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*                       FIEND'S SUPERBEAR MARKET REPORT                     *

*                                October 21, 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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October's Missing Panic

October is running out of time to live up to its frightening reputation.

After weeks of rising Treasury yields, deteriorating breadth, an AI selloff and renewed inflation concerns, the stock market is still standing. In fact, Tuesday produced one of the healthier sessions we have seen in some time.

The Dow gained 530 points, or 1%, closing at 52,496 and finally moving above its 50-day moving average for the first time since early September. The S&P 500 advanced 0.3%, while the Nasdaq finished essentially unchanged.

The Russell 2000 did even better, climbing 1.7%.

For once, the biggest technology companies weren't carrying the market. Healthcare, financials, real estate and other neglected sectors did much of the work.

That is a welcome development after weeks when the major averages concealed substantial weakness underneath.

A Healthier Market Beneath the Surface

Tuesday's breadth was genuinely encouraging.

NYSE advancing stocks outnumbered decliners by roughly two to one, a sharp contrast with the repeated sessions of overwhelmingly negative breadth we witnessed earlier this month. Small-cap stocks also substantially outperformed the technology giants.

There were still 236 NYSE new lows against 114 new highs, so the internal damage hasn't disappeared. But at least investors are beginning to buy something besides AI.

The Dow's recovery above its 50-day moving average adds another constructive technical development. It doesn't guarantee a sustained advance, but the index has finally recovered an important short-term trend measure after spending more than six weeks below it.

Meanwhile, the AI correction has remained remarkably orderly considering the enormous gains accumulated beforehand. The Nasdaq is roughly 5% below its recent record, hardly a disaster after the speculative enthusiasm surrounding artificial intelligence.

Perhaps the bubble is simply releasing some pressure.

That would be the ideal outcome. Rather than suffering a sudden collapse, technology stocks consolidate their gains while the rest of the market catches up.

Of course, that assumes the enormous AI investments eventually justify their valuations. As we discussed yesterday, that remains an unanswered question.

For now, investors aren't behaving as though a financial catastrophe is approaching.

The Fed Decision Looks Almost Decided

Next week's Federal Reserve meeting has also lost much of its suspense.

Markets assign roughly an 85% probability that Kevin Warsh will leave rates unchanged October 28.

A new Reuters survey found that 94 of 100 economists expect no October hike, while all 100 anticipate another increase in December.

That is quite a consensus.

The interesting part is that the inflation data hasn't been particularly cooperative.

September CPI reached 3.7%, while producer inflation accelerated to 6.3%. Oil remains around $100 and the latest employment numbers suggest the economy is slowing.

Yet almost everyone assumes Warsh will wait.

The November 3 midterms, arriving only six days after the Fed meeting, are another reason not to expect a surprise.

December is now supposed to deliver the next 25 basis points. A few economists are even beginning to discuss 50 basis points if inflation continues accelerating.

The problem with that forecast is the same one we have mentioned repeatedly.

October was once considered nearly certain.

Now it isn't.

December could change just as quickly.

Still, the October meeting itself may turn out to be one of the least interesting Fed decisions of the year.

Oil Offers Some Relief

Energy prices also helped Tuesday.

Brent crude retreated below $109 after approaching $112 earlier in the session, while West Texas crude moved back toward $100.

Renewed diplomatic efforts involving Iran provided the latest reason for optimism.

Whether anything substantial comes from those efforts remains uncertain. We have watched oil repeatedly retreat on hopes of a settlement, only to climb again when another attack disrupts shipping or energy facilities.

Even so, the decline is welcome.

The bond market has also backed away from its recent extremes. The 10-year Treasury yield is around 5.1%, down considerably from the 5.35% reached earlier this month.

That combination—somewhat cheaper oil and lower long-term yields—provides the economy with a little breathing room.

But there is another reality worth considering.

The economy has already absorbed months of extremely high energy prices and borrowing costs.

Tuesday's housing figures were hardly encouraging. Pending home sales declined sharply, demonstrating that housing remains under considerable pressure despite the recent Treasury rally.

Financial conditions may be improving at the margin, but the cumulative damage from expensive money and energy doesn't disappear overnight.

Then Come the Midterms

The November 3 election may be the next major political event capable of moving markets.

But the outcome may not be particularly surprising.

Prediction markets currently give Democrats better than a 90% chance of winning the House and approximately a two-thirds chance of gaining the Senate.

That is hardly a close forecast for the House, although prediction markets can certainly be wrong.

If Republicans lose one or both chambers, Wall Street will have to adjust its expectations for the remaining two years of the Trump administration.

New spending programs and tax legislation would become considerably more difficult. Congressional investigations and oversight would likely increase. Major fiscal proposals could face gridlock.

Some investors might actually welcome divided government if it restrains additional deficit spending.

Others would worry about political confrontation, budget battles and uncertainty surrounding economic policy.

But the important point is that a widely anticipated election result is not automatically a market shock.

Stocks generally react most violently to outcomes that differ from expectations or produce unexpected policy changes.

A Democratic House victory, if it occurs, would be far less surprising than a Republican sweep.

And regardless of who controls Congress, Washington will still face enormous deficits, more than $40 trillion of debt and rising interest costs.

The bond market's problems won't disappear on election night.

The Quiet Before November

There are still important reports before the calendar turns.

The Fed meets October 27-28. Third-quarter GDP and the Fed's preferred PCE inflation report are scheduled for October 29, followed by the Employment Cost Index on October 30.

Then the midterms arrive November 3, with the next employment report November 6 and CPI November 10.

That is a considerable amount of information packed into a relatively short period.

For now, markets seem content to wait.

The bond selloff has moderated.

Oil has eased somewhat.

The AI correction hasn't turned into panic.

The Dow is recovering.

Small stocks finally enjoyed a strong day.

And the October Fed decision appears largely settled.

None of this means the inflation problem has disappeared or that stocks are suddenly cheap. It merely suggests the market has absorbed a remarkable amount of bad news without suffering the kind of breakdown that October's reputation encourages everyone to anticipate.

There is still plenty of time for trouble.

But perhaps the more interesting possibility is that October ends quietly, leaving November to determine whether the recent turbulence was a warning of something larger or simply a healthy correction.

The market has survived the scare.

Whether it has survived the underlying problems is another matter.

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