This week saw a sharp rotation in market risk appetite. The most speculative parts of the market, especially lower quality growth stocks, sold off hard. A lot of this was linked to the drop in cryptocurrencies, which spilled over into portfolios that have leaned into higher risk, high momentum strategies.

The Blur Between Investing and Gambling

The connection between these high octane assets was a big theme. At a conference this week, Charles Schwab CEO Rick Wurster said the financial services industry has become too complex. He warned about how traditional investing is starting to blend with outright gambling. He pointed specifically to the rise of prediction markets. The original idea was to allow people to take a view on binary economic events like the jobs report or inflation report or what the Fed will do. In theory it sounds harmless. In practice it is turning into something different.

These prediction markets are gaining traction at the same time that same day and weekly options have exploded in popularity. The day to day volatility reflects this. The S&P 500 moved more than 1% every day this week. Yesterday the market was down around 1% before reversing and finishing slightly higher. There was no major news. The sell off in a few of the high growth names simply ran its course around midday. Even Bitcoin found support after briefly threatening to drop below the important $100,000 level. It fell about 22% from the recent high but is still up roughly 33% from a year ago.

Structural Links: Crypto and Prediction Markets

At this point the overlap between cryptocurrencies and growth stocks is structural. The people who own Bitcoin and other popular cryptocurrencies tend to also own the most volatile growth stocks. Algorithmic and AI driven trading strategies have linked these markets together. Right now there is a simple logic in place. As long as Bitcoin holds above $100,000 and the other major digital assets stabilize, the selling in growth stocks should slow. There is also a leverage component. These more speculative portfolios are sitting at some of the highest margin levels we have seen in a long time. A small sell off triggers forced selling in the morning which is why we see markets recover in the afternoon as margin levels get reset and money moves around.

Prediction markets will add another layer to this. They let investors hedge or speculate on binary outcomes. If you own bonds you could place a prediction that the jobs report will come in strong and use that to offset potential bond losses. If you are worried about stocks you could take the other side and predict a weak jobs report. You can also make simple directional calls on whether the market goes up or down. It is endless. In my view it is basically a smarter gambling product than a sports betting app which is exactly why DraftKings went out and bought a company involved in making markets in these types of events. As these markets become more established they will naturally link into cryptocurrencies, short dated options, and growth stocks. For value investors the takeaway is we should expect more volatility around big events.

Economic Headwinds: Shutdowns and Job Data

Meanwhile the government shutdown continues to create real economic issues. It has cut off access to important federal data like the full monthly jobs report and key inflation numbers. This forces the Federal Reserve to make policy decisions with an incomplete picture. It also delays business activity by freezing things like loan approvals, permitting and government contracts. Hundreds of thousands of workers are now furloughed or unpaid which directly weighs on consumer spending. This creates a feedback loop. Political dysfunction feeds economic uncertainty which feeds labor market weakness which then pulls sentiment and risk appetite lower.

We did get one reliable data point. The Challenger Gray and Christmas report showed that job cuts in October 2025 hit over 153,000 which is the highest for that month in more than twenty years. That lines up with the drop in consumer sentiment which hit the lowest level in almost three and a half years. It is a clear picture of the split in this economy. Higher income households still feel stable. Lower income households are clearly under pressure.

Legal Battles Over Trade Policy

On top of that the Supreme Court is now reviewing the legality of the current tariff policy. The core question is whether the administration used an emergency authority in a way that was never intended. Early signals suggest the Court is concerned about this. If the policy is struck down it could trigger massive refunds and disrupt supply chains. If it is upheld the President’s trade authority becomes even broader. Either outcome raises uncertainty. And even if tariffs are struck down, the President has shown he will simply relabel and reimpose them under a different framework. So the trade pressure is not going away.

Outlook: Waiting on Washington

My view is still that the government will reopen before Thanksgiving. Travel disruptions are piling up. Over a thousand flights have already been canceled and another 1,800 cuts are planned. Public frustration will build fast, and political pressure tends to move once the public feels the pain directly. The market needs two things right now. The government to reopen and the Federal Reserve to cut rates. If we do not get progress soon the selling could expand to value stocks. I still think we stabilize once Washington gets through this but for now the next move is in the hands of politicians.

The bottom line is we are in a period where markets are reacting to headlines and fast moving trading flows rather than fundamentals. That can feel uncomfortable in the moment, but it does not change the longer term outlook. The economy is still growing, earnings are still coming through, and valuations in several parts of the market have become more reasonable. Once the government reopens and the Fed has clearer data to work with, volatility should ease and markets should settle back into a more stable direction.

Have a great weekend!

Sources

Charles Schwab CEO Rick Wurster (Conference Comments) S&P 500 Market Data (Weekly Volatility) Bitcoin Market Data (Recent Highs/Lows) DraftKings (Corporate Acquisition Activity) Challenger, Gray & Christmas (October 2025 Job Cut Report) Flight Cancellation Data (Industry Reports)

Disclaimer

The information provided in this communication is for informational purposes only and does not constitute financial, investment, or legal advice. All content is based on data and sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Market conditions and economic factors are subject to rapid change. Past performance is not indicative of future results. The views expressed herein are those of the author and do not necessarily reflect the official policy or position of any other agency, organization, employer, or company. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions. The author may hold positions in securities mentioned in this post.