25 basis points, taking the overnight range down to 3.75% to 4.0%, the lowest in three years. The weekend trade deal with China is another plus. Don’t bother looking for the fine print because there isn’t any.

With Q3 earnings reports peaking next week, that opens the gates for corporate share buybacks to resume. Something like 10% of all the buying this year is companies repurchasing and then retiring their own stocks. Some 430 of the 500 companies in the S&P 500 have repurchase programs. If you shrink the supply, the price can only go up.

My own Mad Hedge AI Market Timing Index has been tantalizingly stuck in the 25-30 range for weeks, which usually signals a good time to buy.

The collapse of the Volatility Index ($VIX) from an overnight high of $30 all the way back to $16 is a major plus. We may not get another spike like this for another six months.

Tallyho!

And let’s face it, everyone likes to make money. Turning off the money printing machine for two months is long enough! Some 80% of the time, stocks go up, and when they go up, they earn a 25% profit. During 20% of the time, stocks go down, they lose 15%.

This is why long-term buy-and-hold forever index investors earn the greatest returns, beating day traders by miles. Remember, 50% of a stock market’s annual gain occurs in its five best days, and day traders miss most of these.

What do we buy? Every interest rate sensitive play out there, even the remote ones.

There will always be things to worry about. Tariffs are running at $100 billion a quarter, or $400 billion a year. That is 10% of total US profits going straight to the US government. That is an 800-pound gorilla on the back of US companies to carry on the way to higher stock prices. How high would share prices be without them?

Market concentration is worse than ever. While the market has gone straight up for six months, only 23% of stocks are up on the year. The top ten tech stocks now account for a staggering 40% of the S&P 500 market capitalization.

October is down +1.56% so far. That takes us to a year-to-date profit of +57.75%. My trailing one-year return rose to +82.62%. That takes my average annualized return to +51.14%, and my performance since inception reaches a new all-time high of +809.70%. These are all non-compounded numbers.

I now hold a single long position in Netflix (NFLX), which I bought on the earnings disappointment meltdown. The shares are back down to their April lows. I will be adding to that soon.

I am now 10% long and 90% in cash, awaiting the next market bottom where I will try to buy into the year-end rally.

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.

CPI Comes in Soft at 3.0%, sparking a runaway rally in all financials. The certainty of a 25-basis-point Fed interest rate cut next Wednesday is assured. The accuracy of this data point is questionable, as it was cherry-picked as the only government release this week from a skeleton staff by the Bureau of Labor Statistics. What is the current Unemployment Rate?

Fed to Overhaul Stress Tests, in another big win for financials. The program is aimed at preventing banks from blowing up during the next financial crisis, as did Lehman Brothers and Bear Stearns in 2008. But meeting the Fed’s restrictions was expensive and limited leverage to 10:1. Please now, blow up later. Buy all financials on dips.

Weekly Jobless Claims Jump 12,000, to a seasonally adjusted 232,000 for the week ended October 18 from 220,000 the prior week, economists at Citigroup and Nationwide calculated. Goldman Sachs estimated claims at 227,000 while JPMorgan put the number at 229,000. The government shutdown is weighing heavily on the market.

Tesla Disappoints, with an earnings shortfall that took the stock down $18. Tesla’s earnings report was a largely disappointing one, with profit missing Wall Street’s estimates despite record vehicle deliveries, and operating income plunged 40% in the third quarter. Elon Musk spent the end of Tesla Inc.’s earnings call pleading with investors to approve his $1 trillion pay package and blasting shareholder advisory firms that have come out against the proposal. Avoid (TSLA).

US Imposes Oil Sanctions (USO) on Russia, spiking prices 5%. The move comes at a time when global supply looks plentiful as nations inside and outside the OPEC+ producer alliance ramp up output amid signs of cooling demand growth. If India does drastically cut purchases — senior refinery executives said the restrictions would make it all but impossible for flows to continue — the question will become whether China is willing to step into the void.

Existing Home Sales Hit Seven-Month High, up 1.5% in September. Supply of previously owned homes surges 14.0% from a year ago. Median home prices are up 2.1% to $415,200 from a year-earlier period. Home sales jumped 4.1% on a year-over-year basis. The average interest rate on the popular 30-year fixed-rate mortgage is near a one-year low of 6.27%. Some realtors have also said the government shutdown is delaying contract closings. All-cash sales constituted 30% of transactions, unchanged from a year ago.

General Motors Goes Ballistic to All Time High, up 15%, with tremendous earnings beat and forecast. Imagine what GM would be earning without tariffs. Market share recovered to 17%. There is a big pivot away from EVs to internal combustion engines. Falling interest rates also help. No more CAFÉ standards, no more green credit buys from Tesla. Boy, did I miss this one. Avoid (GM). It turns out that car companies are interest-sensitive too.

Gold (GLD) Takes Another Big Hit, down $72 on the day. The barbarous relic is now down an eye-popping $450, or 11% on the week. Profit-taking is running rampant. Prices averaged $3,574.95 per ounce in the July–September quarter, up 43.5% year-on-year. Bullion prices surged past $4,000 per ounce for the first time ever this month, with some analysts now forecasting a run to the $5,000 mark next year. Precious metal miners are also benefiting from stable production and contained cost pressures, Stifel analysts said, flagging rising contractor fees, royalties, and taxes linked to gold prices as potential challenges. Overnight, we have flipped from FOMO to fear of margin calls, or FOMC. Wait for gold to bottom out before reentering.

Apple (AAPL) Surges to a new All-Time High, approaching $4 trillion in market cap. The iPhone 17 series outperformed its predecessor in early sales in China and the United States, with the newer models outselling the iPhone 16 series by 14% during their first 10 days of availability in the two countries. My 2026 LEAPS are up 35%.

Pulte Homes Beats, with third-quarter earnings of $2.96 per share on $4.4 billion in revenue, which exceeded expectations. Home sale gross margin was 26.2%. Home orders totaled 6,638, a 6% decrease from the third quarter of 2024, largely meeting analyst estimates. Buy (PHM) on dips.

China (FXI) GDP Comes in Line at 4.8%, versus 5.0% expected. While China is seeing robust growth, the US is shrinking at a 1% rate. The growth of markets outside the US gets the credit. Who won the trade war?

Silver (SLV) is pouring in from All Over the World to ease the short squeeze in London. The US, China, and India have been major sources. A shortage of available metal in the London market helped drive silver prices to a premium over U.S. Comex futures a week ago, making deliveries by airplane – usually reserved for much more expensive gold – profitable for sellers. Buy (SLV) on dips.

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, October 27, the Dallas Fed Manufacturing Index is released.

On Tuesday, October 28, at 8:30 AM EST, the Redbook Index is released, a weekly, sales-weighted measure of same-store retail sales growth in the U.S., providing an early indicator of consumer spending trends.

On Wednesday, October 29, at 8:30 AM, the Federal Reserve announces its interest rate decision.

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

On Friday, October 31, at 8:30 AM, we will get the Chicago PMI printed. At 10:00 AM EST, we obtain the Baker Hughes Rig Count.

As for me, I am reminded of my own summer of 1967, back when I was 15, which may be the subject of a future book and movie.

My family’s summer vacation that year was on the slopes of Mount Rainier in Washington state. Since it was raining every day, the other kids wanted to go home early.

So my parents left me and my younger brother in the firm hands of Mount Everest veteran Jim Whittaker to summit the 14,411-foot peak (click here for his story). The deal was for us to hitchhike back to Los Angeles as soon as we got off the mountain.

In those days, it wasn’t such an unreasonable plan. The Vietnam War was on, and a lot of soldiers were thumbing their way to report to duty. My parents figured that since I was an Eagle Scout, I could take care of myself anywhere.

When we got off the mountain, I looked at the map and saw there was this fascinating-sounding country called “Canada” just to the north. So, it was off to Vancouver. Once there, I learned there was a World’s Fair going on in Montreal, some 2,843 miles away, so we hit the Trans-Canada Highway going east.

We ran out of money in Alberta, so we took jobs as ranch hands. There, we learned the joys of running down lost cattle on horseback, working all day at a buzzsaw, artificially inseminating cows, and eating steak three times a day.

I made friends with the cowboys by reading them their mail, which they were unable to do since they were all illiterate. There were lots of bills due, child support owed, and alimony demands.

In Saskatchewan, the roads ran out of cars, so we hopped a freight train in Manitoba, narrowly missing getting mugged in the rail yard. We camped out in a boxcar occupied by other rough sorts for three days. There’s nothing like opening the doors and watching the scenery go by with no billboards and the wind blowing through your hair!

When the engineer spotted us on a curve, he stopped the train and invited us to get up to the engine. There, we slept on the floor, and he even let us take turns driving! That’s how we made it to Ontario, the most mosquito-infested place on the face of the earth.

Our last ride into Montreal offered to let us stay in his boathouse as long as we wanted, so there we stayed. Thank you, WWII RAF Bomber Command pilot Group Captain John Chenier!

Broke again, we landed jobs at a hamburger stand at Expo 67 in front of the imposing Russian pavilion with the ski jump roof. The pay was $1 an hour, and all we could eat.

At the end of the month, Madame Desjardin couldn’t balance her inventory, so she asked how many burgers I was eating a day. I answered 20, and my brother answered 21. “Well, there’s my inventory problem,” she replied.

And then there was Suzanne Baribeau, the love of my life. I wonder what happened to her?

I had to allow two weeks to hitchhike home in time for school. When we crossed the border at Niagara Falls, we were arrested as draft dodgers as we were too young to have driver’s licenses. It took a long conversation between US Immigration and my dad to convince them we weren’t. It wasn’t the last time my dad had to talk me out of jail.

We developed a system where my parents could keep track of us across the continent. Long-distance calls were then enormously expensive. So, I called home collect, and when my dad answered, he asked what city the call was coming from.

When the operator gave him the answer, he said he would NOT accept the call. I remember lots of surprised operators. But the calls were free, and Dad always knew where we were. At least he had a starting point to look for the bodies.

We had to divert around Detroit to avoid the race riots there. We got robbed in North Dakota, where we were in the only car for 50 miles. We made it as far as Seattle with only three days left until high school started.

Finally, my parents had a nervous breakdown. They bought us our first air tickets ever to get back to LA, which was quite an investment.

I haven’t stopped traveling since, my tally now topping all 50 states and 135 countries.

And I learned an amazing thing about the United States. Almost everyone in the country is honest, kind, and generous. Virtually every night, our last ride of the day took us home and provided us with an extra bedroom, garage, barn, or a tool shed to sleep in. The next morning, they fed us a big breakfast and dropped us off at a good spot to catch the next ride.

It was the adventure of a lifetime, and I profited enormously from it. As a result, I am a better man.

As for my brother Chris, he died of COVID in early 2020 at the age of 65, right at the onset of the pandemic. Unfortunately, he lived very close to the initial Washington State hot spot.

People often ask me what makes me so different from others. I answer, “My parents taught me I could do anything with my life, and I proved them right.”

Good luck and good trading.

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