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* FIEND'S SUPERBEAR MARKET REPORT *

* October 12, 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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Wall Street Feels Fine. Consumers Don’t.

Wall Street ended last week on a surprisingly cheerful note.

The Dow gained more than 400 points Friday, while the S&P 500 and Nasdaq each rose about 0.6%. For once, the advance was not entirely dependent on three or four trillion-dollar technology stocks. NYSE advancers beat decliners 1,539 to 1,177, a welcome improvement after weeks of miserable breadth.

There was still plenty of damage underneath. Only 42 NYSE stocks made new highs while 123 made new lows, but compared with the 300- and 400-new-low sessions we saw recently, Friday at least looked more normal. InvesTech Research

Treasury yields also finished below their worst levels of the week, although calling a 5.24% 10-year yield relief takes some getting used to. The bond market found buyers above 5.3%, and the 30-year backed away from its brief excursion above 5.7%.

Perhaps the markets are finally stabilizing.

Then the consumer-confidence report came out.

It told a very different story.

The Consumer Is in a Recession of Confidence

The University of Michigan's preliminary October sentiment index fell to 46.3, down from 48.1 in September.

That is close to the lowest reading in the history of the survey.

More striking was the index measuring current economic conditions. It plunged to 44.7, an all-time low. Surveys of Consumers

That is an extraordinary juxtaposition.

The S&P 500 sits just below a record.

The Nasdaq recently made one.

Corporate earnings are expected to rise around 30% during the third quarter.

Unemployment remains only 4.2%.

Yet consumers assessing their current financial circumstances are more pessimistic than during most recessions.

Something does not fit.

The explanation probably isn't mysterious. Consumers don't experience the economy through the S&P 500 or GDP.

They experience it through rent, gasoline, groceries, insurance, credit-card rates and mortgage payments.

A household that owns Nvidia shares may feel terrific.

A household renting an apartment, carrying a credit-card balance and filling a gas tank several times a month has a considerably different economic report.

That difference has become one of the defining features of 2026.

The Inflation Expectations Are More Troubling

The part of Friday's survey that Kevin Warsh should probably care about most wasn't the sentiment number.

It was inflation expectations.

Consumers now expect prices to rise 4.7% over the next year, up from 4.6% last month and only 3.4% in February before the Middle East war.

Five-year inflation expectations also increased to 3.5%, the highest since May. Reuters

This is where persistent inflation becomes dangerous.

The Fed can tolerate a temporary oil shock.

It can argue that gasoline prices will eventually fall.

It can ignore one ugly CPI report if the underlying trend is improving.

What it does not want is for households and businesses to begin assuming that 3%, 4% or 5% inflation is simply normal.

Inflation expectations influence behavior.

Workers ask for larger raises.

Businesses become quicker to pass through higher costs.

Consumers buy sooner because they expect prices to rise later.

Landlords expect higher rents.

Eventually the expectation itself helps keep inflation alive.

That was one of the mechanisms that made the 1970s so difficult to escape.

We are nowhere near 1970s inflation rates.

But an economy in which consumers expect 4.7% inflation while the Fed insists that 2% remains the target contains an obvious credibility gap.

Wednesday Gets Interesting

That makes this week's CPI report unusually important.

Economists expect September headline CPI to rise about 0.6% for the month, largely because of energy, lifting the annual rate from 3.4% to roughly 3.7%.

Core CPI is expected to be much tamer—around 0.2% for the month and roughly 2.4% to 2.5% annually. Continuum Economics

If those forecasts are close, the Fed will receive two inflation reports in one.

Headline:

Inflation is getting worse.

Core:

Underlying inflation is behaving reasonably well.

Guess which one WUCO is likely to emphasize?

Warsh can argue that the energy shock is temporary, core inflation remains under control, employment has weakened and the Fed should wait before raising rates again.

Markets already expect that.

The probability of an October hike is only around 19%, meaning traders see roughly an 81% chance the Fed does nothing later this month. Reuters

That is probably the correct call.

But the consumer doesn't get to exclude food and energy from the household budget.

That is where the statistical argument and the lived economy separate again.

The Bond Market May Not Care About Core

The Treasury market will provide the more interesting reaction Wednesday.

A 3.7% headline CPI reading with a soft core number gives the Fed every reason to wait.

Normally that should help bonds.

But we have seen repeatedly over the past month that the long end is no longer trading solely on the next Fed decision.

The 10-year yield remains around 5.25% because investors are also thinking about federal deficits, Treasury supply, inflation risk, AI borrowing and the term premium required to hold long-duration debt.

That is why last week's bond reversal matters.

The 30-year finally found substantial buyers above 5.7%.

If CPI arrives roughly as expected and yields continue declining, we may finally have the meaningful short-term bond rally that has been overdue for weeks.

If CPI comes in reasonably benign and the 10-year heads straight back toward 5.4%, we have learned something more important.

The bond market's problem isn't September inflation.

It is the long-term fiscal and monetary outlook.

Earnings Have to Justify the Records

At the same time, earnings season begins in earnest.

JPMorgan, Goldman Sachs, Citigroup and Wells Fargo report this week, followed by a growing list of major companies.

Analysts expect S&P 500 third-quarter profits to rise close to 30% from a year earlier. Reuters

That is an enormous number.

It also helps explain why stocks have tolerated Treasury yields above 5%.

Higher interest rates reduce what investors should theoretically pay for future earnings.

But if the earnings themselves are growing 30%, valuation mathematics becomes considerably more forgiving.

The danger is concentration.

Much of that projected earnings growth comes from technology and AI-related businesses. The economy underneath those sectors looks considerably less spectacular.

Friday's consumer survey makes that obvious.

Bank earnings should provide useful clues about credit-card delinquencies, loan demand, deposit costs, mortgage activity and what executives are seeing from households.

Those details may matter more than whether JPMorgan beats earnings estimates by three cents.

A Very Expensive Soft Landing

The market is effectively pricing a narrow path through all of this.

Employment slows enough to prevent further immediate rate hikes.

Core inflation continues easing.

Energy prices gradually decline.

Bond yields stop climbing.

Corporate earnings remain exceptional.

Consumer weakness never becomes severe enough to produce recession.

And the Fed eventually gets an opportunity to ease again sometime in 2027.

That is the soft landing.

It remains possible.

But calling it a soft landing from the perspective of someone paying six dollars for gasoline, more than $2,000 for a modest apartment and double-digit credit-card interest rates may require a fairly flexible definition of "soft."

Wall Street's landing has been much softer.

The S&P 500 is near a record.

That may explain another interesting detail in the Michigan survey. Sentiment deteriorated most sharply among lower-income households and people with smaller stock portfolios. Reuters

The wealth effect cuts both ways.

People heavily exposed to stocks see portfolio gains offsetting some of the higher cost of living.

People without large investment accounts simply see the higher cost of living.

That is increasingly becoming two economies.

This Week Could Reconcile Them

Friday's rally was encouraging.

Breadth improved.

Bond yields finally backed away from their extremes.

Gold recovered.

Stocks ended the week higher.

Nothing broke despite several weeks of extraordinary moves in interest rates.

But this week brings the data capable of challenging almost every assumption behind that calm.

Wednesday's CPI asks whether inflation is truly moderating underneath the energy shock.

Thursday's PPI and retail-sales reports tell us how much price pressure is building upstream and whether consumers are still spending through it.

Bank earnings tell us whether household and corporate finances remain healthy.

And Warsh speaks Friday.

By the end of the week, today's 19% October-hike probability could be 5%.

Or 50%.

We have already learned how little these probabilities mean when the data changes.

The more important issue is whether the strange coexistence of record stock prices, near-record consumer pessimism and multi-decade-high bond yields can continue.

Perhaps all three are accurately describing different parts of the same economy.

But eventually those parts have to interact.

Consumers buy the products.

Businesses pay the interest.

Investors value the earnings.

And the bond market determines what money costs.

Wall Street ended Friday feeling considerably better.

The consumer didn't.

This week we find out which one the economic data agrees with.

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