Episode 67 | Market Resilience Amidst the Government Shutdown

In Episode 67 of “Market News with Rodney Lake,” Professor Lake, director of the GW Investment Institute, provides a broad market update amid the ongoing, record-breaking government shutdown. Lake highlights the continued strength of equity markets, with the S&P 500 up 16.97% and the Nasdaq up 22.74% year to date. Likewise, he discusses resilient corporate earnings, particularly among major tech firms such as Nvidia, Microsoft, Apple, and Palantir. Lake examines the Federal Reserve’s recent rate cut, persistent long-term yields near 4%, and the impact on mortgage rates and the housing market, noting that the 10-year yield has remained stubbornly high despite the Fed’s easing cycle. From Palantir’s strong cash flow to Tesla’s advances in autonomous driving, Lake concludes with reflections on how AI-driven productivity and capital investment could shape broader economic implications.

Chapters

• 0:00 Introduction
• 1:00 Government Shutdown
• 1:59 Today’s Market, S&P 500 and Nasdaq, & the 10-year Number
• 10:32 Strong Earnings Report from Palantir
• 14:20 AMD, Apple, & AI
• 16:41 GDP Growth & AI Automation in the Workforce
• 20:38 Conclusion

Transcript

Thank you for joining “Market News with Rodney Lake.” This is a regular program for the GW Investment Institute where we talk about timely market topics. I'm Rodney Lake, the director of the GW Investment Institute. Let's get started.
Welcome back to “Market News with Rodney Lake.” I'm your host, Rodney Lake. Today's episode coming to you from the George Washington University School of Business. Duquès Hall. This is a GW Investment Institute podcast. Remember educational and entertainment purposes only. We're coming to you from Foggy Bottom right here in the heart of Washington, D.C.. GW School of Business.
Very proud of all of that. What are we going to talk about today? On today's episode, we're talking about the market news overall. Just what we do in class and a little bit of everything. So there's so many things going on. Some companies announce earnings and we'll talk about some of that on some other episodes as well. But we're going to do an overview for the next, you know, approximately 20 minutes, which we typically do for this episode, to talk about all the things that are happening in the market.
There is a lot of things happening in the market. And so let's talk about one of the things that are still happening, that, you know, at the top of the show, which is the government shutdown. So we're recording this on, you know, November 4th, just the beginning of the month here. And I think today ties the record for the all time longest shutdown.
So, hopefully cooler heads will prevail. And there's been some notions that, you know, once we get through election day today for a couple of the states, New Jersey and Virginia in particular, that there's going to be a thawing out, there's going to get some deals done. And the government will get back to work by Monday of next week.
Let's see if that happens or not. But well, you know, again, it's November 4th here, 2025. Government shutdown continues. You definitely see, you know, I would say more stress in the system. You know, flights are being delayed. And I think that's going to obviously have an impact on the the amount of tension in the system and, you know, driving a deal to get done.
So we'll we'll hope and say that we'll look forward to an open government next week. Let's see what happens there. All right. Next up. And it doesn't, by the way, seem to be impacting dramatically the economy. Overall, certainly the stock market seems to kind of shrug it off, at least for the moment. Today, if you look at where the market is, as of today, there's a little bit of a sell off going on or pull back. Sell off is too strong.
S&P’s down point to .72 percent. And then that Nasdaq’s down 1.34%. And this is again November 4th, about midday here. And so you're getting a little bit of pullback, but you know, again here at the top of the show or near the top of the show, let's talk about the performance year to date for, for these these two indexes.
And so if you look at the performance year to date though obviously we talked about a little bit of a pullback. But you know what's the year to date number through November 4th. You're talking for the S&P 500 total return 16.97% almost 17% and 22.74% for the Nasdaq. So let's round it up here 17 and nearly 23%.
These are great numbers right. And lots of people last year thought, well, can't keep having these great years, for these indexes. And certainly when you talk about all the tariffs that were, people were worried about and Liberation Day back in April and all of these things got, you know, they got built into, you know, what was looking like maybe a not a great year earlier in the year for the equities markets.
That has not been the case. What is the case right now is that, again, you have a very strong S&P 500. You have something like 85% of the companies, you know, beating expectations on on the earnings side or thereabouts, let's say more than 80%. And then for the Nasdaq, you know up 20 almost 23%. The S&P up, you know, almost 17%, you know, 16.9
and 22.7, you know, S&P and Nasdaq respectively. These are great numbers. And you know, let's not forget that, you know, the the indexes do have, you know, higher multiples. Then let's say years past. But, you know, one of the things to think about, if you look at the average company now, it's certainly better than the average company 20 years ago.
And certainly when you look at the, you know, what dominates, the S&P, S&P 500 and the Nasdaq, these are tech companies. And so in the, in the S&P 500, if you look at okay. Well what you know what you know makes up you know information technology is an example is like 36%, of the market.
And so that's an enormous number. And these companies, by the way, are more profitable than companies have been basically ever. When you talk about Nvidia, when you talk about Microsoft and you talk about Apple, these are some of the best, well-run companies that have dominance in the market. You know, so if you think about okay, well, what's, you know, should we be concerned about these valuation multiples, you know, if you're trading at 25 times maybe, but at the same time, one of the challenges is as an analyst, as a businessperson, as an investor is.
But by the way, these companies, they're, you know, they're more profitable than, you know, companies have ever been, you know, since, you know, let's say, we've been really tracking these things in a systematic way. You know, the valuation is really good, with respect to, like, really long historical performance. It's maybe not really good, but it's certainly not ridiculous.
You would say, like, okay, maybe these are fairly valued. But again, you know, let's call it 25 times on the forward number right now that that's not, let's say, dramatically overvalued. You certainly wouldn't, you know, suggest that again, that's dramatically overvalued. And then when you consider the types of companies that are in there that make up the, you know, the bulk of the index, and certainly for the S&P 500 and the Nasdaq, these are tech companies.
These are well-run companies. These are highly profitable companies. These are companies, that are making a lot of free cash flow. And so, you know, do they deserve that? You know, time will tell on that. So I think, again, when you talk about the broad equity markets, just revisiting the numbers quickly, 16.97% for the S&P 500, through November 4th and almost 23%, 22.7 for the Nasdaq.
So these are very good. Now the Fed cut interest rates. And so let's take a look at what's happening on the Fed side. So if you, if you look at where that's been obviously the FOMC, the Federal Open Market Committee, in October, you know, cut the rates another 25 basis points. Target now is 3.75 to 4 for the Fed funds rate.
So excuse me. What does that mean. For the ten year. Well the ten year has been pretty stubborn. So if you look at where the ten year is right now, you know, you're at just over four. So duck below their 3.995 or wherever it got to, I think the low here. Sorry. 3.9493 on October 22nd.
Excuse me, for the people watching on YouTube, taking a sip of water here for my George Washington University School of Business mug, buy some merch from us. Make sure you subscribe to the channel as well. This is stubbornly high. This around 4%. So the fed funds rates, they're cutting, but the long term rates, the ten year, which is what everybody really focuses on, has been stubbornly high.
So that's very difficult to manage. And then so how does that translate into the things that we also, think about and that, you know, we think maybe impact the market. So then you look at okay, well what's the you know, what is a 30 year mortgage? What has come down, to like, you know, 6.35%, depending.
You know, what, you know, if you're in Fannie and Freddie, all basically the same here, for the 30 year fixed. And so if you look at Freddie Mac's, it's definitely come down a little bit, you know, but it's still over six, right? I think if you get under six, I think you're going to have the Freddie Mac here at average 6.17%, October 30th.
So it's definitely coming down. And so but you're looking at the 6.30s, you know, you're definitely seeing some refinancings, but the housing market will stall out, if the rates don't come down a little bit further. It, you know, according to me, I could be wrong about that. Been wrong before, but I think they're just stubbornly high.
And I think if you do get a sub six number on a consistent basis, you get down to, you know, five, you know, even at the top of the five range, I do think you're going to have more activity in there and people feeling more confident, about, you know, what's happening in the job market. You know, you're not getting job data right now from the government, obviously, because it's been shut down.
But unemployment remains close to full, full employment, you know, you know, less than 5% for, for unemployment. And so that's obviously generally a good thing as well. So again, the ten year number has been staying stubbornly high. Around 4%. Not coming down. Inflation data still seems to be relatively good. You know, if you look at some of the core things, energy, you know, has come down actually.
So if you look at oil prices, that that, you know, generally has come down. So it's like, you know, what's the, the what's WTI right now we're going to check, you know, it, it's been coming down over the last year here. And so the average price that people are paying at the pump is likely going to be lower in the short term than they paid one year ago.
ADepends where it is, because it varies dramatically by state depending on the taxes and the regulations that they have there. But, you know, $60 a barrel right now. And, you know, obviously, and we'll say, what was it last year? Yeah. So, sorry, using some AI here to help out. And so but prices are generally coming down.
So $60 a barrel for WTI, right now. And you're and you're certainly looking at I think overall maybe not dramatically improved inflation numbers but certainly stable. You know people want it to be lower. And again here going back to WTI $71 a barrel a year ago, 2024 from November 4th, 71, call it $72 a barrel.
Now you're at $60 a barrel. So you definitely had a pullback. And that'll translate into energy prices. And if you're thinking about excuse me if you're thinking about natural gas, and by the way, that's about a 15% drop in the last 12 months of WTI. That's West Texas Intermediate. That's what they used to for US oil price.
For the most part, Brant is the international number. And that's Cushing's Oklahoma if you want to get deeper into this. But, you know, down roughly 15% year over year on on oil prices. And if you use that as a proxy for energy prices, certainly. It's a it's a relatively decent proxy, especially for people that use transportation fuels and gas up their cars.
To do that. Now, one of the things that's been up actually is electricity prices. So if you have an electric bill, you're paying utilities wherever you happen to be, you'll probably notice that you're actually getting an increase there. Now, part of that is which we'll start talking about is the AI trade and what's going on with AI.
So if you if you see Palantir just announced today, really blowout numbers and having a great quarter, we won't get into the details of that. But Palantir really, you know, firing on all fronts here and doing a great job. And I encourage you to listen to their earnings calls if you're even more interested. But, you know, they're the AI software.
Dan Ives, who was on the show, talks about them. It's the best software AI play out there. Again, not investment advice, but worth checking out. And again, they had good numbers. But market's pulling back today. So they're pulling back with the market. And so if you look at where they're today just briefly talking about them so there so they're down.
Drumroll please. They, they are down today 7%. On beating on the earnings side. So I guess people were expecting even more and the valuation is quite high, for this, if you look at the forward PE, 275 times for Palantir, which is quite expensive. And so if you look at through the lens that we do on the business side, obviously, I think they're crushing it.
And it's a great business and it's, you know, worth and it's notable and worth checking out, what pound here is doing. But on the valuation side, lots of people had concerns about them.
But if you use them as a proxy in the AI market, they're obviously doing very well. And at the enterprise software level, again, Dan Ives, talks about them as being the best here. And if you look at sort of what their their revenue number was, that they just reported, you know, 300, 3.8 billion, for the last, 12 months to, September.
And this is the, including the quarter that they just reported. And if you look at their net income, if you look at their gross margins, you know, 80% gross margins here, right? This software company and net margins of, 28, and they're and if you look at the free cash flow from this company and again the valuation is quite high.
But if you just look at the the free cash flow, and again we try to track okay. Well what's been the progression of the free cash flow. So free cash flow for the trailing 12 months last 12 months through the quarter that they just reported, which is September 30th, 2025 reported today. The free cash flow is 1.7 billion, almost 1.8 billion 1793.8.
And if you look at where that was through the full year for, 2021, 12 months ending 21, that was 321 and went down to 183, in 22, and then it popped up, you know, to 1.1. Now it's 1.7. So 24 and 25. And they're projected for the full year for 25 two closing in on 2 billion.
So 1.918. And now you're projecting the 26 number to be this is consensus to be two point nearly seven billion dollars. So look, these are pretty dramatic changes. And so you're closing in, you know, on a 10x over the, you know, from the 2021 number on free cash flow. And so this is, pretty remarkable.
Again, if you look at the margins here, the gross margins remain high. And so, again, not a deep dive on Palantir, but they announced today, they're they're currently selling off again down about 7%, November 4th here. But the valuation I think a lot of people have concerns about lots of people have moved into this, to the stock and you're talking about 275 times, for the forward PE so to the quite high, but obviously big growth rates, for this company.
And so people are expecting great things. The price of cash flow here. 250 times. And so again, not investment advice, but I do think Palantir is worth watching. You know, Dan Ives, talked about this company and the year to date number are, 150%. Another company that I think is worth talking about is AMD on the, on the front of AI.
Right. And so this was also a company that that's done really well. And if you look at that, the year to date numbers, the year to date for AMD is 111%. Right. And so really big numbers, you know, and I think, you know, they got scooped up in the AI trade because, you know, they crafted a deal with OpenAI.
OpenAI may get 10% of a company. It was a, you know, interesting deal. But if you look at the valuation there, you know, this is also not a cheap stock. And it's gone up a lot, you know, 64 times the forward number. But again, lots of people are moving into this AI trade. So I do think it's obviously worth paying attention to.
And, you know, some of the companies that have also announced, you're talking about Apple, you're talking about Microsoft, you're talking about Google. These companies are all doing well. And you know, Apple, which again, we'll talk about a lot of these companies in some different episodes. And we've talked about some of these companies and these are portfolio holdings for the Investment Institute.
You know, things seem to be going relatively well. And so when people worry about the economy, certainly the AI trade portion of that seems to be going relatively well now. People worry about where Apple, for example, falls into that category. Do they have all the right pieces together? Are they setting up, setting the table for future growth in the AI world?
Now, some would argue one way or the other, or both. Are you both sides of that, that Apple is not prepared, that Apple is falling behind, and is not putting in the money? And others say that Apple's doing the smart thing and not putting in all this CapEx. If you look at all the CapEx from Amazon, from Meta, from Microsoft, you're talking about hundreds of billions of dollars collectively just between a few companies, being deployed this year, not not over the next ten years.
This year, if you combine the CapEx budgets of some of the biggest tech companies, certainly the ones we talk about in the Mag 7, you know, you're talking about 100, you know, hundreds of billions of dollars being deployed in a relatively short period of time to build out data centers to make sure that they have access to Nvidia chips.
And you talk about the Trainium chips that Amazon is doing. And the quarter that they had. Fantastic. So these companies are doing relatively well, certainly at the, at the, at the top end, doing relatively well. And the AI trade seems to be in full force now, when you talk about how does this translate into GDP growth?
Right. So if this is all hype and lots of people are comparing today's market, and the hype, and certainly when you see a company like Palantir trading in at, you know, over, you know, 250 times, for 275 right now, that's reminiscent of, you know, the days from the 90s, right, in the late 90s and saying, okay, well, there is a very big, issue here, with the valuation on some of these companies, but not all the companies look like that.
So if you look at Nvidia, which I would say is the poster child for the AI trade right now and for what people thinking are investments, let's just take a quick peek in, you know, what's their multiple, what's their forward multiple for Nvidia? And you know should we be so concerned? Well 44 times is the is the forward multiple for Nvidia.
That's high. Certainly high compared to the S&P 500. Is Nvidia better company than the average S&P 500 company. Absolutely I would, I would wager. But it's not a ridiculous PE right. It's not. 275 Palantir is in a different category. When you talk about the forward multiple that it has right now, it doesn't mean it's not a great company.
And it seems to be doing very well as far as the metrics go. But a lot of people have priced in a lot of that growth. Well, 44 times is a high number for Nvidia. And it's really at the center of the AI. And the year to date number for Nvidia, it's up nearly 50%. Again November 4th here.
With a market cap now just shy of $5 trillion, by the way, 4.89 trillion, again, early November here. But, you know, at trading at 40 times, can it keep that, you know, multiple. Well, maybe that multiple does come down a little bit, but trades in the 30 multiples, but continues to grow earnings, with the world, you know, demanding more and more GPUs.
So can you get to a $10 trillion market cap company through a growth in earnings and a modest cool off, and, and the PE multiple that people attribute to this? That seems, you know, possible doesn't seem ridiculous. You certainly don't need ridiculous numbers to do this from where they've come from. And so, you know, that's where you have to factor in, like where's where's the GDP growth going to come from?
If this really does turn into a lot of product productivity? You know, when you talk about the 90s that actually did come through, certainly you had, the stock market bubble and the tech bubble back. 99, 2000. But you also had great productivity gains. That translated into real GDP growth. And if you have those things and it's not, you know, this is the obvious all at the same time, what's going to happen and how those numbers, you know, are going to translate how these, you know, productivity numbers are going to translate directly into GDP growth.
As far as what jobs, if you drill down and say what jobs are going to get replaced, you know, what things can I be running, that are being run by people now? And how can we further automate? We've been automating for a long time. How can we further automate all these things that AI does and really on their own?
You know, time will tell. Excuse me, but it looks like that AI it's not just promised. It is delivering and certainly making companies more productive. How they translate that, I think will take longer than sometimes people expect. You can certainly go on and see for yourself, the power of some of these large language models as an example.
But you also have companies like Tesla that has a full self-driving feature, that keeps getting better and better. And they have now launched robotaxis in, Austin and in the Bay Area in California. And those things are going relatively well. And so, you know, as those things continue to get better and AI is really driving those in real world AI, you know, that makes people a lot more productive.
And it lowers the price, for transportation, it makes transportation more accessible. And it frees up lots of time and, and certainly, improves the asset turnover for, for vehicles, and you get into trucking and everything else. Now, what does that mean for jobs? Yeah. That's a, that's a big open question. That we got to sort it out now and again.
The AI trade seems to be in full force here. The market again continues to be powering ahead and again, just to revisit here before we wrap up the year to date numbers through November 4th here, we're talking 16.97% for the S&P 500 and 22.74% for the Nasdaq. These are big numbers. Again, the ten year really challenging the cut rates of the Fed, hasn't really moved much.
On the ten year number. And so if you're looking at, you know, where do we go from here? Well, time will tell. Our jobs as an analysts and certainly our students to think about is, you know, stock pitches are coming, and we'll be looking forward to seeing, you know, the companies that they talk about, the companies that they pitch and how they reposition the portfolio.
But I think it's absolutely been a better year than people expected. Certainly when you talk about, in the depths of sort of the April tariff, world, from where we are now. But, lots to happen. We got to think about, you know, where do we position our portfolios? How do we think about these companies?
How do we think about the productivity coming through? What companies would be should we be considering, that, you know, we'll figure out here and short course in our stock pitch days will be coming up in the not too distant future. So we'll look forward to hearing from our students. And that is it for this episode. Make sure you subscribe.
Thank you. That's it for “Market News with Rodney Lake.”
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