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*                       FIEND'S SUPERBEAR MARKET REPORT                     *

*                                October 23, 2026                           *

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*                       e-mail: fiendbear@fiendbear.com                     *

*                    web address: http://www.fiendbear.com                  *

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Fiend Commentary
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The Wrong Kind of Bond Rally

Something finally broke Thursday, but it wasn't the bond market.

The Nasdaq plunged 2.6%, its worst session since June, while the semiconductor index collapsed 6.7%. Meta lost 7%, Tesla fell 3%, and several major chipmakers suffered losses exceeding 8%.

Meanwhile, the 10-year Treasury yield plunged nearly 20 basis points to 4.95%, its largest one-day decline since March 2023. The dollar weakened sharply against the yen and Swiss franc.

Gold should have loved that combination.

Instead, it fell nearly 3% toward $4,000, while silver plunged almost 6% toward $54. Bitcoin also tumbled.

That is an extraordinary collection of market moves, particularly after several weeks when almost everything revolved around the relentless rise in Treasury yields.

The bond market finally rallied, but not for the reasons investors had been hoping.

AI Finally Gets an Earnings Test

Thursday's technology selloff began with renewed questions about the enormous sums being invested in artificial intelligence.

Meta reported better-than-expected earnings, but investors focused on something less encouraging. Its AI-related capital expenditures exceeded operating cash flow during the quarter, producing the company's first negative free cash flow in more than a decade.

The announcement raised uncomfortable questions about how much money the largest technology companies will ultimately need to spend before the AI investment boom produces adequate returns.

This connects directly to the problem we discussed earlier this week.

AI infrastructure requires enormous capital expenditures on equipment that can become economically outdated relatively quickly. Unlike railroads or power plants, the most expensive components of today's computing infrastructure may require replacement or substantial upgrades within a few years.

Investors have been willing to overlook that problem because AI revenues and profits were expected to grow almost without limit.

Now they are beginning to examine the other side of the balance sheet.

Debt.

Depreciation.

Replacement costs.

And the possibility that computing prices fall faster than the investments generate acceptable returns.

The semiconductor index is now more than 26% below its June record, despite remaining substantially higher for the year.

That is already a bear market within one of the stock market's most important industries.

Not Everything Was Sold

There was one encouraging aspect of Thursday's session.

The Dow actually finished slightly higher, as did the Russell 2000. NYSE advancing and declining stocks were almost evenly divided.

For months we have watched the major averages rise while the underlying market deteriorated.

Thursday presented almost the reverse.

Technology stocks were hit hard, dragging the S&P 500 down 1.2%, but much of the broader market held up considerably better.

Consumer staples, utilities and several other defensive sectors attracted buyers.

This could become a healthy rotation if the money leaving AI finds its way into neglected companies with reasonable valuations and sustainable earnings.

There is another possibility, however.

The technology giants have become such an enormous portion of the S&P 500 that even a healthy recovery among ordinary stocks may not offset substantial losses among the leaders.

That concentration makes the AI selloff a problem for nearly everyone owning an index fund, whether they intended to speculate on artificial intelligence or not.

Why Bonds Suddenly Looked Attractive

The Treasury market's reaction deserves particular attention.

Only two weeks ago, investors seemed convinced the 10-year yield was headed toward 5.5%, possibly even 6%.

Thursday it fell below 5%.

That is not a minor correction. It is a substantial repricing of expectations in an extraordinarily short period.

Part of the move was undoubtedly a flight to safety as technology investors became nervous.

But another possibility is emerging.

If the AI investment boom starts slowing, demand for capital could decline dramatically.

Fewer data centers.

Less borrowing.

Reduced equipment orders.

Weaker construction activity.

And eventually slower economic growth.

All of those developments would reduce some of the pressures that have been pushing long-term interest rates higher.

In other words, the bond market may be starting to price the economic consequences of an AI slowdown rather than merely celebrating the possibility of a less aggressive Fed.

That would explain why Treasury yields fell so dramatically while the Nasdaq plunged.

It would also make this a much less reassuring bond rally than investors initially imagined.

Gold's Strange Reaction

Gold and silver also behaved differently from what investors might ordinarily expect.

Treasury yields plunged.

The dollar weakened.

Technology stocks collapsed.

Geopolitical tensions intensified.

Under normal circumstances, that combination should provide considerable support for precious metals.

Instead, both were crushed.

The most plausible explanation is that investors are unwinding crowded positions across multiple asset classes.

After enormous advances in metals earlier this year, there are substantial profits available to protect. When volatility rises, investors sometimes sell what they can rather than what they want to sell.

Silver is particularly vulnerable because it combines monetary speculation with industrial demand that could weaken during an economic slowdown.

Gold's long-term monetary arguments have not disappeared. Federal deficits remain enormous, inflation is elevated and the Fed has shown little willingness to tighten aggressively.

But those arguments do not prevent a correction when investors decide to reduce risk.

Gold's $4,000 level now becomes an important psychological test. Silver has already suffered a considerably deeper setback.

Whether those levels hold may tell us more about the correction than another speech from Kevin Warsh.

The Fed Has a Different Problem

The probability of another rate hike next week has fallen below 10%.

That is remarkable considering the latest inflation reports.

Consumer inflation accelerated to 3.7%.

Producer inflation reached 6.3%.

And Brent crude surged another 4% Thursday to approximately $113 a barrel, its highest level since May.

Normally those numbers would make another Fed hike considerably more likely.

Instead, investors are becoming worried that economic weakness could prevent further tightening.

Even December's once nearly certain quarter-point increase is now being questioned, although it remains the favored outcome.

Warsh therefore faces a problem that has become increasingly familiar.

Inflation argues for higher rates.

Financial markets and a potentially weakening economy argue for patience.

If the AI boom really begins contracting, one of the largest engines supporting capital investment and corporate profits could lose momentum just as high energy costs continue squeezing consumers.

The Fed could eventually find itself confronting slowing growth and stubborn inflation simultaneously.

A quarter-point hike won't resolve that contradiction.

Neither will another month of jawboning.

A More Interesting October

Thursday's dramatic decline in Treasury yields may mark a significant turning point after the bond market's extraordinary selloff.

But it is too early to conclude that the danger has passed.

If bonds are rallying because investors believe inflation will decline, that would be welcome news.

If bonds are rallying because investors fear that the technology boom is beginning to unravel, the implications are considerably different.

The Dow's resilience suggests there is still money willing to buy stocks outside the AI complex. That is encouraging and deserves watching.

But Thursday also demonstrated how quickly the enormous companies dominating the indexes can erase weeks of gains.

October has not produced the spectacular crash that made the month infamous.

There are still several trading days remaining, a Fed meeting next week and the midterm elections immediately afterward.

For now, the market has delivered an interesting warning.

Treasury yields finally fell exactly as the bulls wanted.

Technology stocks fell anyway.

Gold fell.

Silver fell.

Bitcoin fell.

And oil went higher.

That doesn't look like investors celebrating the end of the inflation problem.

It looks more like investors beginning to worry about something else.

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