THE DEAN’S LIST: Show Me The Cash Flow.

The S&P 500 slipped 0.57%, and the Nasdaq Composite fell 2.00%. Friday was the S&P 500’s worst day since June. Small caps and equal weight both rose for the week. The Single-Digit Millionaire portfolio, a model portfolio, lost 0.58% and trailed the S&P 500 fund it owns by about 0.04 percentage points. Its gold, bitcoin and ethereum holdings each lost between about 3% and 7%. The scorecard is at the bottom of this letter.

Dean’s note:
The week looks calm until you read the days. The S&P 500 rose three sessions in a row through Wednesday. Then Alphabet had its worst day as a public company on Thursday. On Friday, the S&P 500 and the Nasdaq Composite both fell hard. Two weeks ago the AI selloff hit borrowers. Last week it hit Meta. This week it hit Alphabet, Intel, and most chip stocks.

Now the other half of the story. On Thursday, the S&P 500 fell while most stocks in the index rose. For the week, small caps and equal weight finished higher while the Nasdaq Composite fell. That is consistent with the rotation we have been expecting, which is why we hold equal weight, small caps, and foreign stocks alongside the S&P 500 fund. It does not make the portfolio immune. The S&P 500 fund is half of it, and it fell. Dive five has the sector detail.

The AI question got sharper. The results show strong current cloud demand. Google Cloud revenue doubled, and AWS grew 39%. Investors are also questioning spending, financing needs, and the returns those investments can earn. Alphabet’s free cash flow was negative $9.1 billion for the quarter, and Amazon’s was negative $42.4 billion over the past twelve months. Both businesses still generated large operating cash flow. They are spending more than they generate. Intel then showed what one weak forecast does to a whole group. 

The Fed held Wednesday in a 10-to-2 vote, and both dissents wanted a hike. Thursday’s reports gave the hawks something to point at. Third-quarter GDP grew at a 3.4% annual rate, and September PCE inflation stayed elevated. I thought Warsh would keep December open. The next decision lands Wednesday, December 9, and the live debate is whether a hike comes. We discuss that in more detail below.

Oil stayed near six-month highs, then dropped overnight as talks on a Qatar-brokered proposal continued. Iran’s top diplomat said the proposal would shorten the implementation period for reopening the Strait of Hormuz to two days, but only if the U.S. meets Tehran’s conditions. A senior Iranian official said the strait stays closed until those conditions are met. The midterms are Tuesday. 

Yields fell Thursday and Friday as stocks sold off. That fits a move to safety. It may also reflect softer growth expectations or less worry about a hike. One week cannot separate them. Our view is that 5% on the 10-year remains a line stocks and bonds keep testing. The gap between the 10-year and the 2-year widened to 0.38 percentage points from 0.31. The bond market is the adult in the room, and the long end still tells the story.

Three gains to start the week, a Fed hold, then two sessions that put cash flow on trial.

Monday (October 26): The S&P 500 rose 0.7% to 7,676.77 and the Nasdaq Composite rose 0.8% to 26,169.38. Meta fell 1.9% after laying out new stock and preferred offerings to fund AI spending. Tesla rose 5.2% on a Barclays upgrade. Anthropic filed for a Nasdaq listing, showing large losses alongside fast revenue growth. Investors find it difficult to classify that revenue as recurring.

Tuesday (October 27): The S&P 500 gained 0.6% to 7,722.60, the Nasdaq Composite gained 1.2% to 26,477.81, and the Russell 2000 gained 1.2% to 2,818.87. Chips rose for a third day. Meta priced its offerings and proposed a larger follow-on share program, and the stock fell again. Boeing dropped 10.7% on a larger loss. Crude eased on peace-talk hopes.

Wednesday (October 28): The Fed held rates, with two dissents calling for a hike. Warsh stayed true to much shorter camera time. The S&P 500 rose 0.3% to 7,743.98, its third straight gain, and the Nasdaq Composite rose 0.3% to 26,549.85. The 10-year Treasury yield ended the day at 5.05%. After the close, Microsoft rose, and Alphabet fell.

Thursday (October 29): The S&P 500 fell 0.3% to 7,720.39 and the Nasdaq Composite fell 1.4% to 26,184.72, yet most stocks in the S&P 500 rose, and the Russell 2000 gained 1.0% to 2,859.22. Alphabet fell 12.64%. GDP and PCE inflation both came in warm. ServiceNow fell about 27% after missing profit estimates. Treasury yields fell.

Friday (October 30): The S&P 500 fell 1.8% to 7,580.07, and the Nasdaq Composite fell 2.9% to 25,437.00, each its worst day since June. Intel fell 28.58% on its forecast. Amazon closed down 1.41% after a bigger early drop. The employment cost index rose 0.8% for the third quarter. Binance reported a $6.3 billion theft. Oil settled higher.

Monday (November 2): Asian markets steadied, and U.S. futures pointed higher. Oil eased as talks between Iranian and Qatari mediators continued. Apple reports after the close. The ISM manufacturing survey landed in the morning with another month of expansion.

Alphabet reported Wednesday after the close, and the stock fell 12.64% Thursday. Revenue rose 25% to $127.6 billion, a hair under the roughly $128 billion analysts expected. Google Cloud revenue doubled to $30.7 billion. Operating income rose 30% to $40.6 billion. Earnings were $2.12 a share against about $3.00 expected, after an $8.7 billion loss on equity investments. Operating cash flow was $42.3 billion. Capital spending was $51.4 billion, up 114%. That left free cash flow at-$9.1 billion.

Amazon told a similar story after the close Thursday. AWS grew 39% to $46 billion and net sales rose 12% to $201.9 billion. Earnings of $1.89 a share trailed the $1.96 consensus. Over the past twelve months, operating cash flow rose 29% to $168.3 billion, while free cash flow was-$42.4 billion. Amazon expects about $220 billion of capital spending this year. The stock fell 1.41% Friday after trading down about 6% early. Microsoft grew Azure 48% and barely moved Thursday.

Dean’s note:
Revenue grew 25%, and the stock fell. The results show strong current demand. Cloud doubled. Investors are questioning the spending, the financing it needs, and the return it can earn. Be clear on the cash. Alphabet’s operating business generated $42.3 billion in the quarter. It invested more than that. That is a choice to spend, not a business that stopped producing cash. Part of the profit miss was a non-operating valuation loss on investments, separate from reported Search and Cloud results. Microsoft’s operating cash flow still covered its capital spending, per its release, and I suspect that is part of why its stock held. Our view is that the market is repricing returns on capital spending, not delivering a verdict on AI. A great company and a great stock are not the same thing. This is the case for diversification, and it has been all year.

Intel fell 28.58% Friday, its worst day since 1974. It guided fourth-quarter earnings to $0.25 against $0.43 expected. It forecast fourth-quarter adjusted gross margin of 38.0%, versus 44.1% reported in the third quarter. Data center and AI revenue rose 78%. PC revenue fell 5%. CFO David Zinsner said the PC slowdown should last at least through the first half of next year.

The group followed. The SOX chip index fell 7.2%, after rising 8.4% from Monday through Wednesday. AMD fell 10.88%, and Nvidia fell 4.22%. The Nasdaq-100 fund QQQ fell 3.47%. Treasury yields fell too, even with oil higher.

Dean’s note:
Intel’s problem is margins and weak PC demand. Nvidia sells something different. The market sold both on Friday anyway. After a gain of more than 8% in three days, the group had little cushion, so I read part of this as positioning and not just news. A profit miss and a demand miss are not the same animal. Intel’s data center growth says demand for the new thing is real. Its PC business says the old thing is slowing. I would not paint every chip company with Intel’s brush. I also would not assume a falling price makes a stock cheap. 

The Fed held its target at 3.75% to 4.00% Wednesday in a 10-to-2 vote. Governor Lisa Cook and Cleveland Fed President Beth Hammack preferred a quarter-point hike. The statement says the economy is expanding at a strong pace and inflation remains elevated. It says more information will help set the policy stance. Futures priced in about an 85% chance of a December hike right after the meeting. By Monday morning, that number fell to 75%.

The data came Thursday. Third-quarter GDP grew at a 3.4% annual rate, up from 2.2% in the second quarter, and private domestic demand rose 4.9%. September PCE prices rose 0.5% from August and 3.6% from a year earlier. Core PCE rose 0.3% and 3.1%. Real spending was roughly flat in September, and the saving rate was 3.8%. On Friday, the employment cost index showed compensation costs up 0.8% over the third quarter, per BLS.

Dean’s note:
The PCE price index inside the GDP report rose at a 2.1% annualized rate for the third quarter as a whole, down from 5.0% in the second. September alone rose 0.5% in one month, driven by volatile gasoline. The quarterly figure is an average, and the September month is the exit speed. September’s 3.6% annual rate remained elevated. We still think inflation cools. We also think the timing slipped.

December Brent expired Friday at $117.64. Front-month Brent rose about 13.6% in October. December WTI settled at $104.12, also higher on the week. Both sit at six-month highs. Early Monday, January Brent traded near $109.66 and December WTI near $100.64, each down about 3.3%.

Shipping stayed dangerous. The UK Maritime Trade Operations center counted 43 security incidents in Gulf shipping in October, 30 of them direct strikes on tankers, the most since the war began in late February. One tanker was hit Thursday night by explosives attached to its hull. U.S. Central Command said it had cleared the main channels. The Revolutionary Guards said southern routes remain heavily mined. Those are competing claims. On Sunday, Iran’s top diplomat said a Qatari proposal now sets a two-day implementation period for reopening the strait, conditional on the U.S. meeting Iran’s terms, which include sanctions relief and frozen funds. Senior Iranian official Mohsen Rezaei said the strait stays closed until all seven conditions are met. 

Dean’s note:
We remain optimistic that public saber rattling belies a real desire for compromise behind closed doors from both sides. A two-day implementation period is a feature of a proposal, not a clock that started. Iran’s own officials disagree about whether talks exist, and no official U.S. reply had been reported as of Sunday. Evidence that would raise our odds: a public U.S. reply, agreed sequencing, and rising weekly transit counts. Evidence that would lower them: resumed strikes or more ships hit. A third carrier group is due by late November. Watch the ships, not the statements.

Under the index, the market held up better than the headline. Nine of the 11 S&P 500 sectors rose for the week. Health care led with a 3.12% gain, per the sector funds on the portfolio dashboard. Communication services fell 5.32%, and technology fell 2.03%. Equal Weight rose 0.82%, the Russell 2000 rose 1.29%, and the Nasdaq-100 fund fell 1.97%.

Earnings are holding up. Through Friday, 299 S&P 500 companies had reported, and 82% beat. October was a different story for the biggest names. The Nasdaq lost almost 7% in the month, while equal weight gained 4.95% and the Russell 2000 gained 0.52%, per the dashboard's fund returns. Goldman Sachs expects S&P 500 earnings growth to slow from nearly 30% this year to 18% in 2027. Its strategist said growth is strong but no longer accelerating.

Dean’s note:
Relative returns like these are consistent with rotation. The S&P 500 fund is half the portfolio, and it fell this week. Rotation does not run on a schedule. A group that has led for years can keep leading longer than you expect. I have watched that happen more than once. Remember what an index is. It is a weighted average, and a few very large weights can hide a lot of green underneath. Read the sector table before you read the headline.

A down index can hide stronger performance elsewhere. Look under it.

Here is what I am watching this week.

•  Apple reports Monday after the close. Analysts expect earnings of about $2 a share on $113 billion of revenue. After a week of cash-burn questions, listen for what Apple says about its own spending.

•  Friday’s October jobs report forecasts run from about 55,000 to 65,000 jobs with unemployment at 4.2%. Labor data look backward, but a new print and its revisions can still move expectations. We have been saying this series is volatile and it can pop back up.

•  Hormuz evidence. A public U.S. reply to Iran’s conditional proposal, weekly transit counts from independent monitors, and the next UKMTO incident tally. Confirmation matters more than another claim.

•  The long bond. The 10-year ended the week at 4.94%, below the 5% line. If yields rise while stocks fall, the adult in the room is saying something different from this week.

•  Where your plan, your cash flow, and your emergency reserves support it, a volatile week is not on its own a reason to stop contributing to your 401(k). The 2026 elective deferral limit is $24,500. If you are 50 or older, you can generally take a standard catch-up of $8,000. A super catch-up of $11,250 replaces it, bringing the total to $35,750, but only if you turn 60, 61, 62, or 63 during 2026 and your plan permits catch-up contributions. If your 2025 Social Security wages from that employer topped $150,000, your catch-up generally has to go in as Roth. If your plan does not offer a Roth option, ask whether you can make catch-up contributions at all. Confirm your eligibility with your plan administrator.

•  Midterms arrive Tuesday, November 3. Markets price what they can see, and a vote date is known. Oil and Iran are not.

• The VIX closed Friday at 19.42 after trading between 16.21 and 23.93 during the week, per The Glass Desk. It is the market's expected 30-day volatility for the S&P 500, implied by option prices. It estimates the size of moves, not their direction.

Mix matters. Through Friday this year, equal weight is up 13.96%, and small caps are up 13.47%, ahead of the S&P 500 fund's 10.79%. Developed foreign stocks (our IEFA holding) trail at 7.66%. These are price returns from the dashboard, with VOO corrected as noted below. Despite the headlines about a few huge stocks, diversification is doing its work this year. No single sleeve leads every week, which is why you own several.

- Dean

P.S. Gold fell again. December futures settled at $3,885.70, the lowest close in a year. Spot gold fell about 6.8% in October, per Reuters. For the second week in a row, Treasury’s 10-year real yield fell to 2.60% from 2.66%, and gold fell anyway. A falling real yield should help gold. So that does not explain this. A stronger dollar, selling to raise cash elsewhere, or a fading war premium could all be part of it, and I cannot tell you which. We own gold as ballast at a 5% weight. It can fall hard, and it has.

And one more thought. The AI buildout is changing who pays for it. Operating cash flow funded the first leg. Now bonds and new shares help fund the next one. Alphabet raised about $28.7 billion in bonds and $12.4 billion in stock last quarter. Meta priced about $25 billion of common stock through forward sales, with proceeds not expected up front, and about $12.5 billion of mandatory convertible preferred. It also proposed a separate program of up to $60 billion in Class C shares, not expected to start before early 2027. Together, that is a $97.5 billion ceiling, not money already raised. When a boom asks outside investors for money, those investors start asking for returns. That is healthy. Stay invested. Stay selective. That is our approach, not advice for your situation.

👉 Model portfolio returns, using the portfolio dashboard's data through October 30 with three stored closing prices corrected to market closes (VOO, IAU and IBIT): the portfolio fell 0.58% for the week, against 0.54% for VOO, the S&P 500 fund that makes up half of it. Small caps (up 1.30%), equal weight (up 0.82%), developed foreign stocks (up 0.66%), and cash (up 0.08%) helped. The Ethereum fund (down 6.77%), the Bitcoin fund (down 5.66%), gold (down 2.97%), and emerging markets (down 1.97%) held it back; weighted by size, VOO was the biggest drag, at about 0.27 percentage points. For the year, the model is up 7.64% against 10.79% for VOO, a gap of 3.15 percentage points. These are not an investor's realized returns. Among our holdings, equal weight and small caps lead VOO this year. Diversification does not eliminate losses in a broad selloff. Gold can fall hard, and it has. Crypto can halve. Cash costs you when stocks run. Small caps and foreign stocks can lag for years. See every holding, every weight, and the reasoning behind them at My Single-Digit Millionaire portfolio.

This newsletter is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Consult with a qualified financial advisor before making any investment decisions.