***** denotes well-worth reading in full at source (even if excerpted extensively here)
Economic Fare:
Fed Chairman Warsh asserted GDP and capital spending are broadening, we disagree. Their policy pivot was an own goal.
Executive Summary
We see strong headline growth but little evidence that consumption, capital spending, or earnings are broadening enough to sustain a secular boom. We believe the AI investment cycle is moving from peak capex growth toward monetization, with tighter financing conditions and uneven productivity gains raising the risks around that transition. We remain modestly cautious: the Fed’s hawkish pivot has increased the cost of capital, earnings momentum is slowing, and we do not yet see sufficient price adjustment or policy relief to call a buying opportunity.
Market Fare:
Give the Boring Ones a Chance...
........... Last week, 177 S&P 500 stocks made new one-month highs.
That's 35% of the entire index.
Meanwhile, just 47 stocks made new one-month lows.
Sounds pretty constructive, right?
Well, those 177 stocks making new highs represent just 25% of the index's weight.
The 47 making new lows? Nearly the same amount. ............
On Tuesday, America votes. Why is this important? Because the months after a mid-term have historically been the sweetest stretch of the entire four-year presidential cycle.
On Tuesday, America votes. The fear gauge just pushed above 20 for the first time since June, and the calendar says this is exactly where the ride gets bumpy. This week: why April, November and December are the stock market’s happiest months, why uncertainty is the market’s kryptonite, and why the months after a mid-term have historically been the sweetest stretch of the entire four-year cycle.
"Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves."
– Peter Lynch
........ Markets have moods. And the moods follow a calendar.
Over almost a century of data, three months sit at the top of the S&P 500’s league table: November, April and December. Look closely and you will notice what they have in common.
Each one comes with a celebration: .............
.............. The stretch from the fourth quarter of the mid-term year through the second quarter of the pre-election year has historically been the best nine months of the entire cycle, with the S&P 500 gaining around 20% on average since 1949. In every 12-month period after a mid-term election since 1946, the S&P 500 finished higher, by about 15% on average. Measured from the mid-term year’s low, the average gain one year later has been roughly 30%.
And this year’s starting point matters. In every mid-term year since 1950, the S&P 500 stood higher six months after October 26, a perfect 19 out of 19, by about 15% on average. In the seven of those years that entered late October up 5–20% year-to-date, as 2026 has, the index was higher three, six and twelve months later every single time. ....................
So, what do we do with the cloud over next Tuesday?
Honestly, not much. We stick to the plan. The monthly savings plan keeps running, our quality businesses keep compounding, and if Mr. Market hands us a dip in the weeks around the vote, we already know which names we would like to own a little cheaper (that is exactly what our screening is built for). Panic-selling into a mid-term has historically been one of the most expensive habits in investing. Peter Lynch knew why.
Nobody at arvy knows how Tuesday ends. We don’t need to. Long-termism has always been our biggest edge, whoever sits in the White House and whichever color the next stretch of Chart 4 turns.
The cloud will pass. Keep the umbrella handy. ...
A mechanical look at what’s driving CCC spreads wider
................. Through August 2026, CCCs widened 243 bps while HY tightened 5 bps. Look only at the index and you’d think this was a CCC-specific problem. But look at the underlying bonds and you get a very different picture.
The median CCC bond tightened 25 bps over those 8 months. Bonds that started the year at 95 or better tightened 67 bps at the median, and the 80 to 95 bucket tightened too. Of the 106 issuers in the index on both dates, 59 tightened. The widening was concentrated in bonds that were already below 80, and inside that group it was extreme.
Material Fare:
After a gold pullback into our 2-year cycle-low window, the risk/reward is attractive now. Five candidates from our screening, and the one we are adding to this week.
............... After a vertical run into late January, the metal has spent nine months correcting, and this week it is testing the support zone it has defended repeatedly over the past year. On Monday, in arvy Macro Cycles, Michael wrote that gold is heading into its 2-year cycle low, the Q4 low he has projected since his 2026 outlook, and that he buys into this weakness. His 8-year cycle still points to a major top in 2028, with a minimum target of $8,800.
The long-term case has not changed. The entry price has. .......................................
Our screening scores more than 2,000 quality companies every month on the «Good Story» (moat, returns on capital, balance sheet) and the «Good Chart» (trend, relative strength, accumulation). Rank the subsectors by their median Composite, and gold has been first in every snapshot since 20 August, straight through the September and October pullback. Across the fourteen snapshots on this heatmap it has never ranked lower than sixth. .....................
Quotes of the Week:
Blind Squirrel:
Blind Squirrel:
A line doing the rounds on Palo Alto’s Sand Hill Road is “the average of zero and infinity is infinity” as they justify their increasingly large bets on AI startups.
Charts:
1:
3:
(not just) for the ESG crowd:
Part One: Can we afford ‘free’ trade?
A new study found that plastic straws have the lowest negative environmental impact in most of the categories — including human toxicity.
R.I.P. Fare:
Researchers say his portrayal of the Star Trek character represented curiosity, thoughtfulness and an effort to understand others.
Sci Fare:
AI can do things humans researchers can’t, even in groups.
