*****************************************************************************

*                       FIEND'S SUPERBEAR MARKET REPORT                     *

*                                October 28, 2026                           *

*                                                                           *

*                       e-mail: fiendbear@fiendbear.com                     *

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

*****************************************************************************

Fiend Commentary
================

The Easy Decision and the Harder Questions

Wall Street rallied again Tuesday as technology stocks continued recovering from their recent correction. The Nasdaq gained 1.18%, the S&P 500 advanced 0.60%, and the Dow finished essentially unchanged. The Russell 2000 also participated, rising 1.2%.

The semiconductor index has now rallied for three consecutive sessions, helped by renewed optimism surrounding artificial intelligence and another enormous financing agreement between Broadcom and Anthropic.

The recovery has been encouraging, although the semiconductor index remains more than 20% below its June record. The Nasdaq also continues to benefit disproportionately from the largest technology companies.

Market breadth improved Tuesday, with advancing stocks substantially outnumbering decliners on both exchanges. However, new lows still exceeded new highs, another reminder that considerable damage remains underneath the recovering averages.

Meanwhile, Treasury yields moved slightly higher, with the 10-year testing the 5% level again after last week's dramatic decline. Gold and silver stabilized for a second day, while mining stocks produced considerably stronger gains.

All of this sets up Wednesday's Federal Reserve announcement, which may be one of the least surprising rate decisions of the year.

The important questions concern what happens afterward.

December Is Priced In. What About 2027?

Markets currently assign approximately a 90% probability that Kevin Warsh will leave rates unchanged Wednesday, maintaining the federal funds target at 3.75% to 4%.

That outcome would surprise almost nobody.

September's quarter-point increase was the Fed's first tightening move this year, and policymakers have since emphasized patience despite accelerating inflation. With the midterm elections only six days away, another hike seems particularly unlikely.

December is a different matter.

Futures traders still expect another 25-basis-point increase, although the implied probability has retreated toward 75% to 80%.

But the more interesting development is what traders are expecting next year.

Current futures pricing suggests the federal funds rate could reach approximately 4.6% by the second half of 2027. That would represent roughly three additional quarter-point increases from today's level.

The Fed's September projections were considerably less aggressive. The median policymaker expected a rate of approximately 4.1% at the end of both 2026 and 2027.

That is a substantial difference.

Markets are anticipating more tightening than the Fed itself projected only six weeks ago.

Wednesday's meeting will not include a new set of economic projections, so investors will have to interpret Warsh's comments for clues about whether policymakers are moving toward the market's expectations.

Does he believe inflation requires several more increases next year?

Or does he still expect a gradual return toward 2% without substantial additional tightening?

The distinction matters enormously for bonds, stocks and the broader economy.

And given how quickly October's once-probable hike disappeared, even today's 2027 projections should be treated cautiously.

Has the Bond Rally Run Its Course?

The Treasury market is approaching an equally interesting decision.

Earlier this month the 10-year yield climbed above 5.3%, while the 30-year approached 5.75%. Investors were beginning to discuss the possibility of 6% yields before year-end.

Then bonds staged a remarkable recovery.

The 10-year retreated below 5%, and the 30-year fell toward 5.3%.

That was a substantial move in a very short period.

Now yields are stabilizing, with the 10-year testing 5% again.

The question is whether October's rally represents the beginning of a sustained bond recovery or merely a temporary interruption in a larger bear market.

There are arguments for both.

Treasuries remain attractive after their enormous decline, and weaker employment growth could eventually force the Fed to abandon further tightening.

But the longer-term pressures haven't disappeared. Inflation remains elevated, federal borrowing requirements are enormous, and the government must continue financing an increasingly expensive debt burden.

A correction in bond yields does not necessarily mean the secular bond bear market has ended.

The longer-term trend in yields has been higher since the historic lows of 2020. Even after October's rally, the 10-year remains far above where it began this year.

If the Fed signals that several additional increases may be necessary in 2027, the recent Treasury recovery could face another significant test.

Are the Metals Finally Finding a Bottom?

Gold and silver may also be approaching important technical turning points.

After months of selling, both have stabilized around levels that attracted considerable interest during their earlier advances.

Gold remains near $4,000, while silver has found buyers above $50.

Tuesday's gains were relatively modest. Gold advanced about 1%, while silver rose roughly the same amount.

Mining shares did considerably better.

The GDX gold-mining ETF climbed approximately 2.7%, while several silver miners gained between 3% and 5%.

That relative strength is worth watching.

Mining companies often amplify changes in metal prices because their operating costs do not move in direct proportion to bullion prices. When gold rises, a larger share of the increase can flow into operating profits, assuming production and other costs remain stable.

Consequently, mining shares sometimes begin recovering more aggressively when investors anticipate a lasting bottom in metals.

That doesn't establish that a bottom has occurred. Oversold mining shares can produce powerful rebounds during continuing bear markets.

But after the considerable selling witnessed throughout the year, the appearance of buyers in the miners is encouraging.

Gold and silver also remain in much stronger positions than their recent corrections suggest when viewed over several years rather than several months.

Silver has surrendered more than half its speculative January peak, yet remains substantially above the trading range that prevailed for much of the preceding decade.

The next test will be whether the metals can begin establishing higher lows and eventually recover important moving averages.

For now, the selling appears to be losing some momentum.

Two Trends at Important Levels

This leaves both metals and bonds in somewhat similar positions, although their price trends are different.

Gold and silver have experienced severe corrections within much longer-term advances.

Treasury bonds have experienced a strong short-term recovery within a much longer-term decline.

Both markets have reached levels where the next sustained move could become important.

If gold holds $4,000 and silver holds $50, the recent corrections may ultimately prove to be opportunities for longer-term investors.

If Treasury yields resume rising and the 10-year moves decisively above 5% again, October's bond recovery could prove temporary.

Neither outcome is predetermined.

And Wednesday's Fed announcement may not resolve either one.

Warsh Has to Explain the Path

The September inflation reports showed that the battle against rising prices is far from finished.

Consumer inflation accelerated to 3.7%, while producer inflation reached 6.3%. High energy costs remain a significant problem, and some of those increases are spreading into transportation and other business expenses.

Yet the Fed has raised rates only 25 basis points during this renewed inflation upswing.

Warsh may argue that the economy is already experiencing sufficiently restrictive financial conditions and that additional tightening should proceed gradually.

That would be reasonable if inflation begins moderating over the next several months.

But the market increasingly expects more hikes in 2027, suggesting investors aren't entirely convinced.

The real danger is that policymakers continue waiting for inflation to improve while the data moves in the opposite direction.

Eventually, that could require more aggressive action than would have been necessary earlier.

Or the economy could weaken enough to make further tightening counterproductive.

That is the dilemma Warsh faces.

Meanwhile, Wall Street is again optimistic.

Technology stocks are recovering, mining shares are attracting buyers, and the bond market has stabilized after its extraordinary volatility.

Tuesday's economic reports also offered some encouragement. Durable-goods orders rose 1.8%, while consumer confidence improved more than expected.

The economy has not rolled over despite expensive energy and high borrowing costs.

That gives the Fed additional room to maneuver, but it also makes the case for declaring inflation defeated considerably weaker.

Wednesday's decision should be easy.

Leave rates unchanged.

The more difficult question is whether the Fed's next few moves will be enough to bring inflation under control without seriously damaging economic growth.

December may bring another quarter point. But 2027 is where the real disagreement begins.

And judging by the past several months, neither the Fed nor the markets have demonstrated much ability to predict what happens even six weeks from now.

---

Weekly Market Summary Page
[Return to the Fiend's SuperBear Page]