Monthly Update
One month ago, on the day I wrote the September letter, the US government was one day into its partial shutdown. As I write this letter about October on November 5th, the US government is still partly closed but I believe we are just days away from reopening as the pressure on certain vital government shutdowns are showing signs of stress and both sides need to end this impasse. Either way, reopening was always a guarantee, as is death and taxes, and was just a matter of when.
The other noteworthy thing taking place currently is the Supreme Court is presiding over the Administration’s arguments that the use of the International Emergency Economic Powers Act can be used to implement tariffs. I assume it will be a few weeks hence as to when they either affirm two prior court decisions saying the use of IEEPA for tariffs was unconstitutional or rule instead that it is a legitimate use. We watch of course because of the broad impact that tariffs have had both on the US economy and the global one for that matter. That said, even if the President loses, he still has other powers like Section 232 and Section 301 of Congressional statutes to implement tariffs, to name a few, that ceded some tariff power to the executive branch under particular circumstances.
The stock market powered on in October pushing to fresh record highs. The S&P 500 rallied 2.3% in October, the 6th month in a row of gains after three months of losses1. It was again led by Big Cap Tech with the NASDAQ 100 up by 4.8%2. The small cap Russell 2000 was higher by a less modest 1.8% but finally got back to record highs after a slight recent pullback3. I do want to emphasize here the power of the Mag 7 stocks in carrying the market higher as after the DeepSeek news in late January that shook the entire GenAI trade, has gotten a second wind.
It then begs the question of how sustainable this trade is. How sustainable is the buildout of data centers? How many are enough? Are companies spending too much? What are the benefits to the users of GenAI at the business and household level? Only in retrospect will these questions be answered but it’s important to ask them and watch closely how things play out because the US economy and US stock market is now very heavily weighted to how this turns out. According to my numbers, GDP growth in the first half of 2025 would have been little changed without the huge amount of GenAI CapEx. And within the S&P 500, the top 7 stocks, known as the Mag 7 as we know, make up about 38% of the index4.
Luckily though, we’ve seen this year investors find opportunities outside of just 7 stocks. International stocks this year have seen stellar gainers, particularly in US dollar terms. I say that because the US dollar index is down 7.5% as of this writing and that is an improvement of the September lows5.
To provide some figures around this, as of this writing, the German DAX in US dollar terms is higher by 34%, the Spanish IBEX is up 54%, the Italian MIB has rallied by 41%, the Hang Seng has gone up by 29% and the Ho Chi Minh index is up 26%6.
Also worth noting is the stellar recent performance of precious metals. Through October, gold is higher by 44%, silver by 58% and platinum by 74% using the front month futures contract pricing7. This trade though did take a breather at the end of the month, and I do expect that the digestion of these gains might continue. That said, the underlying fundamentals and demand trends remain strong. Particularly with gold, central banks have been large buyers over the past three plus years encouraged by the EU and US freezing of half of Russia’s central bank reserves in 20228. Gold now is the 2nd largest reserve asset, behind the US dollar and above the euro9.
Reviewing the economy and it remains very mixed both within the US and globally as well. Driving US growth continues to be the tremendous buildout of GenAI data centers where everyone from chip makers, server producers to cement and steel companies, along with HVAC and electrical equipment, are all seeing an increase in business. Also, upper income spending has been healthy as this cohort benefits from the wealth effect of higher stock and home prices. On the other hand, parts of the economy are in a recession. Manufacturing has been in a contraction for about 2 ½ years now10. The pace of existing home sales is at a level last seen 30 years ago when the US population was smaller than it is today11. Capital spending ex GenAI has been flat lining. The labor market too has seen a slowing pace of hiring and global trade has been muted.
Shifting to the Federal Reserve and on how they manage through this situation, they cut interest rates by another 25 basis points at the end of October which takes their total amount of cuts since September 2024 to 150 basis points12. While inflation at around 3% is 50% above their long-term sustainable target of 2%13, the Fed has focused more on the labor market side of their mandate and less so on inflation. Fed Chair Powell did, however, temper the bond market pricing of an expected December rate cut as he wants to see more data before deciding. This approach was confirmed by some of his Fed colleagues in speeches given.
The other noteworthy thing that has raised my economic and market antenna has been some recent corporate bankruptcies in the subprime auto space. Namely, First Brands, Tricolor and Primaland. Whether these were one-off frauds or something deeper is involved with credit, we will have to see but as Jamie Dimon said on the JP Morgan earnings conference call, sometimes there isn’t just one cockroach; I paraphrase.
Internationally the economic picture is very mixed too. In Europe we see soft growth in Germany and France but more robust activity taking place in Spain and Greece. China’s economy is seeing slower growth but areas of strength within particularly in tech, AI, EVs, electrification, solar panels and robotics. Elsewhere in Asia, Singapore and Vietnam are seeing strong growth while Indonesia slows. Japan’s economy seems fine.
Conclusion
There are a lot of moving pieces when analyzing and investing in these markets but that always seems to be the case. From a risk management perspective we are always on guard, don’t take a Pollyanna approach to markets, and do our best to realistically and objectively find our way around. With markets richly priced with both high P/E ratios for many stocks and tight credit spreads for many bonds, this I believe is more important than ever.
Either way, and something I say every letter, whatever comes our way it remains vital that investors have adequate short-term liquidity over the next 2-3 years; knowing that period is covered can help separate the balance of one’s portfolio from the ups and downs of the market. Time horizon is always crucial and is always the best friend of any investor.
Disclaimer
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The market and economic data is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The information in this report has been prepared from data believed to be reliable, but no representation is being made as to its accuracy and completeness.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.
Nothing in this material should be construed as investment advice offered by Bleakley Financial Group, LLC or Peter Boockvar. This market update is for informational purposes only and is not meant to constitute a recommendation of any particular investment, security, portfolio of securities, transaction or investment strategy. No chart, graph, or other figure provided should be used to determine which securities to buy, sell or hold. No representation is made concerning the appropriateness of any particular investment, security, portfolio of securities, transaction or investment strategy. You should speak with your own financial professional before making any investment decisions.
Past performance is not indicative of future results. Neither Bleakley Financial Group, LLC nor Peter Boockvar guarantees any specific outcome or profit. These disclosures cannot and do not list every conceivable factor that may affect the results of any investment or investment strategy. Risks will arise, and an investor must be willing and able to accept those risks, including the loss of principal.
Certain statements contained herein are statements of future expectations and other forward-looking statements that are based on opinions and assumptions that involve known and unknown risks and uncertainties that would cause actual results, performance or events to differ materially from those expressed or implied in such statements.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. The fast price swings in commodities and currencies will result in significant volatility in an investor’s holdings. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets. The fast price swings in commodities and currencies will result in significant volatility in an investor’s holdings.
Investment advisory and financial planning services offered through Bleakley Financial Group LLC, an SEC registered investment adviser. Peter Boockvar is solely an investment advisor representative and Chief Investment Officer of Bleakley Financial Group.
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