It wasn't supposed to happen this way. Historically, November and December have been considered the best months of the year for stocks. The problem is that history has been turned upside down this year.
Take the fact that the U.S. Supreme Court is hearing a case on tariffs that have not been this high for 100 years. And then there are the lofty valuations of companies that are investing trillions of dollars in artificial intelligence. Many investors believe AI will usher in a new age for the world. And in case that doesn't convince you, the sudden weakening in private jobs for October was the lowest in years. That may not qualify as history, but the present administration's immigration policy and its impact on employment certainly do.
Now, some might argue that a decline would be beneficial for markets, as this melt-up in the averages has persisted for weeks. It has been so long since we have had more than a one- or two-day decline that most investors are conditioned to buy any dip, no matter how shallow.
But why now, you might ask. Perhaps because markets didn't decline as expected in September and October. Then there is the "what-if" scenario surrounding one of the lynch pins of Donald Trump's economic policy. "What if" the court rules against him? "What if" the government is forced to refund billions of dollars in collected tariffs? And if so, what will happen to the deficit that has been declining?
If you believe the president, who claims an adverse ruling on his tariffs could "literally destroy the United States," then you are most likely one of those who sold stocks this week. I suggest you read my latest column, "Trump's tariffs and the holidays," for my thoughts on any fallout from this court case.
Thanks to the continued government shutdown, which has now become the longest in history, the dearth of government data has forced markets to focus instead on private sector research data. One such data point released this week was from global outplacement firm Challenger, Gray & Christmas. It showed that last month was the worst October for layoffs announcements since 2003.
In the absence of the non-farm payroll data, which was scheduled to be released on Friday but wasn't, investors took the weak employment numbers at face value. Investors worry that, given the weakness was among existing job holders, rather than the absence of immigrants (legal or otherwise) seeking jobs, economic growth overall may be slowing.
At the same time, however, another service, ADP Private Payrolls, said the number of jobs added grew by 42,000 last month. The jobs were gained in the old economy, specifically in trade, transportation, and utilities. Great news for some, but none of those jobs came from AI-related industries.
Why is this important? Trillions of dollars are being invested in AI each year, including this year, last year, and the year before. This is the area that the market agrees will become a primary driver of economic growth in the future, starting now. Instead, information services and professional and business services lost jobs in an industry that should be hiring like crazy in these early stages of build-out.
More than 85 percent of companies that have reported quarterly results have beaten estimates; however, there is a catch. I had thought that these stellar earnings results would support markets. They have to some extent, but something is changing. Many of the AI names have declined after their earnings results were released.
That is a new behavior. In the past, traders have been buying AI stocks regardless of the company's earnings, whether good, bad, or indifferent. Investors are now questioning the sustainability of the AI boom and the ability of companies to justify their high valuations based on profit growth.
I half suspect that consumer holiday spending was front-loaded this year to avoid tariff-induced price hikes. If so, flat spending may not be taken kindly after years of increased end-of-year sales. Combine that with the AI valuation fears, tariff court case, and the government shutdown, and this wall of worry has grown too high for the average investor.
And even though the government shutdown continues, I maintain that it will be resolved sometime this month. Due to the increasing air travel fubar brought on by the shutdown, starting today, the FAA will cut 10% of flights at the 40 biggest airports as it prepares for a worst-case scenario of delays and canceled flights. Until now, most Americans have not been unduly affected by the shutdown. As Thanksgiving approaches, the holiday flight schedules will become far more critical to the nation. I expect irate calls to Congressional representative offices are climbing by the minute.
Marketwise, this pullback is a good thing. I have written several times in the last month that we needed a break from the relentless climb that has created an extremely worrisome condition in the markets. Hopefully, we will see a 5-6% decline in the averages, which will prepare us for a year-end rally.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
@theMarket: Markets Choppy on Good News
By Bill SchmickiBerkshires Columnist
It was a classic case of "buy the rumor, sell the news." Even though the Fed did cut interest rates again and a deal between China and the U.S. was announced, investors failed to celebrate.
Markets were bid up in anticipation of these events long before they happened. A Fed cut has been in the works for approximately a month. Expectations that the two largest economies in the world would reach a satisfactory arrangement were also well telegraphed as early as last week. On Sunday, Scott Bessent, the U.S. Treasury Secretary, all but said the deal is in the bag.
However, investors did not get all they wanted in either case. Markets had already priced in another rate cut in December with an 87 percent probability. And then came the comments by Fed Chair Jerome Powell in the Q&A session after the FOMC meeting. "A further reduction in the policy rate at our December meeting is not a foregone conclusion — far from it. Policy is not on a preset course."
Oops, said the markets. By the close on Wednesday, the chance of a cut dropped to roughly 60 percent and markets opened lower on Thursday as a result. It also didn't help that two of the largest tech stocks in the universe, Microsoft and Meta, disappointed investors, causing a loss of over 1 percent in the NASDAQ.
And then there was the deal between Presidents Trump and Xi on Thursday. The two leaders agreed to roll back a bunch of trade barriers that had never been implemented. These tit-for-tat, double-dare threats between the two nations ultimately proved to be just that. The sweeping controls on rare-earth magnets and draconian restrictions on Chinese companies disappeared like hot air, at least for the next year. However, there was some good news for soybean farmers (including Scott Bessent) as China will resume purchases.
The administration and the media hailed the latest truce as groundbreaking, but I don't see it. No agreements were committed to paper, so there is no legal binding on anything. Their fundamental differences over Taiwan, technological supremacy, and national security were not even mentioned.
To me, this so-called framework allows both leaders a win. Beijing gets to continue stringing things along, buying itself even more time to mitigate any potential downside of U.S. actions against it. Evidently, the markets agreed, as both Chinese and American stocks fell after the announcements.
The shutdown continues. Supplemental Nutrition Assistance Program (SNAP) benefits cease at the end of Friday, impacting one out of eight Americans. Saturday marks the start of the open enrollment period for health-care programs under the Affordable Care Act. Look for numerous stories next week about the higher premiums for insurance that many of the 24.3 million on the ACA will need to pay.
The president, suddenly appearing concerned over the shutdown, posted that it is time to eliminate the Senate filibuster, stating, "The choice is clear — initiate the nuclear option." There has been a slight thawing of the congressional ice jam, but make no mistake, it is not about those issues.
The facts are, as I have said in the past, November marks a period leading up to Thanksgiving when air traffic increases. Air traffic controllers have not been paid. Newark already shut down for a day this week due to a lack of personnel in the tower. This is one area of the government shutdown that could generate significant blowback, as thousands of inconvenienced travelers are suddenly confronted with flight delays.
Fortunately for the markets, the earnings of Apple and Amazon beat expectations after the close on Thursday. That reversed the damage, and the markets recouped nearly all their losses only to drop gain. Strong third-quarter earnings are supporting the markets. With more than 60 percent of companies reported thus far, over 84 percent have beaten estimates by a wide margin.
Entering November, markets continue higher. The only difference that I can see is that the gains have slowed, and markets are alternating between some down and some up days. The same drivers, AI and tech, continue to lead, with a few other sectors alternating between gains and losses.
Precious metals have slowed their free-fall and are now consolidating. I suspect they could still see lower prices, so be careful. Cryptocurrencies are doing the same. Overall, I advise readers not to chase here but only add on dips like we had on Thursday (1 percent or more in the averages).
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
@themarket: Shutdown Lingers, But Nobody Cares
By Bill SchmickiBerkshires Columnist
As of Friday, the government's closure is the second longest on record. The country has managed thus far, since much of the government's economic machinery keeps chugging along. As such, there is no reason why it can't continue.
By Nov. 5, if no compromise takes place, Donald Trump will make history once again — this time by beating his own shutdown record of 34 days during his first term. The partisan stand-off is so severe that the House no longer even meets, while the Senate continues its own version of Groundhog Day by voting and failing to pass any legislation.
There is no real urgency either, since Social Security benefits and Medicare payments still go out. The mail continues to be delivered, student loan payments are getting collected, ports are open, so tariffs are still being charged on imports, and the U.S. Treasury is still servicing the nation's burgeoning debt. And the administration has somehow found the money to pay U.S. Immigration and Customs Enforcement agents.
Today, Oct. 24, will mark the first missed paycheck for many federal workers. Service members were paid a week or so ago by moving funds around within the Defense Department. Americans who are dependent on the Supplemental Nutrition Assistance Program (SNAP) to eat have managed thus far, but these SNAP benefits will dwindle to nothing by next month.
Sure, there are disruptions. Clearly, federal workers and contractors are being affected through lost pay, work stoppages, and delayed contracts. Some economists estimate that $800 million in federal contracts is at risk each day. And we have until the Thanksgiving holiday before anyone cares about the air traffic controllers (unless, of course, there are a couple of near misses or a mid-air collision).
The GOP-controlled Congress is taking its direction from the White House, but the man in charge is too busy right now to divert his attention to opening the government. As I mentioned, the government shutdown is accomplishing much of what the administration had hoped it would. Bond yields are down, and spending has slowed considerably. His OMB chief has been able to cut several Democrat-backed billion-dollar projects, and there are fewer federal workers on the payroll.
Whether by intention or happenstance, the administration has successfully distracted investor attention from the shutdown, despite the media's insistence that it does matter. This week alone, Donald Trump has crowded out those concerns by instead focusing investors' attention on his on-again, off-again peace efforts to end the Russian/Ukraine war. His latest move, to add further oil sanctions on Russia, spiked oil prices higher by more than 5 percent.
In addition, Trump's attention was focused on shoring up last week's "done-deal" peace agreement in Gaza, which doesn't appear to be quite done yet. Then there is his escalating naval warfare on alleged drug boats off South America, his upcoming meeting with China's Xi Jinping, and lest we forget, his newest national concern. That would be a $250 million White House ballroom intended to put Europe's longest-reigning absolute monarch, Louis XIV's Palace of Versailles, to shame.
While the shutdown has left a data vacuum in government, the Consumer Price Index for September was released on Friday. It was a necessary use of available government funds, given that the CPI data is a crucial measure used by the Social Security Administration to adjust the dollar value of Social Security benefits. Wall Street forecasts called for an increase to 3.1 percent year over year. It came in at 3 percent.
Historically, shutdowns have not had a significant, lasting impact on the economy. That is because all that government spending will come back as soon as the government reopens. If some of that spending does not come back due to firings, failure to provide back pay, or spending cuts, the economy might slow for a quarter or so.
Quarterly earnings have been better than expected thus far. Analysts had expected an average growth rate of 7-8 percent. Out of 141 companies reporting on the S&P 500 Index so far, the gain has been 13.3 percent. Of the 63 companies included in that index, only nine have reported, and the growth rate was 26 percent.
This coming week, the Fed meets and is expected to cut interest rates by another one-quarter point. Trump will also meet Xi in South Korea for trade talks. The hope is that a breakthrough in trade will occur. Don't hold your breath.
If perchance U.S. Treasury Secretary Bessent can cut a deal beforehand with his Chinese counterparts, markets should rally. If so, White House leaks will front-run the news. I will be watching soybean and China stocks as a tell. If his good friend Xi rebuffs his overtures, expect a little "Hell Hath No Fury like a President Scorned" action, and markets will swoon at the wrath of Trump.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
@theMarket: Higher volatility reflects worries over trade deals, the shutdown, and banking credit jitters
By Bill SchmickiBerkshires Columnist
"Short-term volatility is greatest at turning points and diminishes as a trend becomes established," wrote George Soros in his book The Alchemy of Finance. Last week, I warned investors to expect volatility. We have had that in spades.
Verbal threats from both sides before the upcoming China-U.S. trade negotiations led to stocks whipsawing in both directions for most of the week. The continued government shutdown didn't help matters either, but it was two small regional banks that spooked investors most.
Concerns about credit among two regional banks, Zions Bancorp and Western Alliance, triggered an overnight sell-off on Thursday into Friday. Both companies were victims of fraud in the distressed commercial real estate market. This sparked concerns that other banks may also be victims.
In the meantime, China and the U.S. traded accusations, but don't get carried away by threats and counter-threats. It is reminiscent of Trump's first term and is all part of the positioning game ahead of the meeting between Presidents Xi and Trump at the APEC meeting in two weeks. I won't bother to regurgitate a list of the he said, they-said jawboning that had freaked-out traders booking appointments with their therapists.
Suffice it to say, most of the acrimony centered on China's near-monopoly position on strategic metals used in everything from fighter jets to cell phones. As an example, just this week, the Defense Department canceled a tender offer to purchase $500 million worth of cobalt over a five-year period. There were no bidders.
It was the first attempt to acquire this strategic metal since 1990. Cobalt is used in rechargeable batteries, magnets, and military systems. Beijing dominates cobalt processing and has built a significant stockpile. In comparison, threatening to limit our exports of cooking oil to China seems ineffective. In any case, I expect more of the same as we approach the meeting of the minds at the end of October.
The government shutdown, now the third longest in history, is dragging on with both sides digging in their heels and refusing to talk, let alone compromise. This week, we missed the most recent unemployment claims data, the Producer Price Index, and several other key macroeconomic data points. That leaves day traders in charge, with headlines providing the primary trigger for buying and selling.
Headlines like "Thousands of Treasury, HHS employees fired" got the juices flowing on the downside. "Court blocks Trump administration's latest mass layoffs" was also good for a few points on the upside.
Yes, the administration has taken advantage of the federal furloughs. The Office of Management and Budget has fired thousands of government employees. They have also transferred billions in federal funds away from what Donald Trump termed "Democrat programs" and infrastructure projects in blue states.
I had hoped the shutdown would have been over by now, given the need to ensure paychecks for the military, but Trump found funds to cover that Oct.15 deadline. The President's recent moves have bypassed Congress, raising questions about who holds the 'power of the purse' in government.
How much of these actions will survive the jurisdiction of the courts is questionable. A federal judge in San Francisco has already placed a hold on the government's firings, and many of these unilateral actions are likely to be overturned. However, the attempt to do so makes good copy for the President's base and may repair his failed attempt at cutting government headcount through the use of DOGE.
Given the sage advice of Mr. Soros, it has become abundantly clear to me that volatility is increasing at an exponential rate. From a low of 15, risk, as measured by the volatility Index (VIX), has jumped to 23.37 in less than a month. That is a 48 percent increase.
During that time, safe-haven assets like gold gained more than 16 percent, while the yield on the 10-year U.S. Treasury bond fell below 4 percent. On the other hand, Bitcoin, a leading risk asset, fell 8.8 percent. During the same period, the S&P 500 Index appears unable to surpass the 6,750 level. As the month progresses, the risk of a further pullback in the equity averages seems highly probable.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
@theMarket: Trump Trashes China and Markets Swoon
By Bill SchmickiBerkshires Columnist
Friday morning started well enough until a post by the president ruined everyone's day. Irritated by several recent moves by the Chinese, he lashed out, threatening a "massive" increase in tariffs and canceling a scheduled meeting with China's leader. Markets fell on the news.
The last time I looked around noon on Friday, all three stock market averages were lower by one percent or more. NASDAQ was down more than 2 percent. After several weeks of everything going our way, Donald Trump has had a temper tantrum. I am sure his mood was already somewhat dampened. Maria Corina Machado, the Venezuelan opposition leader, was awarded the Nobel Peace Prize today.
It is an award that Trump has coveted and lobbied for all year. It could be a coincidence, but I suspect China was an easy target for his disappointment. At the same time, some of his hardcore supporters who are China hawks have been accusing him of being soft on China lately. Ostensibly, his outburst was in response to recent Chinese actions on the trade front. They have tightened export controls on rare earth minerals, added new port fees on American ships, and launched an antitrust investigation into Qualcomm.
Before this blowup, the markets meandered within a moderate trading range all week. One positive result of the government shutdown has been that Market volatility has dropped sharply, enabling equities to continue to climb to all-time highs.
Next week, quarterly earnings are once again on deck. Analysts expect corporate results to be relatively strong, which could support the markets. On October 15th, the military, along with other federal workers, will either receive a paycheck or not, depending on the outcome of shutdown negotiations. It appears that the Republican stance against any change in their position is beginning to crack around the edges. The Democrats' health-care concerns are shared by many on both sides of the aisle.
Polymarket betting indicates an 84 percent chance that Congress will pass a funding bill sometime after the middle of the month. Both houses of Congress would need to approve any bill before it is sent to the president. How long would that take? The betting odds indicate a 76 percent chance that this will occur by the end of the month.
My guess is that we will start to hear more compromise talk after Oct. 15, and the end of the current drama will follow a week or so later. If this were to come to pass, all the threats, sword rattling, and dire predictions would melt away. Any damage done will be reversed, and investors will continue with their business.
The only real issue with this shutdown business is that markets continue to operate without crucial economic data, such as inflation numbers, economic growth, and the state of the labor market. The Fed meets at the end of the month, but it is hard for me to believe that the central bank is as much in the dark as we are. I suspect that they have the resources to at least have a general idea of how the economy is functioning despite the blackout.
Investors remain convinced that the Fed will cut interest rates again at its October FOMC meeting at the end of the month. It is the primary reason stocks continue to climb, although 6,800 on the S&P 500 Index has been a difficult level to pierce on the upside. Precious metals and cryptocurrencies, which have experienced a strong run, are also starting to stall.
These could be early signs that the markets are due for a pause in the weeks to come. Do not be surprised if that were to occur.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
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