Markets Hit Records Amid Fed Cuts and Trade Optimism—But AI Bubble Fears Lurk

In partnership with

A Turbulent Week Ends on a High Note

What a week. Markets gave us whiplash—reaching new highs early in the week, pulling back sharply on Thursday, then rallying into Friday's close on blockbuster earnings from Apple and Amazon.

The S&P 500 finished the week around 6,850, after bouncing back from Thursday's 6,822 close. The Dow held near 47,500, while the Nasdaq showed the most volatility, dropping 1.57% on Thursday before surging back Friday morning on strong tech earnings. Microsoft and Apple both crossed the $4 trillion market cap threshold on Tuesday—a historic milestone—though the celebration was short-lived as Thursday's earnings disappointments triggered a tech selloff.

The week's narrative shifted daily:

• Early week optimism as major indices hit records

• Fed rate cut Wednesday—but with a hawkish twist

• Thursday's tech earnings drove a rotation out of mega-caps

• Friday's recovery powered by Apple and Amazon beating expectations

The VIX hovered around 16-17, relatively subdued despite the volatility—a sign that investors remain comfortable with risk, even as the path forward looks increasingly uncertain.

Institutional-Grade Opportunities for HNW Investors

Long Angle is a private, vetted community connecting high-net-worth entrepreneurs and executives with institutional-grade alternative investments. No membership fees.

Access top-tier opportunities across private equity, credit, search funds, litigation finance, energy, hedge funds, and secondaries. Leverage collective expertise and scale for better terms.

Invest alongside pensions, endowments, and family offices. With $100M+ invested annually, secure preferential terms unavailable to individual investors.

Apply to Join

The Fed Cut Rates—But December Is Now in Doubt

The Federal Reserve's October meeting kicks off next week, and the market has priced in a 97.8% probability of another 25 basis point cut. That would bring rates down to 3.75%-4.00%, the lowest since December 2022.

Here's what's driving the dovish stance:

• September inflation came in cooler than expected—the CPI report showed prices rising less than forecasts

• Job market softness is pushing the Fed to act pre-emptively, despite solid consumer spending

• Government shutdown complications have delayed key economic data releases, making the Fed's decision-making more difficult

But the Fed's internal projections tell a more complicated story. The "dot plot" shows a narrow 10-9 split among officials on whether to cut twice or three times before year-end. Some members are worried that inflation could re-accelerate. Others believe the labor market needs more support.

The Fed is cutting, but don't expect a straight path lower. Expect volatility around each data release—and remember that the market's expectations (pricing in cuts through 2026) might be more aggressive than what the Fed actually delivers.

Welcome Daly Asset Management

This week, we're excited to introduce our newest host on Surmount—Daly Asset Management—bringing three distinctly different strategies built on a single core principle: research-driven security selection designed to identify real value, not just track an index.

Meet the Firm

Founded in 2024 and partnered with Surmount in Summer 2025, Daly Asset Management takes a contrarian approach in a world dominated by passive investing. Rather than relying on broad diversification or market-cap weighting, they dig deeper—analyzing individual businesses, identifying mispricing, and constructing portfolios with clear investment objectives.

Their philosophy is straightforward: find securities trading at meaningful discounts to future value, then build purpose-driven portfolios around them.

Three Strategies, Three Distinct Goals

Given this week's themes—concentration risk in mega-caps, AI bubble concerns, and market volatility—Daly's approach offers an interesting counterpoint. Here's what they've brought to the platform:

Core Income

• Objective: 4–6% annualized yield through high-quality dividend stocks

• Focus: Energy and financials with moderate S&P 500 correlation

• Ideal for: Investors seeking stable income with equity exposure

• Risk: Medium

Top Ten

• Objective: Outperform broad U.S. equity benchmarks through concentrated conviction

• Approach: Ten equally weighted stocks (10% each) selected for underpricing

• Recent performance: 137%+ all-time returns, ~20% annualized growth*

• Ideal for: Growth-focused investors comfortable with concentration

• Risk: Medium

Core Return Focused

• Objective: Capitalize on mispriced U.S.-listed preferred and common stocks

• Focus: Securities trading at significant discounts to predicted future value

• Recent performance: 157%+ all-time returns, ~21% annualized growth*

• Ideal for: Value-oriented investors hunting for opportunities

• Risk: Low to medium

This week reminded us that concentration works both ways. Thursday's tech selloff showed how vulnerable portfolios can be when dominated by a handful of names. Friday's recovery proved that quality and fundamentals still matter.

Daly's research-first approach offers a different lens: instead of riding mega-cap momentum or accepting passive exposure, their strategies attempt to find value through active security selection. Whether that's dividend stability in Core Income, concentrated conviction in Top Ten, or deep value hunting in Core Return Focused—each strategy targets a specific outcome.

In a market where 54% of fund managers believe AI stocks are in a bubble and concentration risk continues to rise, having access to strategies built on fundamental research rather than market-cap weighting could provide valuable diversification.

U.S.-China Trade Talks: Modest Progress, Major Issues Remain

One of the week's biggest catalysts was the Trump-Xi summit on Thursday, October 30 in South Korea. The meeting produced some tangible results, lifting market sentiment temporarily:

What was agreed:

• Tariff relief on fentanyl: The U.S. cut fentanyl-related tariffs from 20% to 10%

• Rare earth exports: China delayed new export controls by one year

• Fentanyl cooperation: Both sides committed to working together on combating illegal drugs

Markets initially cheered the news, with Asian indices rallying and U.S. futures jumping. But the enthusiasm faded quickly.

Here's the reality check: Despite the progress, overall tariffs on Chinese goods remain at 47%—well above the levels from a year ago. The fundamental trade imbalance and structural tensions around technology, rare earth monopolies, and industrial policy remain unresolved.

As Wolfe Research noted: "This truce does not resolve fundamental issues in the U.S.-China relationship or reverse the long-term trend toward decoupling and confrontation—but a simple truce is good enough for markets."

Translation: This is a pause, not a peace treaty. Markets got short-term relief, but the underlying tensions that could reignite volatility at any moment are still there.

Celebrate the relief rally, but don't bet your portfolio on a permanent détente. Trade tensions are structural, not cyclical, and they'll continue to flare up periodically.

Microsoft and Apple Hit $4 Trillion—Then Reality Set In

On Tuesday, October 28, both Microsoft and Apple crossed the $4 trillion market cap threshold, joining Nvidia in this exclusive club. It was a historic moment—Apple's first time crossing this milestone, and Microsoft reclaiming the mark it first hit in July.

Key details:

• Microsoft finalized a new agreement with OpenAI, securing a 27% ownership stake worth approximately $135 billion. The deal extends Microsoft's access to OpenAI's models through 2032 and includes a commitment to purchase an additional $250 billion in Azure cloud services.

• Apple rode a wave of strong iPhone 17 sales, with the new lineup outselling the iPhone 16 by 14% in the first 10 days. Strong performance in China, a critical market where Apple has faced pressure from competitors like Huawei, helped drive the rally.

But the celebration was cut short. On Thursday, Microsoft's stock fell roughly 3% after earnings showed strong results but concerns about rising AI infrastructure spending. Meta dropped over 11% on similar worries about its massive capital expenditure plans for AI.

Here's the uncomfortable truth: The market's gains are increasingly concentrated in a handful of AI-heavy mega-caps. The "Magnificent 7" now account for roughly a third of the S&P 500's total market value. Market breadth remains weak—by mid-week, only 47% of S&P 500 stocks were trading above their 50-day moving average.

This concentration risk matters. When sentiment shifts—like it did Thursday—the entire market can swing on just a few stocks. If AI expectations don't materialize, or if returns take longer than expected, these mega-caps have a long way to fall.

Tech Earnings: The Good, The Bad, and The Concerning

This week was the busiest of earnings season, with five of the "Magnificent 7" reporting results. The scorecard was mixed:

The Winners:

• Alphabet (Google): Shares jumped 2.5% on strong results

• Apple: Beat expectations with $1.85 EPS vs. $1.77 estimate and $102.47B revenue. CEO Tim Cook guided for 10-12% revenue growth in the December quarter, driven by iPhone 17 demand

• Amazon: Crushed estimates with $1.95 EPS vs. $1.57 estimate and $180.17B revenue. AWS revenue hit $33B, and the company raised its 2025 capex forecast to $125 billion

The Losers:

• Meta: Plunged 11% despite solid results, as investors recoiled at the company's aggressive AI spending plans

• Microsoft: Fell 3% on similar concerns about rising infrastructure costs, even though Azure grew 33% year-over-year

What's driving the divergence? Investors are getting more discerning about AI spending. They're willing to reward companies that show clear returns (like Amazon's AWS growth), but they're punishing those where massive capex isn't yet translating to proportional revenue gains.

This is a warning sign. The market is starting to ask: "When do we see the payoff from all this AI investment?" Companies that can't answer convincingly are getting hit.

The AI Bubble Question: Warning Signs Are Flashing

Speaking of AI spending concerns—let's address the elephant in the room.

A record 54% of global fund managers in Bank of America's October survey said AI stocks are in a bubble. That's up sharply from previous months. Other warning signs are piling up:

• Valuation concerns: The Bank of England, IMF, and major investors like JPMorgan CEO Jamie Dimon have warned about stretched valuations in AI stocks

• Returns aren't materializing: MIT research shows 95% of organizations investing in generative AI are seeing zero returns

• OpenAI's valuation puzzle: The company is valued at $500 billion but remains unprofitable

The parallels to the dot-com bubble are eerie. Back then, companies with ".com" in their names soared regardless of fundamentals. Today, anything with "AI" attached gets a valuation premium.

But here's the nuance: Fed Chair Powell addressed this on Wednesday, noting that today's situation is "different in the sense the companies so highly valued actually have earnings." Unlike the dot-com era when companies were "ideas rather than companies," today's AI leaders like Microsoft, Apple, and Amazon have real revenue, cash flow, and profits.

Does this mean the bubble is popping tomorrow? Not necessarily. Deutsche Bank points out that the Nasdaq doubled in the year leading up to the dot-com peak in 2000, even after bubble concerns became widespread. Bubbles can inflate longer than rational investors expect.

Don't panic-sell AI stocks. But do rebalance. Concentration risk is real, and diversification matters more than ever. The Thursday selloff and Friday recovery show how quickly sentiment can shift when you're concentrated in a handful of names.

Closing Thoughts: October's Lesson in Market Reality

October 2025 will be remembered as a month of extremes. The S&P 500 rose about 2% for the month, the Nasdaq gained over 4%, and the Dow notched its sixth consecutive positive month—the first time that's happened since 2018.

But this week reminded us that the path isn't smooth:

Tuesday: Historic milestones as Microsoft and Apple hit $4 trillion

Wednesday: Fed cuts rates but warns against assuming more cuts are coming

Thursday: Tech earnings concerns trigger a 1.57% Nasdaq drop and broad market weakness

Friday: Apple and Amazon rescue the week with blowout earnings

Here's what smart investors know: The best time to stay disciplined is when everyone else is swinging between euphoria and panic.

This week gave us:

• Proof that mega-cap earnings still matter—a lot

• Evidence that the Fed's path is more uncertain than markets expected

• Warning signs that AI valuations are being questioned

• Confirmation that concentration risk cuts both ways

The right move isn't to panic—it's to stay systematic. Markets reward those who stick to a plan, rebalance regularly, and avoid getting caught up in the day-to-day noise.

Whether you're riding the mega-cap wave with SP 10, diversifying into other strategies, or just staying the course, remember: Investing is a marathon, not a sprint. This week's volatility is just another mile marker on the journey.

October showed us that markets can be resilient even when the path is uncertain. The S&P 500 bounced back from Thursday's losses. Strong earnings from Apple and Amazon proved that quality companies can still deliver. And despite all the concerns about bubbles and concentration risk, capital continues to flow toward innovation and growth.

As we head into November, keep these principles in mind:

• Diversification protects you from company-specific risk

• Quality matters more than ever when valuations are elevated

• Systematic strategies help you avoid emotional decisions

• The Fed's path is uncertain, but that's priced in

We'll see you next week with more insights, more analysis, and more strategies to help you navigate whatever the market throws at us.

The information contained in this newsletter is for informational purposes only and should not be construed as investment advice. All investments carry risk, including the potential loss of principal. Past performance does not guarantee future results. Before making any investment decisions, consult with a qualified financial advisor to ensure any strategy aligns with your individual financial situation, goals, and risk tolerance.