Much commentary, including some of our own, has focused on the idea of a potential market pullback in the late summer/early fall. Instead, investors have rushed to buy any minor dips in the market. As we wrote last month, this is a valuable signal about the strength of the rally. Additionally, there are several signs that the past few months have seen enough of a pause to recharge the market for another leg higher, despite the lack of sell off in the major indices. Volatility spiked in mid-October, and the most volatile and speculative stocks sold off sharply. This kind of under-the-surface activity is healthy within a bull market, as it serves to correct excesses without derailing the broader uptrend.
Meanwhile, the equal-weighted S&P 500 spent nearly 3 months going sideways, effectively reducing its stretched condition by marking time rather than with a price decline. Anecdotally, many fundamentally strong companies have had similar sideways movement in their stock prices since July. All the above factors have contributed to fresh bearish readings in sentiment surveys; investor sentiment is often a contrary indicator. Taken together, the evidence suggests that investors should focus their attention on the potential for a year-end rally.
Corporate earnings have been the driver of the market’s advance all year, and this quarter has been no different. Through 10/24, 87% of S&P 500 member companies that have reported earnings have beaten market expectations. This is especially impressive given the fact that earnings expectations rose throughout the quarter; companies are jumping over a recently raised bar. Additionally, 2026 earnings guidance continue to increase as well.
On our October market call, we spoke about a few recent bankruptcies and the potential for early cracks in the high yield credit market. This market has experienced sharp recovery in the past few weeks. Credit markets often serve as a leading indicator for stocks, and their recent resilience supports the case that risk appetite remains intact. Additionally, the stock market’s advance-decline line made new highs on 10/27, an important confirmation of the health of the market.
If corporate earnings, credit markets, and stock participation are all sending positive signals, it is right for investors to stay bullish. The confluence of the emergence of AI, a positive demographic cycle, and a Fed easing cycle is a powerful tailwind for the market. Our process still suggests that we are experiencing a secular bull market with years left to run.
This is being provided solely for informational and illustrative purposes, is not an offer to sell or a solicitation of an offer to buy any securities. The factual information given herein is taken from sources that we believe to be reliable, but is not guaranteed as to accuracy or completeness. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation or needs of individual investors. Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis or trading strategies that differ from the opinions expressed here.
