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*                       FIEND'S SUPERBEAR MARKET REPORT                     *

*                                October 26, 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 Market Is Running for Cover

Wall Street finished another turbulent week Friday with the Dow falling 653 points, the S&P 500 declining 0.5% and the Nasdaq slipping modestly after Thursday's technology rout.

Gold briefly broke below $4,000, silver retreated toward $54 and Bitcoin continued struggling around $80,000. Meanwhile, Treasury bonds enjoyed their strongest rally in weeks, pushing the 10-year yield below 5% after reaching nearly 5.4% earlier this month.

The 10-year edged back toward 5% Friday, but the larger reversal was unmistakable.

Only two weeks ago, investors were worrying about Treasury yields spiraling toward 6%. Now they are buying bonds aggressively even as oil remains above $100 and inflation continues accelerating.

Has the inflation scare suddenly ended?

Probably not.

A more plausible explanation is that investors are becoming worried about something besides inflation.

Bonds Are Buying Insurance

The Treasury market has undergone an extraordinary reversal.

The 30-year yield recently approached 5.75%, while the 10-year reached its highest level in nearly a quarter century. The selling was relentless as investors demanded greater compensation for inflation, enormous federal borrowing and persistent deficits.

Now money is moving back into Treasuries.

Some of that is undoubtedly bargain hunting. Government bonds yielding around 5% provide substantial income, particularly after several years when such returns were difficult to find.

But the timing is revealing.

The rally accelerated as technology stocks came under pressure, concerns about AI financing intensified and geopolitical risks increased.

That looks considerably more like a flight to quality than a sudden conviction that inflation has been conquered.

If investors believe the economy is about to weaken, Treasuries become attractive. Slower growth would eventually reduce demand for credit, encourage the Fed to stop tightening and possibly bring rate cuts back into the conversation next year.

The problem is that the inflation data isn't cooperating.

Friday's preliminary October purchasing managers' survey showed that prices charged by businesses rose at their fastest pace since August 2022.

The output-prices index climbed to 59.8, up from 58.4 in September.

Even more interesting, new orders reached their highest level since March 2022. Business activity remained firmly expansionary.

That is hardly evidence of an economy collapsing under high interest rates.

We may therefore have a bond market anticipating slower growth while business surveys continue indicating substantial inflationary pressure.

Those two developments can coexist temporarily.

Eventually one will have to give.

Oil Remains the Wild Card

Friday's jump in oil provided another reminder that the energy crisis is far from over.

Brent crude surged more than 3% to $116.72, while West Texas crude climbed above $103. Renewed Houthi attacks on Saudi energy infrastructure raised concerns about another disruption to Middle Eastern supplies.

Oil eased in early Monday trading, with Brent retreating toward $114 as Qatari mediators pursued renewed diplomatic efforts involving Iran.

But the larger geopolitical problem remains.

President Trump has indicated that additional military action against Iran could follow the November 3 midterm elections. Markets are understandably nervous about the possibility of renewed American or Israeli strikes and Iranian retaliation against Gulf energy infrastructure.

There is no certainty that another offensive will occur.

But oil traders must account for the possibility.

The difference between a diplomatic agreement and another round of regional escalation could easily amount to tens of dollars per barrel.

For the Fed, that creates an uncomfortable problem. A temporary decline in oil might quickly improve the inflation outlook. Renewed fighting could produce another surge just as policymakers are beginning to believe the worst has passed.

And the economy has already endured months of extraordinarily expensive energy.

Higher gasoline and diesel costs eventually weaken consumer purchasing power, but they can also keep inflation elevated while that weakening occurs.

That is the stagflation risk the Fed has been trying to avoid.

Gold Is Not Acting Like a Safe Haven

The performance of precious metals is particularly interesting.

Gold briefly traded below $4,000 Friday, while silver fell toward $54. Both have suffered significant corrections after their enormous advances earlier this year.

One would normally expect falling Treasury yields, geopolitical uncertainty and concerns about financial markets to support precious metals.

Instead, investors have continued selling.

Part of the explanation may be liquidation rather than a fundamental change in the outlook.

Gold and silver accumulated substantial gains before the correction. Investors facing losses elsewhere may be raising cash, reducing leverage or simply protecting profits.

There is also the possibility that markets still expect additional Fed tightening despite the collapse in near-term hike expectations.

Gold pays no interest. Even after their recent rally, Treasury securities offer serious competition.

The interesting test comes around $4,000 gold and $50 silver.

Neither level guarantees a bottom, but a sustained break would suggest the correction has considerably more room to run.

Bitcoin has been similarly unconvincing, providing little evidence that speculative investors are eager to increase risk.

For now, cash and Treasuries appear more attractive than alternative assets.

Warsh Gets Another Free Pass

The probability of another Fed hike this Wednesday has fallen below 10%.

That makes a hold almost certain, barring an extraordinary surprise.

December remains the favored meeting for another increase, with futures markets indicating roughly a 78% probability of a quarter-point hike.

Further tightening during the first quarter of 2027 is also being considered.

But the Fed has raised rates only 25 basis points so far during this renewed inflation upswing.

The next meeting comes just six days before the midterms. There is little reason to expect Warsh to surprise markets with another increase when he has spent weeks emphasizing patience.

December presents a different problem.

If October's inflation data continues the deterioration seen in September, another 25 basis points may look increasingly inadequate.

On the other hand, if employment weakens further and the technology selloff begins affecting business investment, even December's supposedly certain hike could disappear.

The markets have already demonstrated how quickly these probabilities can reverse.

WUCO has plenty of time to change his mind.

The Averages Are Still Standing

Despite the considerable selling in technology, metals and cryptocurrencies, the major stock averages have not suffered a decisive breakdown.

That deserves recognition.

The Nasdaq has retreated from its records, but the decline remains relatively modest compared with the enormous gains accumulated during the AI boom.

The S&P 500 is also holding up reasonably well despite the pressure on its largest components. The Dow and Russell 2000 actually finished last week higher, notwithstanding Friday's decline.

Investors are reducing exposure to the most expensive technology companies without abandoning equities altogether.

That could be a healthy rotation.

It could also be the early stage of a more substantial correction if earnings fail to justify the extraordinary capital expenditures being made on AI infrastructure.

This week should provide some answers.

Alphabet, Microsoft and Amazon are among the major technology companies reporting earnings. Investors will be watching their AI spending plans as closely as their profits.

The Fed announces its decision Wednesday, followed Thursday by GDP and the PCE inflation report.

That is a formidable collection of potential market-moving events immediately before the midterms.

Something Has Changed

Perhaps the most important development of the past two weeks is the change in market psychology.

Earlier this month, investors were obsessed with the possibility of runaway Treasury yields.

Now they are buying bonds despite unfavorable inflation data.

Technology stocks are no longer advancing automatically.

Gold and silver are struggling even as yields retreat.

Oil remains expensive, and geopolitical uncertainty has returned to the foreground.

Yet the major stock averages remain remarkably resilient.

That combination suggests investors are becoming more defensive without embracing outright panic.

The bond market may eventually prove correct that inflation is approaching another turning point. Slower economic growth, weaker employment and declining demand could bring prices under control without substantially more Fed tightening.

But Friday's business surveys offered little evidence that this process is already underway. Companies are still reporting strong demand and an increasing ability to pass higher costs along to customers.

The inflation problem has not disappeared simply because Treasury yields fell.

The market may be buying bonds because it expects trouble ahead, not because the trouble is over.

For now, the major averages are still standing.

Whether that remains true after another week of earnings, inflation reports and geopolitical uncertainty is a much more interesting question than Wednesday's nearly predetermined Fed decision.

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