Hope you are all doing well. The major U.S. stock indexes climbed for the third week in a row and pushed to record levels. The Nasdaq outperformed with a 2.3% weekly total return. Strong earnings reports from some of the index’s biggest technology stocks help lead the Nasdaq. The S&P 500 and the Dow both finished more than 2% higher for October as each index extended its positive streak to six months in a row. The Nasdaq was also the outperformer on the month with a 4.7% rise. That marks its seventh consecutive monthly gain. An original manuscript and cover sketch by Theodor Geisel, aka Dr. Seuss, was discovered this week. It will be published next summer. I have broken down this week’s update using quotes from my favorite Dr. Seuss book, The Lorax.
I felt a great leaping of joy in my heart
Mostly strong results during the busiest period of the quarterly earnings season led analysts’ overall earnings growth forecasts to leap higher. Analysts are now projecting that S&P 500 companies’ third-quarter earnings rose by an average of 10.7%. Entering earnings season, analysts had expected an 8.0% rise. Corporate profits are robust, and the AI boom continues.
Earnings reports from the mega-cap tech companies were not universally positive. Microsoft shares went down following underwhelming results. Facebook parent Meta also took a hit in their share price despite beating on both earnings and revenue expectations. Meta’s AI investment plans, which will be partly fueled by debt issuance, was the reason for the decline. Apple and Amazon both surged higher at the close of the week. Amazon’s stock price gained more than 10% over Friday’s session. These moves helped push the Nasdaq and S&P 500 to new records. We are now up since April lows by almost 40%. Many of you have asked, are we in an AI bubble? I don’t think we are…yet. The presence of robust real earnings and business models across the major players in AI is the main reason I say that we are not in a bubble. That is significantly different from the dot-com bubble, where it was all hope and dreams and no real earnings.
I am the Lorax who speaks for the trees,s which you seem to be chopping as fast as you please.
Our economy is dependent on rare earth minerals. China is the leader in rare earth minerals. While they do have a natural abundance, it is their historically lax environmental regulations that allow them to dominate the extraction and processing industries. Consolidating control, lowering costs, and investing heavily in both mining and refining for decades, China has built a comprehensive supply chain that has made it the world’s leading producer. This has been a source of frustration for the Trump administration. The leaders of the world’s two largest economies met this week to discuss it. They announced an agreement partially rolling back tariffs implemented earlier this year. President Trump said the total combined tariff rate on Chinese imports will fall from 57% to 47%. The pact extends to other trade issues, including rare earth export controls, fentanyl trafficking, and U.S. soybean exports. The easing in the trade tensions helped drive stocks higher. The main concession the U.S. got in the negotiation was that China committed to pausing restrictions on rare-earth mineral exports to the U.S. and has promised to restart soybean purchases from the struggling U.S. farm sector. Lower tariffs and fewer export restrictions will help limit the pressure companies face to raise consumer prices as we enter the all-important holiday season.
Whatever that meant, well, I just couldn’t guess.
Chair Jerome Powell added to the uncertainty over prospects for another cut at the Fed’s December meeting. Powell’s speech was purposefully ambiguous. He stated,” Our policy is not on a preset course. We will continue to determine the appropriate stance based on the incoming data, the evolving outlook, and the balance of risks.” He gave markets no clear signal. Stating that a further reduction “is not a foregone conclusion,” citing a lack of consensus among Fed members. What we can surmise is that the Fed’s rate-setting committee is clearly split on next steps. Without a clear understanding of where the Fed is headed next, expect more volatility than normal around the time of the next Fed meeting, December 9-10.
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