October 2025 Market Update

There was no market update published for September, but we have a lot to cover through October. Buckle up, here we go.

There is a growing concern that America is becoming a centrally planned economy and financial market. Though we are not there yet, the signs are there and worth investigating.

Corporate profits have been following the total monetary base lower for the past six months. Without an increase in the monetary base, corporate profits will continue to decline. This has put the Fed and Treasury in the hot seat.

Our view coming into this week was that the Fed will soon be forced to end Quantitative Tightening and lift the total monetary base to prevent corporate profits from declining further. If the American economy fails, meaning the Fed balance sheet needs to expand rapidly, damaging American workers purchasing power, then bitcoin may benefit as inequality rises. This may sound good for speculators, but it sure sounds bad for the middle-class economy.

This week the Fed did exactly that, they ended Quantitative Tightening because bank reserves are now down to around 2.9 trillion from a peak in 2021 of 4.2 trillion. If banks and life insurers do not see interest rates lowered and banking reserves increase, they may have profitability problems, and the stock market could have a big decline. If the stock market suffers a big decline, tax receipts may fall short, and the government deficit could be forced to expand.

Since the 2008 banking crisis, every time bank and stock market profitability threatens to decline, the Fed, Treasury, and President ask for interest rates to be lowered for savers and for bank reserves to increase, which lowers the value of the Dollar Americans work for to keep corporate profitability/margins up. 

This is why homes and other household expenses have become so unaffordable for many hard-working Americans. This tradeoff of working Americans purchasing power for protecting corporate profit margins has gone on for years and that is why in 2019, after the yield curve inverted, the abundant reserve regime was created to keep credit flowing.  

The Fed, Treasury, and Presidency need a constant flow of bank reserves to keep credit creation expanding in a deteriorating economy propped up by government spending on Ai. For these reasons the stock market no longer reflects economic reality. 

That is why with forty-two million people at risk of losing food stamps next week, the stock market is at an all-time high. The market knows the government will reopen and spend, government is bleeding the middle class and poor with the shutdown, pressuring the Fed to cut interest rates and increase bank reserves, which protects stock market and real estate values. And so far, it has worked.

After the decisions made by the Fed this week, we believe the government is going to reopen soon, likely next week, and spend a lot of money on purpose, helping to balance supply and demand for repo operations, so the Feds balance sheet once again expands by the beginning of 2026.

Over time, these actions could push interest rates lower along with the size of the middle class, and the stock market index up. It seems the stock market is becoming universal basic income, as Americans savings rate and purchasing power continues to decline with interest rates to prop up corporate profit margins and earnings.

This is likely why Gold has outperformed stocks over the last five- and twenty-year periods. The market is sniffing this out. If the stock market rising was predicated on real economic growth rather than currency devaluation, Gold would not be performing this well.

The best leading indicators of economic growth are construction/building permits and credit creation. The ARR “abundant reserve regime”, created by the Fed in 2019, allows credit to constantly expand at the expense of American workers purchasing power, so long as in the aggregate corporate earnings appear to be growing.

It is interesting that since 2019 after the "ARR" was created, whenever the stock market declines, it ironically comes roaring right back to being up at least ten percent from the previous year’s close. What is even more interesting is that earnings growth outside of the magnificent seven stocks is weak and anemic, but when looking at the S&P 500 on an aggregate basis, its looks like wonderful aggregate earnings growth, due to all the growth coming from “Big Tech”, fueled by government funding artificial intelligence build-out to compete with China. A taxpayer funded stock market.

Nick Raich, CEO of The Earnings Scout, recently said the following: "The clearest way to see that EPS estimates have been falling the entire time since this bull market began on October 12, 2022 is in our own Earnings Scout charts. Our “Earnings Score” for the S&P 500 measures both the direction and magnitude of estimate revisions, and it has remained negative, meaning estimates continue to decline even as prices have risen."

The Magnificent seven is thirty-two percent of the S&P 500. The “MAGS” etf is up + 60% since April 8th, the day the President tweeted to buy stocks. 

.60% x .32% = 18.75% which is how much the S&P 500 is up so far this year. This is a big mirage where the aggregate is actually in decline, but a few government supported companies are masking it all.

Bernie Madoff couldn’t have even made it in this “ARR” regime, the twelve percent fake returns he offered clients have been dwarfed by the return’s big tech and the "ARR" have helped the S&P 500 provide since 2019. And therefore, credit continues to expand while the aggregate economy deteriorates. This somewhat explains historically low corporate credit spreads.

Could regime change at the Fed end the "abundant reserve regime"? Chairman Powell has recently stated it is unlikely to end. This is the crux of the issue for the presidency. The "ARR" pushes down on purchasing power indefinitely and the administration cannot be successful without a rise in purchasing power for the middle-class.

It is beginning to look as though the Presidency, no matter who holds it, is holding America hostage to the stock market. I created a chart which adds +10% to the S&P 500 every year. Based on this, the year end 2026 price target for the S&P 500 is 7800. Though this is not actually our forecast, it is not far off from where wall street’s big bank forecasts are for the next year. As taxpayers continue to fund Ai, big tech earnings continue to grow, masking a deteriorating aggregate corporate earnings and economic picture, while calling for lower interest rates and purchasing power for working Americans. Looks and sounds ridiculous doesn't it?

Our political leader’s big idea to solve Americas financial and economic problems is to keep doing this while the government takes a stake in bitcoin, with the hopes that due to this lowering of interest rates, rise in bank reserves, and lower value of the Dollar, bitcoin will rise in price substantially, and government can pay down the debt with bitcoin proceeds while winning the Ai race against China. 

Hopefully this is not what our leaders believe, hopefully this is not their plan, because if they do this the middle class will likely be in despair, and the American economy may fail. 

The value of bitcoin and inequality rise together. So long as bitcoin rises, working Americans lose purchasing power and the middle class continues to shrink. Working Americans can barely afford meat, groceries, and housing while job openings are at a decade low. 

This is a good ole story of reverse robin-hood. Rob from the poor to give to the rich.  And all this is happening while building permits are at recessionary levels. 

Some of America is already living through a silent recession. It seems the President has been given bad economic advice. U.S. leaders are propping up the value of the farm to sell it off slowly so it can pay the bills now. 

Adults in America travel to work every day disillusioned by the stock market rising, thinking they are getting ahead with a 401k, while their children quite possibly won’t ever be able to afford a home if the economy continues operating this way. This is a leveraged buyout of America, whereas individuals go along with it because they believe they're getting wealthy, when in reality they're selling out Americas future.

Whether the Fed is too late or not, political and corporate leaders may not be successful in trying to solve a debt problem with more debt and a promise for growth, but they're sure going to try. With the Fed on deck to once again grow its balance sheet and cut interest rates to support corporate profits, working Americans will likely get the raw end of the deal. Is this the beginning of artificial intelligence competing with the human race for energy/natural resources? The current system exposes that one is in fact eating the other. How high does the unemployment rate need to rise and the middle class need to shrink to alter Fed policy so the S&P 500 closes the end of 2026 at or above 7800?

They got America by the stock market.

If the Fed doe not stick to the plan of growing it's balance sheet due to the fiscal situation, managing repo, and shrinking the middle class by devaluing the Dollar, they could end up losing control of short-term interest rates.

Our recommendation is to position portfolios to endure a recession, in a defensive manor, risk off, cash, T-bills, money market funds, short to mid-term 1-10 year U.S. treasury bonds and 10-30 year U.S. treasury bonds at positive carry, 10-year minus 2-year yield curve re-steepening, 10-year minus 3-month yield curve re-steepening, Short USDJPY from 153, and select low duration U.S. equities.

Getting paid to wait for growth assets to be priced at discounts, while being positioned to benefit from bond price appreciation as interest rates decline from downward economic pressure, continues to be a profitable and rewarding strategy. We remain patient and focused on managing risk through 2025.

Disclosure: Investing involves risk, including the possible loss of principal and fluctuation of value. Past performance is no guarantee of future results. This letter is not intended to be relied upon as forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date noted and may change as subsequent conditions vary. The information and opinions contained in this letter are derived from proprietary and nonproprietary sources deemed by Macrovex Capital, LLC to be reliable. The letter may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projection, and forecasts. There is no guarantee that any forecast made will materialize. Reliance upon the information in this letter is at the sole discretion of the reader. Please consult with a Macrovex Capital, LLC financial advisor to ensure that any contemplated transaction in any securities or investment strategy aligns with your overall investment goals, objectives, and tolerance for risk. Additional information about Macrovex Capital, LLC is available in its current disclosure documents, Form ADV and Form ADV Part 2A Brochure, which are accessible online via the SEC’s investment Adviser Public Disclosure (IAPD) database at www.adviserinfo.sec.gov, using CRD #300692. Macrovex Capital, LLC is neither an attorney nor an accountant, and no portion of this content should be interpreted as legal, accounting or tax advice