Fourth quarters have traditionally been very kind to stock markets, with half of the past decade’s returns typically coming in Q4s. Having said that, there was precisely zero progress towards ending the US government shutdown over the weekend. It still appears to be more of an annoyance than a crisis to politicians (and to Wall Street) but the feeling was that this was likely to change if this shambles goes on for an extended period.
Unlike in the US, there were plenty of political developments overseas. Asian stocks surged on Monday morning on the back of the appointment of a new Japanese prime minister but European markets dropped as the French lost theirs.
Wall Street was more excited about AMD inking a multi-billion dollar deal with OpenAI, with the former’s stock price rocketing by over 35% at the open before cooling off a bit later in the session. The indexes shifted higher again because, well why not? That’s what they do. Obviously, new record highs all round.
Dell became the latest tech firm to see its stock price spike on the back of cloaking itself in increased AI adoption on Tuesday, but the broad indexes finally showed signs of fatigue and even a touch of vertigo, finishing lower on the day and snapping the winning streak.
Whisper it softly, but there is a slowly growing anxiety among traders that the market may have been excessively rewarding the more speculative trades in AI-world which may be at risk of suddenly reversing in the case of even lightly disappointing news and it might make sense to take at least some chips off the table, particularly given that the start of the Q3 earnings season is upon us.
Trump used the threat of refusing to back-pay furloughed federal workers or actually firing many of them as a bargaining chip in the so-called shutdown “negotiations”, but the sense remained that the two sides are just shouting past each other and the betting markets continue to see no chance of any imminent resolution.
Stocks rebounded nicely on Wednesday morning with the US government taking more stakes in private companies, this time in the rare earth minerals space, as the move in the direction of an almost Soviet-style central planning via a taxpayer-funded sovereign wealth fund continued with Wall Street wondering; who’s next?
The minutes from the Fed’s last policy meeting released on Wednesday indicated that most officials still believe further interest rate cuts will be necessary throughout the rest of 2025. Nvidia boss Jensen Huang gave an upbeat AI “State of the Union” speech (shocker!).
The outcome was a return to new record closing highs for the S&P 500 for an astonishing 33rd time so far in 2025, a year that also includes a 19% fall in the index over a stretch of less than two months back in the spring. Interest rates dipped.
Exhaustion and vertigo kicked back in on Thursday and the indexes closed lower, even as the heavily-weighted Nvidia stock price reached its own new record high and Delta Airlines and Pepsi kicked off the Q3 earnings season with healthy reports.
Trump apparently got out of the wrong side of the bed on Friday. In addition to saying tough luck, there’s not enough money for food stamps for Americans (within hours of setting up a $20 billion bailout for Argentina) and starting to follow through on his threat of laying off federal workers, he also appeared to suddenly lose patience with the glacial pace of the China trade talks and lashed out by unleashing a 100% tariff, effective November 1st. He also called off his planned meeting with Chinese premier Xi.
Markets, already wavering, were severely rattled by the flare-up and and stocks tanked hard, having their worst day since their original tariff tantrum back in April.
I was attending a conference at the New York Stock Exchange on Friday and was on the floor watching stocks have their worst session in ages - coincidence? :-)
It seems entirely possible that these concerns could well spill into the coming week, but weekend events and news flow often have the habit these days of abruptly changing narratives by Monday morning, so who knows?
The past twenty government shutdowns have averaged a length of eight days. We’re well past that already this time. Indeed, the betting odds are already closing in on a 50% probability that this shutdown will be the longest in the nation’s history (the current record is 35 days).
We are entering a zone whereby we will have to begin to question the quality of October’s critically important economic data, even if it becomes available at all, thereby impacting the Fed’s ability to correctly read the tealeaves at its October 28th/29th Fed Funds interest rate-setting meeting.
While there’s still a background rumbling of worry that things are frothy and that trees don’t grow to the sky, fighting the upward momentum by selling (or even pausing buying) longer term holdings due to fears of a market fall has ended up being a disastrous strategy for three years now.
Timing the market doesn’t work because you simply can’t do it.
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ARTICLE OF THE WEEK ..
It appears that Congress seems to think that hiding fund fees is good for you.
.. AND I QUOTE ..
“The timing [of buying gold] has to be almost perfect because the times in between gains are long and painful. A dollar invested in gold in 1928 would have grown to less than $13k by 2025; a dollar in the S&P 500 with dividends reinvested would have grown to nearly $1 million and Small Cap stocks to almost $5 million. Even corporate bonds would have done 4X as well as gold.”
Spencer Jakab, Wall Street Journal
LAST WEEK BY THE NUMBERS:
Last week’s market color courtesy of finviz.com
Last week’s best performing US sector: Utilities (two biggest holdings: NextEra Energy, Constellation Energy) ⬆︎ 1.5% for the week
Last week’s worst performing US sector: Energy for the second week in a row (two biggest holdings: Exxon-Mobil, Chevron) ⬇︎ 4.1% for the week
* SPY, a US Large Cap ETF, tracks the S&P 500 index, made up of 500 stocks from a universe of the largest US companies. Its price fell 2.4% last week, is up 11.4% so far this year and ended the week 3.1% below its all-time record closing high (10/08/2025).
* IWM, a US Small Cap ETF, tracks the Russell 2000 index, made up of the bottom two-thirds in terms of company size of a universe of 3,000 of the largest US stocks. Its price fell 3.3% last week, is up 7.6% so far this year and ended the week 4.3% below its all-time record closing high (10/06/2025).
* VXUS, a Global Non-US ETF, tracks the MSCI ACWI Ex-US index, made up of over 8,500 of the largest names from a universe of stocks issued by companies from around the world excluding the United States, in both developed and emerging markets. Its price fell 3.3% last week, is up 22.5% so far this year and ended the week 3.8% below its all-time record closing high (10/06/2025).
INTEREST RATES:
* FED FUNDS * ⬌ 4.125% (unchanged)
* PRIME RATE ** ⬌ 7.25% (unchanged)
* 3 MONTH TREASURY ⬇︎ 4.02% (4.03% a week ago)
* 2 YEAR TREASURY ⬇︎ 3.52% (3.58% a week ago)
* 5 YEAR TREASURY ⬇︎ 3.65% (3.72% a week ago)
* 10 YEAR TREASURY *** ⬇︎ 4.05% (4.13% a week ago)
* 20 YEAR TREASURY ⬇︎ 4.60% (4.69% a week ago)
* 30 YEAR TREASURY ⬇︎ 4.63% (4.71% a week ago)
Data courtesy of the Federal Reserve and the Department of the Treasury as of the market close on Friday
* Decided upon by the Federal Reserve Open Market Committee at periodic meetings 8x a year. Used as a basis for overnight interbank loans and for determining high yield savings interest rates.
** Wall Street Journal Prime Rate as of Friday’s close. Used as a basis for determining many consumer loan interest rates such as credit cards, personal loans, home equity loans/lines of credit, securities-based lending and auto loans.
*** Used as a basis for determining mortgage interest rates and some business loans
AVERAGE 30-YEAR FIXED MORTGAGE RATE:
* ⬇︎ 6.30%
One week ago: 6.34%, one month ago: 6.40%, one year ago: 6.32%
Data courtesy of Freddie Mac Primary Mortgage Market Survey
INTEREST RATE EXPECTATIONS:
Where will the Fed Funds interest rate be after the next rate-setting meeting on October 29th?
* Unchanged from now .. ⬇︎ 2% probability (4% a week ago)
* 0.25% lower than now .. ⬆︎ 98% probability (96% a week ago)
With two more Fed rate-setting meetings left in 2025, what is the most commonly-expected number of remaining 0.25% Fed Funds interest rate cuts this year?
* ⬌ Two (unchanged from a week ago)
Data courtesy of CME FedWatch Tool
All data based on the Fed Funds interest rate (currently 4.125%). Calculated from Federal Funds futures prices as of the market close on Friday.
PERCENT OF S&P 500 STOCKS ABOVE THEIR OWN 200-DAY MOVING AVERAGE:
* ⬇︎ 54%
One week ago: 65%, one month ago: 62%, one year ago: 75%
Data courtesy of MacroMicro as of Friday’s market close
This widely-used technical measure of market breadth is considered to be a robust indicator of the overall health of the S&P 500 index. A high percentage (above 70%) generally suggests broad market strength and a bullish trend, while a low percentage (below 30%) may indicate market weakness and a bearish trend.
FEAR & GREED INDEX:
“Be fearful when others are greedy and be greedy when others are fearful.” Warren Buffet.
Data courtesy of CNN Business as of Friday’s market close
The Fear & Greed Index from CNN Business can be used as an attempt to gauge whether or not stocks are fairly priced and to determine the mood of the market. It is a compilation of seven of the most important indicators that measure different aspects of stock market behavior. They are: market momentum, stock price strength, stock price breadth, put and call option ratio, junk bond demand, market volatility and safe haven demand.
Extreme Fear readings can lead to potential opportunities as investors may have driven prices “too low” from a possibly excessive risk-off negative sentiment.
Extreme Greed readings can be associated with possibly too-frothy prices and a sense of “FOMO” with investors chasing rallies in an excessively risk-on environment . This overcrowded positioning leaves the market potentially vulnerable to a sharp downward reversal at some point.
A “sweet spot” is considered to be in the lower-to-mid “Greed” zone.
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