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Market Breather
So far in November we have been experiencing a small decline in the markets. I call this a market breather. Think about going out to a nice meal and then suddenly, you cannot eat one more bite of delicious food. Your body takes some time to digest the food and process it in the manner which Mother Nature proscribed for your body.
What Exactly Are the Proximate Causes?
The financial markets are not a single factor model. Here are some of those factors which are coming into play in early November:
Corporate Earnings – for the most part corporate earnings and future guidance have been meeting or exceeding expectations. Given the heights to which some stocks, and the market in general, have risen to; we are experiencing a condition called “Sell on the News.” Sell on the News occurs from time to time but tends to be a short-term phenomenon.
Federal Government Shut Down – The Houe of Representatives majority voted in favor of legislation to keep the federal government open for operations. The Senate is a little more difficult to accomplish this task. You see, the Senate operates under a filibuster rule. The filibuster requires 60 out of 100 senators to vote to end debate on an issue brought to the Senate floor. They were only able to muster 55 votes as some Democrats did vote to end the filibuster. As I write, there are rumors around that the Senate has come to an interim agreement. However, now that new agreement must be sent back to the House of Representatives for a new vote. If the House does vote in agreement, expect markets to respond in a positive manner
Zohran Mamdani – New York City (NYC), where I was born and raised, elected a socialist (and perhaps one would consider communist) as its new mayor. NYC has been in a death spiral since Bill DeBlasio, another socialist/communist, who ruled the Big Apple for eight years. He was followed by Eric Adams, an ex-cop who was Mayor for the past four years but was for the most part ineffective. Now, with Mamdani soon to be in office, there is a palpable panic setting in if he can deliver on his socialist/communist promises. Business and people have already begun or are planning to flee, However, I think that there will be sectors of the NYC population who have been entrenched for generations that will fight Mamdani at every turn, such as the Italian, Irish and Orthodox Jews.
Outlook for Rest of the Year
We are entering a bullish season for stocks. There is also the possibility that a 3rd ¼ point rate cut by the Federal Reserve will occur in December, just in time for the holidays. The S&P 500 (SPX) stood at 6,728.80 at the close of business on Friday. Hence the SPX is only off its high of 6,920.79 set within the last thirty days. I can make a case for the index to close out the year over the 7,000 plateau. The Nasdaq 100 (NDX) has experienced a slightly larger decline of 4.29% from its high, which makes sense given its greater beta relative to the SPX. I can see the NDX making a run from its current level of 25,059.81 to 27,000.
We can make those advances, given an end to the Federal Government shutdown coupled with a non-negative response to Nvidia’s (NVDA) earnings on November 19.
Finally, in other news, Netflix announced a 10 for 1 stock split later this week. It won’t have a fundamental effect on the stock, but it will make it easier for individual investors to purchase a share, whereas now (pre-split) it’s too expensive.
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Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView Asset Management, LLC, own NFLX, NVDA and SPX (an ETF linked to the SPX), although positions can change at any time. The mention of stocks are not recommendations and may not be suitable investments for your individual situation.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, (LVAM) an investment advisor representative, specializing in high-net-worth private wealth management. LVAM is a separate entity of Osaic Advisory Services, LLC, a registered investment advisor.
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