The AI developer behind Claude has not yet set the price for its initial public offering (IPO). But expectations have aligned on a valuation of $1.5 trillion to $2 trillion.

According to the filing, Anthropic generated $16.3 billion in revenue in the first half of 2026, up from $1.2 billion last year. But the company remains unprofitable, with an operating loss of $693 million and a net loss of $80.7 billion during the period.

I don’t have much more to say about Anthropic. Others are far more sophisticated and eloquent on the company and the businesses it’s engaged in.

But I do have a few quick thoughts on the chatter around the news.

• I don’t know if the stock will go up or down. That’s what I said in June, when SpaceX priced its IPO at $135 per share, valuing the company at $1.77 trillion. At the time, market commentators on TV, X, Substack, and elsewhere confidently asserted the valuation was ridiculous, and the stock was doomed to fall. Maybe it does eventually. But as of Monday afternoon, SpaceX was trading at about $148 per share, giving the company a market cap of north of $2 trillion. It’s fine to have views that conflict with the market. But don’t be surprised if the market goes against you for extended periods, even if you are eventually proven right.

• Earnings expectations matter. Anthropic is not profitable. But a company’s valuation depends less on what it earned (or lost) in the past and more on what it’s expected to earn in the years to come. To be fair, the current state of operations helps shape what those future earnings will look like. Then again, companies often change their business models over time. An unprofitable company trading at a positive market value reflects investor confidence that it will eventually turn profitable.

• IPOs don’t have a great track record. According to data compiled by University of Florida finance professor Jay Ritter, the average IPO delivers a strong first-day return, with a “pop” of about 19%. But if you had held the average IPO for three years, you would’ve underperformed the market by about 21%. SpaceX actually jumped 19% on its first day. Maybe Anthropic does something similar. And maybe both lag the market for the next three years. We’ll see.

• Money won’t be your biggest problem if AI destroys humanity. Many people are amplifying Anthropic’s warning that AI could “pose catastrophic or existential risks to humanity.” That’s obviously a major societal concern. But as a stock market investor, I wouldn’t view this risk alone as a reason to sell. If we do experience an existential catastrophe, having money might not be your biggest concern. It seems smarter to keep money in the market because, if there's no catastrophe, you won’t have lost money worrying about a low-probability risk. If a catastrophe does hit, what you lose in the market will likely be low on your list of priorities. But just in case, keep some matches, a knife, and a portable water filter on hand.

Some of these thoughts might sound familiar to paid subscribers who read the June 10 newsletter. In that issue, I also addressed concerns for market indexes and index-fund investors.

For your convenience, I republished that newsletter below.

Read more

For example, the idea that earnings drive stock prices is supported by the view that a business’s value is tied to how much money it makes. And decades of market data show that stock prices and earnings have exhibited a tight correlation.

There are also ideas that make intuitive sense, but the evidence supporting them is shoddy. In the stock market, this is a big problem because people will trade on these ideas, only to underperform the market.

Especially when it comes to price behavior, if a theory were both sound and reliable, we’d probably hear more about people consistently beating the market with some bulletproof trading strategy. But we don’t.

With that in mind, here are five ideas about the stock market that I’d describe as myths or misunderstandings.

1. Stock market returns revert to a mean 😵‍💫

Periods of strong stock market returns should be followed by periods of weak returns, and vice versa. Right?

If you take a long-term chart of the stock market and add a trendline, you’ll see prices above the line for some time and below it most of the time. This makes it tempting to say that the market exhibits mean reversion, or a tendency to gravitate back toward some historical average.

Unfortunately, this behavior is so inconsistent that Professors Paul Marsh, Mike Staunton, and Elroy Dimson concluded that “popular evidence for mean reversion is an ‘optical illusion’ that employs hindsight.” They addressed this issue in the 2025 edition of UBS’s “Global Investment Returns Yearbook” and also explored it at length in the 2013 edition, when Credit Suisse published it.

They even went so far as to compare the belief in mean reversion to the Gambler’s Fallacy, the assumption that past outcomes inform future ones.

If mean reversion in the market were consistent and predictable, then there would be a way to trade the phenomenon in such a way as to generate above-average returns. But you don’t really hear about funds or traders consistently beating the market by trading the expectation of mean reversion. (Maybe some secretive hedge fund somewhere has figured it out and they’re not telling us.)

“Market-timing strategies based on mean reversion typically gave lower, not higher, returns,” Marsh, Staunton, and Dimson found.

That’s not too surprising when you see the various stats showing periods of strong returns are often followed by more strong returns. Indeed, history shows that investing at all-time highs has produced better returns than investing on all other days.

Keep this in mind the next time someone suggests we’re “due” for weak returns because we just experienced strong returns. What just happened won’t tell you what’s coming next.

Read more about this here.

2. Valuations revert to a mean 😵‍💫

One of the most popular ways to measure value is to divide an asset’s price by its earnings. This is the price-to-earnings (P/E) ratio. When a stock’s P/E is above its historical average, it’s considered expensive. When it’s below average, it’s considered cheap.

This has led many to assume that expensive stocks tend to get cheaper and cheap stocks tend to get more expensive. In other words, valuations tend to revert to a mean, right?

“We cannot emphasize enough that valuation metrics are NOT historically mean-reverting,” Goldman Sachs analysts wrote in January. They’ve characterized it as “an oft-repeated myth.”

The firm has advanced this controversial view since 2013 (and again in 2022 and 2025). To make their point, they used a Dickey-Fuller test, a tool statisticians use to analyze time-series data. The test found that P/E ratios lacked stationarity, which means the averages aren’t stable over time.

This conclusion aligns with arguments from some top Wall Street strategists in recent years. They’ve argued that persistent improvements in business performance and capital structures have justified the higher valuations we’ve seen lately, an idea supported by theory.

And so, the mean itself is moving.

The idea that valuations aren’t mean-reverting probably makes a lot of people uncomfortable. Then again, trading based on the assumption of mean reversion hasn’t exactly yielded consistent results for people.

Read more about this here and here.

3. Picking a market-beating stock is like calling a coin flip 🪙

One of the main reasons to buy the stock of a single company is that you believe the price will outperform the market average over some period of time. Otherwise, you’d just put that money into an index fund tracking the market average.

A lot of people try their hand at stock picking. But most fail to beat the market.

Why? Because most stocks lag the market. And it’s far more than half.

In a study published last year, S&P Dow Jones Indices analysts found that just 19% of S&P 500 companies outperformed the average stock’s return from 2001 to 2025. Most S&P stocks underperformed the index in 13 of the past 24 calendar years.

Even with stock correlations very low and dispersion high — conditions that theoretically favor those looking to beat the market — professional stock pickers have struggled to identify winners!

The truth is that market averages, which have trended higher over the years, are driven by a relatively small number of stocks that generate eye-popping returns. ASU Professor Hendrik Bessembinder has published several studies showing this. Even Warren Buffett has attributed Berkshire Hathaway’s outstanding equity portfolio performance to “a few winners.”

Read more about this here.

4. Holding a market-beating stock is a fun experience 🧺

Let’s say you got lucky and managed to buy one of these few stocks that go on to smoke the rest of the market. Buckle up.

In a report published last year, Morgan Stanley’s Michael Mauboussin and Dan Callahan studied the price behavior of 6,500 stocks. They took a closer look at the 20 stocks with the best total shareholder returns over the 40 years from 1985 to 2024.

“The median maximum drawdown was 72% for the best group, and the median maximum drawdown duration, the time from peak to trough, was 2.9 years,” they found. “The median time to return to the prior peak was 4.3 years.”

Just thinking about one of my positions losing 72% of its value makes me queasy, even knowing full well this is the average behavior of the best stocks.

If you’re a fund manager with picks like this, you may be fired long before you’ve been proven right.

Read more about this here.

5. The stock market often delivers average returns 🗓️

The first thing many of us are taught about the stock market is that the average annual return is about 8% to 10%, give or take a point or two.

That gives many people the impression that the market climbs 8% to 10%-ish somewhat frequently.

But that’s far from the truth.

Carson Group’s Ryan Detrick ran the numbers. Since 1950, the S&P 500 returned 8%-10% in just four years.

In reality, the long-term average is the result of many above-average years and many below-average years. Ritholtz Wealth Management’s Ben Carlson observed that in the average up-year, the S&P returned 21%. And in the average down-year, the index lost 13%.

Read more about this here.

This doesn’t mean you should throw these ideas out the window 🪟

Maybe you’d be ill-advised to try to beat the market by trading on one of these myths or misunderstandings.

But that doesn’t mean you should ignore them entirely.

Sometimes, weak returns follow strong returns, valuations move toward the mean, half the stocks you pick beat the market, the outperforming stocks you own never lag, and we get an average year in the market.

In other words, sometimes we do get those brief moments when the market behaves as our gut expects.

Just because the markets can be chaotic and unpredictable doesn’t mean they never make sense. It’s just that they don’t make sense on a predictable schedule.

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Related from TKer:

• Mean reversion in the stock market is an ‘optical illusion’ 😵‍💫

• Goldman: ‘Valuation metrics are NOT historically mean reverting’ 🤯

• How an explosive salesman’s old equation helps explain why stock market valuations are high 🧮

• Warren Buffett: ‘It takes just a few winners to work wonders’ 🏆

• Identifying winning stocks is hard. Holding winning stocks is a nightmare. 🫠

• Why I sometimes tell myself average returns are a mirage 🤨

• 10 truths about the stock market 📈

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Review of the macro crosscurrents 🔀

📉The stock market fell last week, with the S&P 500 shedding 0.5% to end at 7,623.68. The index is now down 2.5% from its October 6 closing high of 7,818.93 and up 11.4% year-to-date. For market insights, check out the Stock Market tab at TKer. »

There were several notable data points and macroeconomic developments since our last review:

💳 Card spending data is holding up. From BofA: “Total card spending per HH was up 4.9% y/y in the week ending Oct 17, according to BAC aggregated credit & debit card data. Relative to last week, y/y department store spending growth improved the most while entertainment saw the largest decline. Lower-income spending growth has consistently outpaced higher-income spending growth over the past several weeks.”

Consumer spending data has looked a lot better than consumer sentiment readings. For more on this contradiction, read: We’re taking that vacation whether we like it or not 🛫 and Household finances are both ‘worse’ and ‘good’ 🌦️

⛽️ Gas prices tick lower, but remain high. From AAA: “The national average for a gallon of regular gasoline fell 6 cents in the last week to $4.27. The drop is fueled by the transition to winter-blend gasoline which is cheaper to produce and costs less for consumers. But high crude oil prices are preventing steep declines at the pump. Currently, the price for a barrel of crude oil is nearing $100 per barrel amid instability in the Strait of Hormuz. This month is poised to set a record as the most expensive October ever for gas prices following similar records set in August and September of this year.”

Here’s a longer-term look at gas and diesel price trends, as tracked by the EIA.

For more on energy prices, read: Our love-hate relationship with rising oil prices in charts 💔🛢️📊

👎 Consumer vibes are in the dumps. From the University of Michigan’s October Surveys of Consumers: “While year-ahead business conditions improved about 14%, they stand 16% less than last October’s read. This month’s decline in the Current Conditions subindex was driven entirely by buying conditions for durables, which plunged 18% on the basis of higher interest rates and rising concerns about the affordability of such purchases. Purchasing power continues to dominate consumer views of the economy. Sentiment is now 10% below a year ago and 15% less than February, just prior to the Iran conflict.”

For more on consumer sentiment, read: What consumers do > what consumers say 🙊

💼 New unemployment insurance claims, total ongoing claims remain low. Initial claims for unemployment benefits ticked down to 194,000 during the week ending Oct. 17, down from 200,000 the week prior. This metric remains at levels historically associated with economic growth.

Insured unemployment, which captures those who continue to claim unemployment benefits, ticked up to 1.73 million during the week ending Oct. 10.

For more on the labor market, read: Why mass tech layoffs have little effect on total employment 💾

🤔 Recent private job growth is positive. According to payroll processor ADP, private U.S. employers added 18,500 jobs in the four weeks ending Oct. 3.

For more on the labor market, read: Things are looking up in the labor market 👍

🏠 Mortgage rates remain elevated. According to Freddie Mac, the average 30-year fixed-rate mortgage ticked down to 7.32%, down from 7.4% last week. It remains near the highest average rate since Nov. 2023.

As of Q2, there were 149.5 million housing units in the U.S., of which 87.0 million were owner-occupied and about 40% were mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the weekly movements in home prices or mortgage rates.

For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖

🏠 Homebuilder sentiment falls. From the NAHB: “Housing remains squeezed by supply-side constraints and significant affordability challenges. Demand persists, but higher mortgage rates, elevated construction costs and weaker consumer confidence are keeping more buyers on the sidelines. As a result, buyer traffic has fallen to its lowest level since April 2012, excluding the pandemic’s onset in April 2020.”

🔨 New home construction starts fell. Housing starts declined 5.2% in September to an annualized rate of 1.22 million units, according to the Census Bureau. Building permits fell 0.2% to an annualized rate of 1.40 million units.

It’s worth noting that the starts metric has a very large margin of error. For more on margins of error, read: Mathematical context can totally change the story 🧮

🤔 Economic activity survey signals growth cooled. From S&P Global’s October U.S. Flash PMI: “The output readings from the survey are consistent with GDP growing at a 5% annualized rate after a 4% expansion was signaled for the third quarter. Especially healthy corporate earnings and profits are also indicated, and hiring has surged as companies seek to boost capacity to fulfill stronger customer demand. If the reopening of the economy after COVID is excluded, recent months have seen the best growth spell for US businesses since early 2015. However, cost pressures remain a key concern, notably as the renewed surge in oil prices reverberates through to impact a wide variety of goods and services.”

Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.

For more on this, read: What businesses do > what businesses say 🙊 and 4 sometimes-conflicting ways I’m thinking about the economy 😬😞😎🙃

🇺🇸 Most U.S. states are still growing. From the Philly Fed’s September State Coincident Indexes report: “Over the past three months, the indexes increased in 47 states, decreased in two states, and remained stable in one, for a three-month diffusion index of 90. Additionally, in the past month, the indexes increased in 38 states, decreased in seven states, and remained stable in five, for a one-month diffusion index of 62.”

📈 Near-term GDP growth estimates are tracking positively. The Atlanta Fed’s GDPNow model sees real GDP growth rising at a 3.5% rate in Q3.

For more on GDP and the economy, read: It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️ and Economic data can often be both ‘worse’ and ‘good’ 🌦️

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Putting it all together 📋

Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.

Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Personal spending activity remains at record levels. Core capex orders, which are a leading indicator of business spending, have been trending higher.

Growth rates have cooled: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like job openings and excess savings have faded. Job creation, while positive, is not as hot as it used to be. It has become harder to argue that growth is destiny.

Actions speak louder than words: We are in an odd period, as hard economic data has decoupled from soft, sentiment-driven data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data holds up.

Stocks are not the economy: There’s a case to be made that the U.S. stock market could outperform the U.S. economy in the near term, thanks largely to positive operating leverage. Since the pandemic, companies have aggressively adjusted their cost structures. This included strategic layoffs and investment in new equipment, including AI-powered hardware. These moves are driving positive operating leverage, meaning modest sales growth — in the cooling economy — translates into robust earnings growth.

Mind the ever-present risks: We should not get complacent. There will always be risks to worry about, such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, and cyberattacks. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term market volatility.

Investing is never a smooth ride: Economic recessions and bear markets are harsh realities that all long-term investors should expect as they build wealth in the markets. Always keep your stock market seat belts fastened.

Think long-term: For now, there’s no reason to believe the economy and the markets will face a challenge they can’t overcome. The long game remains undefeated, and long-term investors can expect that streak to continue.

For more on how the macro story is evolving, check out the previous review of the macro crosscurrents. »

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Key insights about the stock market 📈

Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.

10 truths about the stock market 📈

The stock market can be intimidating: It’s real money on the line, the information is overwhelming, and people can lose fortunes very quickly. But it’s also where thoughtful investors have long accumulated wealth. The main difference between those two outlooks comes down to misconceptions about the stock market that can lead people to make poor investment decisions.

The makeup of the S&P 500 is constantly changing 🔀

Passive investing usually means buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.

The key driver of stock prices: Earnings💰

For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because a stock's long-term moves can ultimately be explained by the underlying company’s earnings, earnings expectations, and uncertainty about those expectations. Over time, stock prices and earnings have a very tight statistical relationship.

Stomach-churning stock market sell-offs are normal🎢

Investors should always be mentally prepared for major stock market sell-offs. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has averaged a max annual drawdown (i.e., the biggest intra-year sell-off) of 14%.

How the stock market performed around recessions 📉📈

Every recession in history was different. And stock performance around them varied widely. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.

In the stock market, time pays ⏳

Since 1928, the S&P 500 has generated a positive total return in more than 89% of five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that the S&P 500 has never had a period where it didn’t generate a positive return.

What a strong dollar means for stocks 👑

While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.

Stanley Druckenmiller’s No. 1 piece of advice for novice investors 🧐

…you don’t want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there’s overcapacity and they’re losing money. What about when they’re losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it’s going to be in 18 to 24 months as opposed to now. If you buy it now, you’re buying into every single fad every single moment. Whereas if you envision the future, you’re trying to imagine how that might be reflected differently in security prices.

Peter Lynch made a remarkably prescient market observation in 1994 🎯

Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That’s all there is to it.

Warren Buffett’s ‘fourth law of motion’ 📉

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.

Most pros can’t beat the market 🥊

According to S&P Dow Jones Indices (SPDJI), 79% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2025. As you extend the time horizon, the numbers get even worse. Over three years, 67% underperformed. Over 5 years, 89% underperformed. And over 20 years, 93% underperformed. This 2025 performance marked the 16th consecutive year the majority of fund managers in this category have lagged the index.

Proof that ‘past performance is no guarantee of future results’ 📊

Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, of the 334 large-cap equity funds in the top half of performance in 2021, 58.7% remained at the top half in 2022. However, just 6.9% remained on top through 2023. Only 4.5% stayed on top in the five consecutive years through 2025.

It’s much more dismal when you raise the bar. Of the 164 large-cap equity funds in the top quartile in 2021, just 20.1% remained in that category in 2022. That percentage fell to literally 0.0% in 2023.

The odds are stacked against stock pickers 🎲

Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers can’t do this consistently. One reason is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 19% of S&P 500 stocks outperformed the average stock return from 2001 to 2025. Over this period, the average S&P 500 stock returned 452%, while the median stock returned just 59%.

But the more I learn about the stock market, the more I think about how I might’ve behaved if I’d had money on the line.

And I still struggle to imagine a realistic scenario where I would’ve traded that period in a way that would’ve left me better off than simply holding or dollar-cost averaging through the ups and downs.

That’s because amid all the turmoil was a surprisingly bullish stat that continues to remind me of the perils of trying to time the market.

Read more

Five years ago, on October 14, I launched TKer, the newsletter that tells the story of how the stock market usually goes up.

📉 That first year was highlighted by a bear market as the Federal Reserve went to war against inflation. The S&P 500 fell 19%.

📈 Year two brought an impressive stock market rebound. It began two days after the current bull market started. That year, the S&P ended up 21% higher despite lingering uncertainty.

📈 Year three extended the rally, with the S&P surging an incredible 35%. Interestingly, the average annualized return since TKer’s launch up to that point was an extraordinarily average 9%.

📈 Year four brought political upheaval after the U.S. presidential election, trade wars sparked by new tariffs, volatility in interest rates and currency markets, heightened geopolitical tensions, threats to Federal Reserve independence, and a government shutdown, which added to concerns about the quality of economic data. Yet the stock market repeatedly set new all-time highs, climbing 14% during the period — arguably because earnings were resilient.

📈 Year five saw many of year four’s challenges linger. But one key difference was that the forward price-to-earnings (P/E) ratio was unusually elevated at close to 23x, the highest level since 2020.

In other words, stocks looked expensive when I published my previous annual update.

But as we’ve discussed for years, elevated valuations don’t mean prices are likely to fall soon. We were reminded of this in TKer’s fifth year as the S&P 500 climbed 16%.

TKer Stock Market Truth No. 6 📜

About a year ago, some of Wall Street’s most prominent strategists made a bold prediction: High valuations were justified, and they’ll remain elevated in 2026 as stock prices go higher.

Others argued valuations were a headwind and at risk of contracting, capping price returns.

I’ve written before that P/E ratio forecasts are where Wall Street’s year-end price target calculations often go wrong, mostly because the direction of the ratio is hard to predict over short periods.

But ten months into 2026, P/E ratios have been contracting. Does that mean the bulls were wrong and the skeptics were right?

Sort of, but also not really.

One of this year’s defining market stories has been the aggressive, ongoing upward revisions to earnings forecasts, which have pulled P/E ratios down. This occurred even as stock prices trended higher. Fractions 101: If the denominator (E) rises faster than the numerator (P), then the P/E falls.

This brings us to TKer Stock Market Truth No. 6:

6. Valuations won’t tell you much about next year

There are many valuation methods that’ll help you estimate whether a stock or stock market is cheap or expensive. We won’t go through all of those here.

While valuation methods may tell you something about long-term returns, most tell you almost nothing about where prices are headed in the next 12 months. Over short periods like this, expensive things can get more expensive and cheap things can get cheaper.

It’s worth noting that prices can be cheap or expensive for extended periods of time. In fact, some folks would argue valuations are not mean-reverting.

Expensive stocks often get more expensive. Cheap stocks often get cheaper.

And sometimes prices fall as stocks get more expensive, and prices rise as they get cheaper.

Trading the stock market can be hard. You could’ve been absolutely right if you predicted P/E ratios would contract. But if you used that information to sell stocks, you might’ve made a huge mistake.

The state of TKer 📈

This past year’s highlights include being quoted in Barron’s weekend magazine, speaking on a panel at Odd Lots Live, appearing on The Compound and Friends, and presenting at the Money Show in Las Vegas, where I also won the conference poker tournament!

TKer’s message continues to resonate with a growing audience.

More than 36,000 subscribers are receiving TKer newsletters in their inboxes. TKer is read across all 50 states and in 177 countries.

Paid subscription revenue hit a record high in July, but growth has since plateaued. This isn’t surprising, given the stock market has traded near record levels for months. As I’ve written before, reader interest tends to be highest during market downturns and volatile periods.

I continue to receive great suggestions on how to boost growth by improving the reader experience, and I’ve implemented some of them. But one thing I won’t do is adjust the content strategy for the sake of growth if it means compromising what readers value about TKer.

What I care about most is that I have the right readers, including curious long-term investors, experienced Wall Street professionals, independent financial advisors, markets reporters, and many other individuals who can appreciate that the stock market usually goes up.

Thank you for your support! I’m especially grateful for you paid subscribers. TKer is a reader-supported small business, so paid subscriptions keep me going.

If you’re a free subscriber and you find value in TKer, please consider upgrading to a paid subscription!

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Related from TKer:

• Telling the story of how the stock market usually goes up, year 1 📈🎂

• Telling the story of how the stock market usually goes up, year 2 📈🎂

• TKer’s 3rd birthday comes with an extraordinarily average stock market stat 📈🎂

• TKer’s 4th year reminded us what drives the stock market 📈🎂

• 10 truths about the stock market 📈

Review of the macro crosscurrents 🔀

📉The stock market fell last week, with the S&P 500 shedding 1.9% to end at 7,659.44. The index is now down 2.0% from its October 6 closing high of 7,818.93 and up 14.1% year-to-date. For market insights, check out the Stock Market tab at TKer. »

There were several notable data points and macroeconomic developments since our last review:

🏦 America’s top banks confirm that the economy remains resilient, but uncertainty is up: From JPMorgan’s Jamie Dimon: “The U.S. economy continued to be fueled by strong business investment and ongoing consumer spending. However, large fiscal deficits, sticky inflation, elevated asset prices, rising interest rates and geopolitical conditions continue to shift under the surface. These forces may be manageable, but we remain prepared for a wide range of outcomes.”

Here’s Wells Fargo’s Charlie Scharf: “While economic uncertainty exists and consumer sentiment remains mixed, our data shows that our consumer and business customers are doing well. Consumers are spending more, loan delinquencies are low, and deposit and investment balances have grown. Businesses continue to have strong balance sheets and losses remain low. While higher interest rates, higher oil prices and persistent inflation create risks to the economy, strong positive forces such as the investment in AI infrastructure, high employment levels and consistent wage growth continue to outweigh the risks.”

And Citi’s Jane Fraser: “In the U.S., whilst much has been made of the AI boom, the consumer is still driving much of the growth, the labor market is stable, and companies remain active. Our near-term economic outlook remains positive.“

🎈Consumer price inflation heated up. The Consumer Price Index (CPI) increased 3.7% year-over-year in September, up from 3.4% in the prior month. Adjusted for food and energy, core CPI rose 2.6, up from 2.4%.

Month over month, CPI rose 0.6% as energy prices jumped 5.2%. Core CPI was up 0.3%. If you annualize the three-month and six-month figures — a reflection of the short-term trend in prices — core CPI climbed 3.4% and 2.9%, respectively.

For more discussion on inflation and monetary policy, read: The other side of the Fed’s inflation ‘mistake’ 🧐 and ‘When will the Fed cut rates?’ is not the right question for investors right now ✂️

⛽️ Gas prices tick lower, but remain high. From AAA: “The national average for a gallon of regular gasoline is down a couple of cents from last week at $4.33. Gas prices aren’t budging much as crude oil prices remain high, once again nearing $100 per barrel. The national average has stayed above $4 per gallon since late July and is currently more than a dollar higher than it was this time last year. As the graph below shows, the fall months typically bring lower gas prices, but volatility in the oil market has led to seasonal record highs this year. “

Here’s a longer-term look at gas and diesel price trends, as tracked by the EIA.

For more on energy prices, read: Our love-hate relationship with rising oil prices in charts 💔🛢️📊

🛍️ Retail shopping activity rose to record levels. Retail sales rose 0.8% in September to a record $745 billion. Gas station sales jumped 6.2% as energy prices heat up.

Excluding autos and gas, which tend to be short-term volatile, retail sales rose 0.2%.

Here’s how retail sales changed by category.

💳 Card spending data is holding up. From BofA: “Total card spending per HH was up 5.1% y/y in the week ending Oct 10, according to BAC aggregated credit and debit card data. Hurricane Isaias’s impact was limited to some sectors like restaurants in the South. Overall, spending remains healthy. Lower-income spending growth has consistently outpaced higher-income spending growth over the past several weeks.”

Consumer spending data has looked a lot better than consumer sentiment readings. For more on this contradiction, read: We’re taking that vacation whether we like it or not 🛫 and Household finances are both ‘worse’ and ‘good’ 🌦️

💼 New unemployment insurance claims, total ongoing claims remain low. Initial claims for unemployment benefits ticked up to 199,000 during the week ending Oct. 10, up from 198,000 the week prior. This metric remains at levels historically associated with economic growth.

Insured unemployment, which captures those who continue to claim unemployment benefits, ticked down to 1.71 million during the week ending Oct. 3.

For more on the labor market, read: Why mass tech layoffs have little effect on total employment 💾

🤔 Recent private job growth is positive. According to payroll processor ADP, private U.S. employers added 24,750 jobs in the four weeks ending Sept. 26.

For more on the labor market, read: Things are looking up in the labor market 👍

🏠 Mortgage rates remain elevated. According to Freddie Mac, the average 30-year fixed-rate mortgage stood at 7.4%, unchanged from last week. Itr remains at the highest average rate since Nov. 2023.

As of Q2, there were 149.5 million housing units in the U.S., of which 87.0 million were owner-occupied and about 40% were mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the weekly movements in home prices or mortgage rates.

For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖

🏚 Home sales rose. Sales of previously owned homes increased 1.5% in September to an annualized rate of 3.99 million units. From NAR chief economist Lawrence Yun: “Despite the small monthly gain on a seasonally adjusted basis, August and September marked the two slowest months for home sales this year. Further increases in mortgage rates in recent weeks mean fewer buyers can qualify to purchase a home.”

On prices, from the NAR: “The median existing-home sales price for all housing types in September was $417,500, up 1.3% from one year ago ($412,300) – the 39th consecutive month of year-over-year price increases.“

👎 Small business optimism deteriorated. The NFIB’s Small Business Optimism Index declined to 97.9 in September, down from 98.7 in August. From the NFIB: “Small business owners are proceeding with caution as they interpret how rising costs, interest rates, and the difficulty in finding qualified employees are impacting their business.”

Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.

For more on this, read: What businesses do > what businesses say 🙊 and 4 sometimes-conflicting ways I’m thinking about the economy 😬😞😎🙃

😬 This is the stuff pros are worried about. From BofA’s October Global Fund Manager Survey: “Investors believe that the biggest tail risk to markets is a ‘disorderly rise in bond yields’ (31%), then ‘AI bubble’ (23%), ‘2nd wave of inflation’ (20%), and ‘hyperscaler credit event’ (11%).”

Here’s how the biggest “tail risk” has evolved over the years.

For more on risks, read: Known worries and unknown unknowns 😬 and Two times when uncertainty seemed low and confidence was high 🌈

🛠️ Industrial activity picked up. Industrial production activity in September rose 0.1% from the prior month. Manufacturing output rose 0.3% compared to the prior month.

📈 Near-term GDP growth estimates are tracking positively. The Atlanta Fed’s GDPNow model sees real GDP growth rising at a 3.6% rate in Q3.

For more on GDP and the economy, read: It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️ and Economic data can often be both ‘worse’ and ‘good’ 🌦️

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Putting it all together 📋

Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.

Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Personal spending activity remains at record levels. Core capex orders, which are a leading indicator of business spending, have been trending higher.

Growth rates have cooled: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like job openings and excess savings have faded. Job creation, while positive, is not as hot as it used to be. It has become harder to argue that growth is destiny.

Actions speak louder than words: We are in an odd period, as hard economic data has decoupled from soft, sentiment-driven data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data holds up.

Stocks are not the economy: There’s a case to be made that the U.S. stock market could outperform the U.S. economy in the near term, thanks largely to positive operating leverage. Since the pandemic, companies have aggressively adjusted their cost structures. This included strategic layoffs and investment in new equipment, including AI-powered hardware. These moves are driving positive operating leverage, meaning modest sales growth — in the cooling economy — translates into robust earnings growth.

Mind the ever-present risks: We should not get complacent. There will always be risks to worry about, such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, and cyberattacks. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term market volatility.

Investing is never a smooth ride: Economic recessions and bear markets are harsh realities that all long-term investors should expect as they build wealth in the markets. Always keep your stock market seat belts fastened.

Think long-term: For now, there’s no reason to believe the economy and the markets will face a challenge they can’t overcome. The long game remains undefeated, and long-term investors can expect that streak to continue.

For more on how the macro story is evolving, check out the previous review of the macro crosscurrents. »

Subscribe now

Key insights about the stock market 📈

Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.

10 truths about the stock market 📈

The stock market can be intimidating: It’s real money on the line, the information is overwhelming, and people can lose fortunes very quickly. But it’s also where thoughtful investors have long accumulated wealth. The main difference between those two outlooks comes down to misconceptions about the stock market that can lead people to make poor investment decisions.

The makeup of the S&P 500 is constantly changing 🔀

Passive investing usually means buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.

The key driver of stock prices: Earnings💰

For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because a stock's long-term moves can ultimately be explained by the underlying company’s earnings, earnings expectations, and uncertainty about those expectations. Over time, stock prices and earnings have a very tight statistical relationship.

Stomach-churning stock market sell-offs are normal🎢

Investors should always be mentally prepared for major stock market sell-offs. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has averaged a max annual drawdown (i.e., the biggest intra-year sell-off) of 14%.

How the stock market performed around recessions 📉📈

Every recession in history was different. And stock performance around them varied widely. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.

In the stock market, time pays ⏳

Since 1928, the S&P 500 has generated a positive total return in more than 89% of five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that the S&P 500 has never had a period where it didn’t generate a positive return.

What a strong dollar means for stocks 👑

While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.

Stanley Druckenmiller’s No. 1 piece of advice for novice investors 🧐

…you don’t want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there’s overcapacity and they’re losing money. What about when they’re losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it’s going to be in 18 to 24 months as opposed to now. If you buy it now, you’re buying into every single fad every single moment. Whereas if you envision the future, you’re trying to imagine how that might be reflected differently in security prices.

Peter Lynch made a remarkably prescient market observation in 1994 🎯

Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That’s all there is to it.

Warren Buffett’s ‘fourth law of motion’ 📉

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.

Most pros can’t beat the market 🥊

According to S&P Dow Jones Indices (SPDJI), 79% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2025. As you extend the time horizon, the numbers get even worse. Over three years, 67% underperformed. Over 5 years, 89% underperformed. And over 20 years, 93% underperformed. This 2025 performance marked the 16th consecutive year the majority of fund managers in this category have lagged the index.

Proof that ‘past performance is no guarantee of future results’ 📊

Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, of the 334 large-cap equity funds in the top half of performance in 2021, 58.7% remained at the top half in 2022. However, just 6.9% remained on top through 2023. Only 4.5% stayed on top in the five consecutive years through 2025.

It’s much more dismal when you raise the bar. Of the 164 large-cap equity funds in the top quartile in 2021, just 20.1% remained in that category in 2022. That percentage fell to literally 0.0% in 2023.

The odds are stacked against stock pickers 🎲

Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers can’t do this consistently. One reason is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 19% of S&P 500 stocks outperformed the average stock return from 2001 to 2025. Over this period, the average S&P 500 stock returned 452%, while the median stock returned just 59%.

But in the context of a nuanced discussion of finance and macroeconomics, the stock market is not the economy.

Ritholtz Wealth Management’s Ben Carlson shared this helpful visual on Tuesday’s Animal Spirits podcast. The chart, published by JPMorgan Asset Management, shows a sector breakdown of GDP, employment, and the S&P 500 (which covers 80% of the U.S. stock market).

I have four observations about this discrepancy:

• Government: The S&P consists exclusively of publicly traded corporations. GDP and employment, which cover the entire U.S. economy, include the extensive activities of the massive U.S. government.

• Two angles on the economy: GDP includes only financial measures of the economy, so it doesn’t tell you much about the labor market directly. This is why the NBER’s definition of economic activity, which includes changes in employment, is arguably advantageous. That said, the sector breakdowns of GDP and employment are relatively similar.

• International: This isn’t stated in the graphic, but S&P 500 companies generate about 30%-40% of their revenue outside of the U.S., which means a large share of the stock market reflects international economic activity. In the U.S. economy, you could argue this is sorta similar to the import and export activity conducted by U.S. businesses, but net trade is relatively small at about 3% of GDP.

• Tech: One of the more glaring differences between the stock market and the economy is that the tech sector accounts for about half of the S&P, but a tiny share of GDP and employment. This is why the many headlines about tech layoffs in the financial press in recent years appeared to conflict with the broad labor market, which has been resilient during the period.

That said, the stock market and the economy are intertwined in countless ways. This is why the stock market often — but not always — struggles during recessions.

But you should be careful about jumping to conclusions about the stock market because of an alarming headline about the economy, and vice versa. Because the stock market is not the economy.

-

Related from TKer:

• It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️

• Where in the world do S&P 500 companies do business? 🗺️

• You don’t have to look outside U.S. stocks for international exposure 🌎

• Why mass tech layoffs have little effect on total employment 💾

• The stock market’s history with recessions 📉

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Review of the macro crosscurrents 🔀

📈The stock market rallied to all-time highs, with the S&P 500 setting an intraday high of 7,844.52 and a closing high of 7,818.93 on Tuesday. The index ended the week at 7,811.54, up 14.1% year-to-date. For market insights, check out the Stock Market tab at TKer. »

There were several notable data points and macroeconomic developments since our last review:

🎈 Inflation expectations heat up. From the New York Fed’s September Survey of Consumer Expectations: “Median inflation expectations increased by 0.3 percentage point to 3.9% at the one-year-ahead horizon and by 0.1 percentage point to 3.3% at the three-year-ahead horizon. Median inflation expectations were unchanged at the five-year-ahead horizon at 3.0%. This is the highest reading for the one-year-ahead inflation expectations since May 2023.”

⛽️ Gas prices tick lower, but remain high. From AAA: “Gas prices remain the highest they’ve ever been for this time of year. Even though the national average dropped 5 cents this past week to $4.36, pump prices remain at record highs for autumn. This is the first year the national average has been above $4 per gallon in October. After dipping into the $80 per barrel range for several days, crude oil is back above $90 per barrel. Hurricane Isaias is another factor that could affect gas prices if oil production and refineries in the region are impacted.”

Here’s a longer-term look at the trajectory of gas and diesel prices, as tracked by the EIA.

For more on energy prices, read: Our love-hate relationship with rising oil prices in charts 💔🛢️📊

💼 New unemployment insurance claims, total ongoing claims remain low. Initial claims for unemployment benefits ticked down to 197,000 during the week ending Oct. 3, down from 199,000 the week prior. This metric remains at levels historically associated with economic growth.

Insured unemployment, which captures those who continue to claim unemployment benefits, ticked up to 1.72 million during the week ending Sept. 26.

For more on the labor market, read: Why mass tech layoffs have little effect on total employment 💾

🤔 Recent private job growth is picking up. According to payroll processor ADP, private U.S. employers added 23,750 jobs in the four weeks ending Sept. 19.

For more on the labor market, read: Things are looking up in the labor market 👍

🛍️ Retail sales may have cooled last month. According to the Chicago Fed’s Advance Retail Trade Summary, sales rose 0.4% in September. Adjusted for inflation, sales were down 0.7% from the prior period.

💳 Card spending data is holding up. From BofA: “Total card spending per HH was up 3.0% y/y in the week ending Oct 3, according to BAC aggregated credit & debit card data. The Nor’easter storm likely contributed to the broad-based moderation in spending growth. Lower-income spending growth continued to outpace higher-income in the week ending Oct 3.”

Consumer spending data has looked a lot better than consumer sentiment readings. For more on this contradiction, read: We’re taking that vacation whether we like it or not 🛫 and Household finances are both ‘worse’ and ‘good’ 🌦️

👎 Consumer vibes are in the dumps. From the University of Michigan’s October Surveys of Consumers: “While year-ahead expectations for personal finances and business conditions crept up slightly, buying conditions for durables plummeted amid high prices and borrowing costs.”

More from the report: “Increases in sentiment among Democrats and Republicans were offset by a decline among independents this month. Overall, sentiment for lower-income consumers and those with smaller stock porfolios dropped steeply this month, groups that have fewer resources to weather increases in prices. Frustration over cost-of-living continues to mount, as consumers across the political spectrum believe that the trajectory of the economy has weakened since the beginning of the year.“

For more on consumer sentiment, read: What consumers do > what consumers say 🙊

🏠 Mortgage rates rise. According to Freddie Mac, the average 30-year fixed-rate mortgage rose to 7.4%, up from 7.28% last week. This is the highest average rate since Nov. 2023.

As of Q2, there were 149.5 million housing units in the U.S., of which 87.0 million were owner-occupied and about 40% were mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the weekly movements in home prices or mortgage rates.

For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖

⌨️ Services activity surveys signal growth. From S&P Global’s September U.S. Services PMI: “September has seen US business growth surge to its highest for over five years, with rising demand and improved optimism encouraging firms to take on workers at a pace not seen for over four years. Combined with the encouragingly solid manufacturing PMI, the strong service sector expansion points to economic growth of around 4% in the third quarter and 5% in September alone, the latter hinting at accelerating momentum into the fourth quarter. New orders and backlogs of work are rising at increased rates and growth expectations have recovered to a one-year high, adding to the sense of an economy picking up further pace in the near term. Tech companies are reporting by far the strongest growth but the rising tide is now lifting all boats as far as the major sectors are concerned, with accelerating growth also reported for consumer-facing businesses as well as industrials and healthcare, alongside sustained solid growth in financial services.”

The September ISM Services PMI signaled growth, but at a cooler pace.

Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.

For more on this, read: What businesses do > what businesses say 🙊 and 4 sometimes-conflicting ways I’m thinking about the economy 😬😞😎🙃

📈 Near-term GDP growth estimates are tracking positively. The Atlanta Fed’s GDPNow model sees real GDP growth rising at a 3.6% rate in Q3.

For more on GDP and the economy, read: It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️ and Economic data can often be both ‘worse’ and ‘good’ 🌦️

Subscribe now

Putting it all together 📋

Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.

Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Personal spending activity remains at record levels. Core capex orders, which are a leading indicator of business spending, have been trending higher.

Growth rates have cooled: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like job openings and excess savings have faded. Job creation, while positive, is not as hot as it used to be. It has become harder to argue that growth is destiny.

Actions speak louder than words: We are in an odd period, as hard economic data has decoupled from soft, sentiment-driven data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data holds up.

Stocks are not the economy: There’s a case to be made that the U.S. stock market could outperform the U.S. economy in the near term, thanks largely to positive operating leverage. Since the pandemic, companies have aggressively adjusted their cost structures. This included strategic layoffs and investment in new equipment, including AI-powered hardware. These moves are driving positive operating leverage, meaning modest sales growth — in the cooling economy — translates into robust earnings growth.

Mind the ever-present risks: We should not get complacent. There will always be risks to worry about, such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, and cyberattacks. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term market volatility.

Investing is never a smooth ride: Economic recessions and bear markets are harsh realities that all long-term investors should expect as they build wealth in the markets. Always keep your stock market seat belts fastened.

Think long-term: For now, there’s no reason to believe the economy and the markets will face a challenge they can’t overcome. The long game remains undefeated, and long-term investors can expect that streak to continue.

For more on how the macro story is evolving, check out the previous review of the macro crosscurrents. »

Subscribe now

Key insights about the stock market 📈

Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.

10 truths about the stock market 📈

The stock market can be intimidating: It’s real money on the line, the information is overwhelming, and people can lose fortunes very quickly. But it’s also where thoughtful investors have long accumulated wealth. The main difference between those two outlooks comes down to misconceptions about the stock market that can lead people to make poor investment decisions.

The makeup of the S&P 500 is constantly changing 🔀

Passive investing usually means buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.

The key driver of stock prices: Earnings💰

For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because a stock's long-term moves can ultimately be explained by the underlying company’s earnings, earnings expectations, and uncertainty about those expectations. Over time, stock prices and earnings have a very tight statistical relationship.

Stomach-churning stock market sell-offs are normal🎢

Investors should always be mentally prepared for major stock market sell-offs. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has averaged a max annual drawdown (i.e., the biggest intra-year sell-off) of 14%.

How the stock market performed around recessions 📉📈

Every recession in history was different. And stock performance around them varied widely. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.

In the stock market, time pays ⏳

Since 1928, the S&P 500 has generated a positive total return in more than 89% of five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that the S&P 500 has never had a period where it didn’t generate a positive return.

What a strong dollar means for stocks 👑

While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.

Stanley Druckenmiller’s No. 1 piece of advice for novice investors 🧐

…you don’t want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there’s overcapacity and they’re losing money. What about when they’re losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it’s going to be in 18 to 24 months as opposed to now. If you buy it now, you’re buying into every single fad every single moment. Whereas if you envision the future, you’re trying to imagine how that might be reflected differently in security prices.

Peter Lynch made a remarkably prescient market observation in 1994 🎯

Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That’s all there is to it.

Warren Buffett’s ‘fourth law of motion’ 📉

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.

Most pros can’t beat the market 🥊

According to S&P Dow Jones Indices (SPDJI), 79% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2025. As you extend the time horizon, the numbers get even worse. Over three years, 67% underperformed. Over 5 years, 89% underperformed. And over 20 years, 93% underperformed. This 2025 performance marked the 16th consecutive year the majority of fund managers in this category have lagged the index.

Proof that ‘past performance is no guarantee of future results’ 📊

Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, of the 334 large-cap equity funds in the top half of performance in 2021, 58.7% remained at the top half in 2022. However, just 6.9% remained on top through 2023. Only 4.5% stayed on top in the five consecutive years through 2025.

It’s much more dismal when you raise the bar. Of the 164 large-cap equity funds in the top quartile in 2021, just 20.1% remained in that category in 2022. That percentage fell to literally 0.0% in 2023.

The odds are stacked against stock pickers 🎲

Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers can’t do this consistently. One reason is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 19% of S&P 500 stocks outperformed the average stock return from 2001 to 2025. Over this period, the average S&P 500 stock returned 452%, while the median stock returned just 59%.

But some of the most encouraging stock market stats involve what happens when things go wrong.

After Berkshire Hathaway announced Warren Buffett’s retirement, Meb Faber shared this mind-blowing stat.

“If Berkshire declined 99% today on the news of Buffett’s retirement, Berkshire would still have outperformed the S&P 500 since 1965,” Faber wrote. (Buffett took over Berkshire in 1965.)

Morningstar’s Danny Noonan illustrated this in a log-scaled chart.

Being able to lose 99% and remain up speaks to the asymmetry of long-term stock market returns. We’ll get back to this in a minute.

But first, I know that a stat like this will elicit mixed feelings. So before you get all riled up, let me flag a few issues:

• Cherry-picked winner: Most stocks don’t outperform the S&P 500, so this stat reflects what happens if you’re lucky enough to pick a rare winner. Indeed, Buffett would be the first to tell you that luck plays a huge role in picking market-beating stocks. He’s made clear that the Berkshire equity portfolio’s ”satisfactory results have been the product of about a dozen truly good decisions — that would be about one every five years.“

• One purchase: This stat is about a single hypothetical purchase made in 1965. Most people make purchases over many periods throughout their lifetime. This means a typical investor’s average cost would likely be much higher than the 1965 price, so a 99% decline would be far more costly.

• Long holding period: It’s been 61 years since 1965. Most investors have a shorter time horizon before they have to sell. This includes even young people saving for retirement.

That said, I think we can all appreciate what this example teaches us about compound interest and the stock market's potential upside.

Importantly, I hope this gets investors thinking about what it actually means to have to sell during a big market drawdown.

Asymmetric upside affords you some downside 💪

In the stock market, the most you can lose is 100% of what you put in. Admittedly, 100% is a lot.

On the other hand, some stocks go up by more than 100%. Some go up by 200%. Some go up by 2,000%. A few might even go up 591,000%.

Of course, it’s extremely difficult to pick those stocks that go on to generate eye-popping returns. But you don’t have to do this to be a successful investor.

A broadly diversified portfolio of stocks can also deliver far more upside than downside. S&P 500 index funds, which give you exposure to many high-performing stocks, have seen their value multiply over reasonable time horizons.

Importantly, the S&P has a long history of rising much more than it falls.

Check out the chart below from Creative Planning's Charlie Bilello. It reviews the performance of history’s bull and bear markets. Since 1949, the average total return during bear markets was -31%. Meanwhile, the average total return during bull markets was +254%.

In other words, the value of an S&P index fund and its dividends more than triples in an average bull market. And these bull-market gains have always eclipsed and more than offset bear-market losses. This is probably obvious to anyone who’s seen a long-term chart of the stock market: essentially a line going up and to the right, with modest bumps along the way.

A long-term diversified investor’s bear-case scenario 📉

Investors’ primary fear is losing money. What if there’s a bear market, and the value of my allocation to stocks falls 20%?

Well, there’s a difference between being down 20% and being down 20%.

If you bought stocks today and prices fell 20%, then you’d be down 20%. That’s unfortunate. It happens to the best of us.

But what if you bought stocks about two years ago, experienced a 25% gain, and then the market fell 20%? You’d actually be at breakeven. Yes, you’d be down 20% from some higher value. But you wouldn’t have actually lost money based on the cost of your investment.

In a stock market that often falls but usually goes up, the odds that your portfolio is in the money — even in the midst of a bear market — improve as you extend your time horizon.

Consider me. I started buying stocks for my retirement account in 2005 when the S&P 500 was around 1,200. Ever since, I’ve bought more periodically. Fast forward to today, when the S&P 500 is trading at 7,722. If the market fell 20%, that would send the S&P to 6,178, a level initially reached in mid-2025. The chart below marks this level with the dotted line.

If the market fell 20% from current levels, then all of my purchases after mid-2025 (above the dotted line) would be in the red.

But the bulk of my purchases were made over the 19 years before then (below the dotted line), when the market was much lower. That explains why, despite being down 20%, the value of my portfolio is considerably higher than the total of what I put in.

The big picture 🖼️

It’s possible that when it’s time for you to sell, the market might be down more than 20%. But you’d have to be pretty unlucky, as the market has spent very little time in >20% drawdowns. Odds are market conditions will be much more favorable than that.

Nevertheless, I think it’s helpful to understand what it really means for you and your portfolio when the market is off its high.

Because if you’ve been investing for years, are you really down? Or are you up by a lot, but just not as much as you were?

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Related from TKer:

• Does it always make sense to think of a 20% decline in your portfolio as a loss? 🤨

• The intimidating mathematical hurdle a beaten down stock market always clears 🙌

• Warren Buffett: ‘It takes just a few winners to work wonders’ 🏆

• Warren Buffett on luck and not beating yourself up over mistakes 🍀🤦🏻‍♂️

• The best investing wisdom shares a common theme 🧐

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Review of the macro crosscurrents 🔀

📉The stock market declined last week, with the S&P 500 shedding 0.3% to end at 7,722.72. The index is now down 1.0% from its August 13 closing high of 7,798.99 and up 12.8% year-to-date. For market insights, check out the Stock Market tab at TKer. »

There were several notable data points and macroeconomic developments since our last review:

🎈 Fed’s preferred inflation measure cooled. The personal consumption expenditures (PCE) price index in August was up 3.4% from a year ago. The core PCE price index — the Federal Reserve’s preferred measure of inflation — was up 3.0% during the month, down from July’s 3.3% rate.

On a month-over-month basis, the core PCE price index was up 0.2%. If you annualize the three-month trend in the monthly figures — a reflection of the short-term trend in prices — core PCE climbed 2.0%.

One month’s inflation print does not reflect a trend. But it’s encouraging to see at least one measure of inflation in line with the Federal Reserve’s 2% target. How price trends evolve in the near term continues to bear watching.

For more on the Fed’s impact on markets, read: ‘When will the Fed cut rates?’ is not the right question for investors right now ✂️

⛽️ Gas prices tick lower, but remain high. From AAA: “The national average for a gallon of regular gasoline dropped nearly 7 cents from last week to $4.41. This follows a record-setting September at the pump. The monthly average was $4.33, 50 cents higher than the previous September record of $3.83 set in 2023. Crude oil prices have dipped back into the $90 per barrel range, lowering the national average, but overall gas prices remain the highest they’ve ever been for this time of year.“

Here’s a longer-term look at the trajectory of gas and diesel prices, as tracked by the EIA.

For more on energy prices, read: Our love-hate relationship with rising oil prices in charts 💔🛢️📊

🛍️ Consumer spending ticks higher. According to BEA data, personal consumption expenditures increased 0.9% month-over-month in August to an annual rate of $22.3 trillion, an all-time high.

Adjusted for inflation, real personal consumption expenditures was unchanged from the prior month’s all-time high.

Here’s a breakdown of spending growth by category.

💰The personal saving rate is low, but that’s not obviously a bad sign. Personal saving — disposable personal income less personal consumption — has been shrinking over the past two years, causing the personal saving rate — personal saving as a percentage of disposable personal income — to trend lower. In August, the saving rate was 4.1%, its lowest level since Nov. 2022.

All else equal, this is not great. The implication is that more people are drawing from their savings to support their spending amid inflationary pressures. However, the saving rate tends to decline when net worths are rising. And net worths have been rising, driven by record-high home prices and elevated stock prices.

For more on this dynamic, read: A contrarian note about the falling personal saving rate 💸

💳 Card spending data is holding up. From BofA: “Total card spending per HH was up 5.6% y/y in the week ending Sep 26, according to BAC aggregated credit & debit card data. Relative to last week, y/y entertainment spending growth increased the most while furniture spending saw the largest decline. After a brief reversal last week, lower-income spending growth again outpaced higher-income in the week ending Sep 26.”

Consumer spending data has looked a lot better than consumer sentiment readings. For more on this contradiction, read: We’re taking that vacation whether we like it or not 🛫 and Household finances are both ‘worse’ and ‘good’ 🌦️

💼 New unemployment insurance claims, total ongoing claims remain low. Initial claims for unemployment benefits ticked down to 197,000 during the week ending Sept. 26, down from 198,000 the week prior. This metric remains at levels historically associated with economic growth.

Insured unemployment, which captures those who continue to claim unemployment benefits, ticked down to 1.70 million during the week ending Sept. 19.

For more on the labor market, read: Why mass tech layoffs have little effect on total employment 💾

💼 Jobs were created. According to the BLS’s Employment Situation report, U.S. employers added 29,000 jobs in September.

Total payroll employment rose to a record 159.04 million jobs in September.

The unemployment rate — that is, the number of workers who identify as unemployed as a percentage of the civilian labor force — ticked up to 4.2% during the month. This was largely driven by entrants into the labor force.

The labor force participation rate — that is, the number of employed and unemployed job seekers as a percentage of the civilian population — ticked up to 61.8% as 485,000 people entered the labor force.

The labor market is in decent shape, but clearly isn’t as hot as it was just a few years ago.

For more on the labor market, read: Things are looking up in the labor market 👍

💸 Wage growth is cooling. Average hourly earnings rose by 0.1% month-over-month in September. On a year-over-year basis, September’s wages were up 3.0%.

💰 Job switchers still get better pay. According to ADP, annual pay in September for people who changed jobs was up 4.8% from a year ago. That better-pay gap has been widening a bit in recent months. For those who stayed at their job, pay was up 3.0%, about what it’s been for the past year.

For more on why policymakers are watching wage growth, read: Revisiting the key chart to watch amid the Fed’s war on inflation 📈

💼 Job openings declined. According to the BLS’s Job Openings and Labor Turnover Survey, employers had 7.08 million job openings in August, down from 7.34 million in July.

During the month, 7.03 million people were unemployed — meaning there were 1.0 job openings per unemployed person. This remains one of the most straightforward indicators of labor demand. However, this metric has returned to prepandemic levels.

For more on job openings, read: Were there really twice as many job openings as unemployed people? 🤨

👍 Layoffs remain depressed, hiring remains firm. Employers laid off 1.64 million people in August. While challenging for the people affected, this figure represents just 1.0% of total employment. This metric remains slightly below prepandemic levels.

For more on layoffs, read: Mathematical context can totally change the story 🧮

Hiring activity remains well above layoff activity. During the month, employers hired 5.19 million people.

That said, the hiring rate — the number of hires as a percentage of the employed workforce — is relatively low, which could signal trouble ahead in the labor market.

For more on why this metric matters, read: The hiring situation 🧩

🤔 People are quitting less. In August, 3.07 million workers quit their jobs. This represents 1.9% of the workforce. The rate continues to trend below prepandemic levels.

A low quits rate could mean a number of things: more people are satisfied with their job, workers have fewer outside job opportunities, wage growth is cooling, or productivity will improve as fewer people are entering new, unfamiliar roles.

For more on this dynamic, read: The crummy labor market is yielding a ‘tenure dividend’ for corporations 💰

👎 Consumer vibes tumbled. The Conference Board’s Consumer Confidence Index fell by 6.7 points in September. From the report: “The Present Situation Index fell sharply, while the Expectations Index slipped further into negative territory. Consumer appraisals of current business conditions became negative for the first time since September 2024. Perceptions of the current labor market also worsened, though remained within positive territory. Over the next six months, consumers expected both business conditions and the labor market to weaken. Consumers still anticipated their household incomes to rise, but less so compared to previous months.”

More from the report: “On a six-month moving average basis, confidence across all age groups and nearly all income groups trended downward. While higher-income groups remained generally more optimistic, those with a household income of $125,000-$149,000 reported the greatest decline in confidence over the last six months. By generation, confidence for Gen Z, followed by Millennials, remained the highest on a six-month moving average basis. Confidence among the three oldest generations—Generation X, Baby Boomers, and the Silent Generation—continued to weaken. Confidence fell in September across all political affiliations—Democrats, Republicans, and Independents.”

For more on consumer sentiment, read: What consumers do > what consumers say 🙊 and The economy may not be working for everyone right now, but it’s at least working for stock market investors 🎭

👎 Consumers feel worse about the labor market. From The Conference Board: “Consumers’ views of the labor market softened in September: 23.6% of consumers said jobs were ‘plentiful,’ down from 24.5% in August. 21.9% of consumers said jobs were ‘hard to get,’ up from 20.3%.”

Many economists monitor the spread between these two percentages (a.k.a., the labor market differential). The direction of the spread reflects a cooling sentiment toward the labor market.

More from The Conference Board: “Consumers were also more negative about the labor market outlook in September: 14.0% of consumers expected more jobs to be available, down from 14.8% in August. 28.4% expected fewer jobs, up from 26.1%.“

For more on the labor market, read: Things are looking up in the labor market 👍

🏠 Mortgage rates rise. According to Freddie Mac, the average 30-year fixed-rate mortgage rose to 7.28%, up from 7.03% last week. This is the highest average rate since Nov. 2023.

As of Q2, there were 149.5 million housing units in the U.S., of which 87.0 million were owner-occupied and about 40% were mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the weekly movements in home prices or mortgage rates.

For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖

🏠 Home prices rose. According to the S&P CoreLogic Case-Shiller index, home prices were up 1.9% year-over-year in July and 1.6% month-over-month. From S&P Dow Jones Indices’ Rebecca Kaufman: “While home prices continued to decline in real terms in July 2026, marking the 14th consecutive month of real declines, slightly lower inflation and stronger nominal home price appreciation helped narrow the gap.”

For more on how home prices and how they may be affecting the economy, read: A contrarian note about the falling personal saving rate...💸

📋 Manufacturing activity surveys signal growth, but also challenges. From S&P Global’s September U.S. Manufacturing PMI: “September has seen the pace of US manufacturing growth pick up a gear again, the PMI lifting to its highest since May 2022 as a surge in new orders encouraged factories to lift output sharply higher and take on workers in increasing numbers. Order book backlogs are rising and suppliers are increasingly busy, pointing to stretched capacity as companies struggle to meet demand across both consumer-facing and business sectors. This is most notable in the investment and production of machinery and equipment, linked in many cases to rising AI-related spend. Safety stock building amid price and supply chain worries also continues to support demand, though the ongoing loss of export orders remains a disappointment. While sending an encouraging signal for further growth of manufacturing capacity in the coming months, the indication that demand is outstripping supply also means inflationary pressures remain a key area of concern, especially amid high oil prices.”

Similarly, the ISM September Manufacturing PMI signaled growth.

The ISM survey also signaled inflation.

Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.

For more on this, read: What businesses do > what businesses say 🙊 and 4 sometimes-conflicting ways I’m thinking about the economy 😬😞😎🙃

🏭 Business investment activity rose. Orders for nondefense capital goods excluding aircraft — a.k.a. core capex or business investment — increased 1.6% in August to a record $87.6 billion.

Core capex orders are a leading indicator, meaning they foretell economic activity down the road.

📈 Near-term GDP growth estimates are tracking positively. The Atlanta Fed’s GDPNow model sees real GDP growth rising at a 3.7% rate in Q3.

For more on GDP and the economy, read: It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️ and Economic data can often be both ‘worse’ and ‘good’ 🌦️

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Putting it all together 📋

Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.

Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Personal spending activity remains at record levels. Core capex orders, which are a leading indicator of business spending, have been trending higher.

Growth rates have cooled: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like job openings and excess savings have faded. Job creation, while positive, is not as hot as it used to be. It has become harder to argue that growth is destiny.

Actions speak louder than words: We are in an odd period, given that the hard economic data decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.

Stocks are not the economy: There’s a case to be made that the U.S. stock market could outperform the U.S. economy in the near term, thanks largely to positive operating leverage. Since the pandemic, companies have aggressively adjusted their cost structures. This came with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.

Mind the ever-present risks: Of course, we should not get complacent. There will always be risks to worry about, such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, and cyber attacks. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.

Investing is never a smooth ride: There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect as they build wealth in the markets. Always keep your stock market seat belts fastened.

Think long-term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t overcome. The long game remains undefeated, and it’s a streak that long-term investors can expect to continue.

For more on how the macro story is evolving, check out the previous review of the macro crosscurrents. »

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Key insights about the stock market 📈

Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.

10 truths about the stock market 📈

The stock market can be an intimidating place: It’s real money on the line, there’s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it’s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.

The makeup of the S&P 500 is constantly changing 🔀

Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.

The key driver of stock prices: Earnings💰

For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because long-term moves in a stock can ultimately be explained by the underlying company’s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings has a very tight statistical relationship.

Stomach-churning stock market sell-offs are normal🎢

Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.

How the stock market performed around recessions 📉📈

Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.

In the stock market, time pays ⏳

Since 1928, the S&P 500 has generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that there’s never been a period where the S&P 500 didn’t generate a positive return.

What a strong dollar means for stocks 👑

While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.

Stanley Druckenmiller’s No. 1 piece of advice for novice investors 🧐

…you don’t want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there’s overcapacity and they’re losing money. What about when they’re losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it’s going to be in 18 to 24 months as opposed to now. If you buy it now, you’re buying into every single fad every single moment. Whereas if you envision the future, you’re trying to imagine how that might be reflected differently in security prices.

Peter Lynch made a remarkably prescient market observation in 1994 🎯

Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That’s all there is to it.

Warren Buffett’s ‘fourth law of motion’ 📉

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.

Most pros can’t beat the market 🥊

According to S&P Dow Jones Indices (SPDJI), 79% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2025. As you stretch the time horizon, the numbers get even more dismal. Over three years, 67% underperformed. Over 5 years, 89% underperformed. And over 20 years, 93% underperformed. This 2025 performance was the 16th consecutive year in which the majority of fund managers in this category have lagged the index.

Proof that ‘past performance is no guarantee of future results’ 📊

Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, of the 334 large-cap equity funds in the top half of performance in 2021, 58.7% remained at the top half in 2022. However, just 6.9% remained on top through 2023. Only 4.5% stayed on top in the five consecutive years through 2025.

It’s much more dismal when you raise the bar. Of the 164 large-cap equity funds in the top quartile in 2021, just 20.1% remained in that category in 2022. That percentage fell to literally 0.0% in 2023.

The odds are stacked against stock pickers 🎲

Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers aren’t able to do this consistently. One of the reasons for this is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 19% of the stocks in the S&P 500 outperformed the average stock’s return from 2001 to 2025. Over this period, the average return on an S&P 500 stock was 452%, while the median stock rose by just 59%.

Energy prices have also trended higher. The average price of a gallon of gasoline is at record levels for this time of year. Inflation got hot enough that the Federal Reserve recently hiked its benchmark short-term interest rate in an effort to rein in prices.

Consumers are very much aware of all this, as reflected by poor consumer sentiment surveys.

Hearing all this, you might conclude the economy should be deteriorating and the stock market should be way down.

But the economy is holding up pretty well. In fact, the Atlanta Fed estimates GDP grew at a 3.7% rate in Q3. Meanwhile, the stock market has been remarkably resilient, with the S&P 500 up 13% year-to-date. This index is down just 1% from its record high set on Aug. 13.

This is not a mistake. It’s not some conspiracy. And it’s not craziness.

The truth is that while some things have been getting worse, other things have been getting better.

Key metrics have been improving 👍

Read more

It’s a loaded question that yields different answers — depending on who you ask.

One of the sloppier answers I often hear goes something like this: “Every quarter, mega-cap tech companies announce new huge investments in AI. But even after spending all that money, they’ve been reporting huge quarterly profits.”

This view isn’t technically wrong, but it obfuscates how companies account for the investments in their financial statements. While it is true that companies are spending massive amounts of cash on AI (as reported on cash flow statements), the bulk of these investments have yet to appear as accrued expenses on future income statements.

And it’s the income statement that gives us the quarterly earnings we hear about in the news every three months. It’s how we get a better sense of a company’s ongoing profitability.

This is a wonkier topic than what I usually write about. But I suspect it’ll become increasingly important to understand as these expenses become a bigger part of quarterly earnings announcements.

From capex to depreciation expense 🧮

For the past few years, mega-cap tech companies have committed increasing amounts of capital toward buying hardware and building the massive facilities needed to support booming demand for AI. These capital expenditures (capex) are already in the high nine figures and are expected to cross the $1 trillion mark soon. The size and speed of the investment are why these companies — including Amazon, Meta, Alphabet, Microsoft, and Oracle — are called hyperscalers.

The companies selling the products and services to support this buildout have seen an immediate earnings boom, which has helped bolster the stock market this year.

“The mega-cap U.S. hyperscalers are on track to spend $800 billion on capex this year, an increase of 94% vs. 2025,” Goldman Sachs’ Ben Snider wrote in a Sept. 18 note. “That spending is flowing through to the earnings of the AI infrastructure complex including semiconductor, tech hardware, industrials, and utilities companies, which are collectively accounting for roughly half of consensus S&P 500 earnings growth this year.”

For the hyperscalers themselves, however, much of the recent attention has focused on the size of the investment and how these companies are financing it. And while mountains of cash have been flying out of these companies’ windows, most of this investment has yet to show up as expenses on income statements.

Remember: Big investments don’t hit income statements all at once during a single reporting period. Instead, companies depreciate them over the investment’s estimated useful life, which usually lasts years. For more on this, read this.

In other words, the hundreds of billions of dollars spent on AI infrastructure will effectively be chopped up and spread out over years. And that means we’ll see much more of it show up in the form of ballooning depreciation expenses in future quarterly earnings reports.

For investors, the size of the investments doesn’t really matter. What matters is whether these companies will generate enough revenue and operate efficiently enough to stay profitable as they work off those depreciation expenses.

Don’t expect a definitive answer today about whether this bet on AI will be profitable. It’s hard enough to predict the next quarter. It’s much more difficult to predict what’ll happen over the next five to 10 years.

But the coming depreciation expense is at least a bit more certain because it is a function of measurable capex. And Goldman’s Snider ran the numbers and cautions that the coming depreciation expense will be a major hurdle for earnings growth.

“Hyperscaler depreciation expenses will continue to increase as capex growth decelerates, further dampening the boost of AI investment spending to S&P 500 earnings growth,” Snider wrote. “We estimate a drag from hyperscaler depreciation expenses on S&P 500 earnings growth of 5pp in 2027, offsetting nearly half of the 11pp boost to earnings from capex spending. By 2028, the drag from depreciation should offset the S&P 500 earnings uplift from continued capex spending.” (Emphasis added.)

In other words, Snider expects the AI earnings tailwind to fade by 2028 as depreciation expense becomes a bigger headwind. (This is similar to what Morgan Stanley analysts cautioned in January.)

Whether these companies overcome this depreciation headwind will largely depend on the revenue they generate from the AI goods and services they sell. (The revenue matter is a whole other can of worms, which we’ll have to discuss later.)

Zooming out 🔭

Depreciation and accrual accounting are pretty advanced topics, and I’m sure many investors will continue to struggle to wrap their heads around it all.

For what it’s worth, this is basic stuff for top business executives and the analysts covering the companies. That is to say, it’s not some secret that this earnings headwind is looming. In fact, analysts are already forecasting earnings growth to decelerate in 2027 and 2028, which in turn may help explain why stock market valuations have been cooling over the past year.

Some investors may be able to get away with not understanding how it all works. Under normal conditions, accounting ignorance can be bliss.

But if you’re someone who watches a lot of financial news and reads a lot of financial commentary, it would suit you well to have a basic understanding of how depreciation works.

Because eventually, headlines about the AI capex earnings tailwind will fade, and we’ll hear a lot more about the AI depreciation earnings headwind.

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Related from TKer:

• Struggling to make sense of Big Tech’s $600 billion bet on AI? Here’s a metric to watch 📋

• A brief 9-point guide to how everything affects earnings 📋

• The stock market may already be adjusting to a future with slower earnings growth 🤔

• A sneak preview of Wall Street’s outlook for stocks in 2027 🔭

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Review of the macro crosscurrents 🔀

📈The stock market climbed last week, with the S&P 500 rising 1.2% to end at 7,743.41. The index is now down 0.7% from its August 13 closing high of 7,798.99 and up 13.1% year-to-date. For market insights, check out the Stock Market tab at TKer. »

There were several notable data points and macroeconomic developments since our last review:

🏭 Business investment activity rose. Orders for nondefense capital goods excluding aircraft — a.k.a. core capex or business investment — increased 1.6% in August to a record $87.6 billion.

Core capex orders are a leading indicator, meaning they foretell economic activity down the road.

💼 New unemployment insurance claims, total ongoing claims remain low. Initial claims for unemployment benefits ticked down to 197,000 during the week ending Sept. 19, down from 198,000 the week prior. This metric remains at levels historically associated with economic growth.

Insured unemployment, which captures those who continue to claim unemployment benefits, ticked up to 1.72 million during the week ending Sept. 12.

For more on the labor market, read: Why mass tech layoffs have little effect on total employment 💾

🤔 Recent private job growth is picking up. According to payroll processor ADP, private U.S. employers added 20,000 jobs in the four weeks ending Sept. 5.

For more on the labor market, read: Things are looking up in the labor market 👍

⛽️ Gas prices rise. From AAA: “The national average for a gallon of regular gasoline continues to climb, up nearly 5 cents from last week. At $4.48 per gallon, this is the highest the national average has ever been for this time of year. Typically, the start of autumn brings lower gas prices, but lingering volatility in the Strait of Hormuz and the high cost of crude oil are driving up pump prices. This month is on track to set a new September record. So far, the average for this month is $4.30, higher than the previous September record of $3.83 set in 2023.“

Here’s a longer-term look at the trajectory of gas and diesel prices, as tracked by the EIA.

For more on energy prices, read: Our love-hate relationship with rising oil prices in charts 💔🛢️📊

💳 Card spending data is holding up. From BofA: “Total card spending per HH was up 6.9% y/y in the week ending Sep 19, according to BAC aggregated credit & debit card data. Earlier retail availability than last year of new electronics releases likely contributed to the strength in y/y spending. Surging gas prices have once again opened up a gap in ex-gas spending between higher- and lower-income HHs.”

Consumer spending data has looked a lot better than consumer sentiment readings. For more on this contradiction, read: We’re taking that vacation whether we like it or not 🛫 and Household finances are both ‘worse’ and ‘good’ 🌦️

👎 Consumer vibes are in the dumps. From the University of Michigan’s September Surveys of Consumers: “Consumer sentiment ticked down less than four index points in September, reaching the lowest reading in four months and down 15% from January 2026. Views of current and year-ahead expected personal finances both weakened about 10% this month, with concerns over high prices continuing to climb. Buying conditions for durables improved a bit, in part due to a perception that completing such purchases now would help consumers avoid higher prices in the future. The short-run outlook for business conditions plunged amid renewed worries that elevated fuel prices and re-escalating trade disputes could pass through to the economy as a whole.”

More: “Overall, interviews reveal broad agreement across the political spectrum that the outlook for the economy has weakened since the beginning of the year. After particularly large declines in sentiment this month, Republican sentiment is now 20% lower than January 2026; Democrats are down 13% over the same period.“

For more on consumer sentiment, read: What consumers do > what consumers say 🙊

🏠 Mortgage rates rise. According to Freddie Mac, the average 30-year fixed-rate mortgage rose to 7.03%, up from 6.95% last week.

As of Q2, there were 149.5 million housing units in the U.S., of which 87.0 million were owner-occupied and about 40% were mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the weekly movements in home prices or mortgage rates.

For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖

🏘️ New home sales rose. Sales of newly built homes increased 6.4% in August to an annualized rate of 684,000 units.

New home sales figures come with a large margin of error. For more on this, read: Mathematical context can totally change the story 🧮

🤔 Economic activity survey signals a pickup in growth. From S&P Global’s September U.S. Flash PMI: “U.S. business continues to boom, with output growing at the fastest rate for over five years in September. Historical comparisons suggest that the latest survey data point to annualized growth of around 5% with a 4% gain now signalled for the third quarter as a whole.

“To put the growth surge in context, barring the spike in demand following the opening up of the economy after the COVID-19 lockdowns, the latest improvement in business activity is the greatest recorded since early 2015. Business is clearly booming now in both manufacturing and services.

“However, this growth is being accompanied by some of the most severe supply chain bottlenecks seen in the near-two-decade survey history if the pandemic is excluded, with companies also reporting increasing problems finding suitable staff. Backlogs of work are consequently rising sharply. While this accumulation of uncompleted orders bodes well for the further expansion of output and capacity in the coming months, it also indicates that companies are developing more pricing power, and hence is a worry for the inflation outlook.

“Firms’ input costs have meanwhile jumped in September at the steepest rate for four years, with fuel and transport costs spiking higher thanks to the rise in oil prices seen during the month, which will add further to the upward pressure on selling prices and inflation in the coming months.”

Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.

For more on this, read: What businesses do > what businesses say 🙊 and 4 sometimes-conflicting ways I’m thinking about the economy 😬😞😎🙃

🇺🇸 Most U.S. states are still growing. From the Philly Fed’s August State Coincident Indexes report: “Over the past three months, the indexes increased in 48 states and decreased in two states, for a three-month diffusion index of 92. Additionally, in the past month, the indexes increased in 46 states, decreased in two states, and remained stable in two, for a one-month diffusion index of 88.”

📈 Near-term GDP growth estimates are tracking positively. The Atlanta Fed’s GDPNow model sees real GDP growth rising at a 5.0% rate in Q3.

For more on GDP and the economy, read: It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️ and Economic data can often be both ‘worse’ and ‘good’ 🌦️

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Putting it all together 📋

Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.

Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Personal spending activity remains at record levels. Core capex orders, which are a leading indicator of business spending, have been trending higher.

Growth rates have cooled: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like job openings and excess savings have faded. Job creation, while positive, is not as hot as it used to be. It has become harder to argue that growth is destiny.

Actions speak louder than words: We are in an odd period, given that the hard economic data decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.

Stocks are not the economy: There’s a case to be made that the U.S. stock market could outperform the U.S. economy in the near term, thanks largely to positive operating leverage. Since the pandemic, companies have aggressively adjusted their cost structures. This came with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.

Mind the ever-present risks: Of course, we should not get complacent. There will always be risks to worry about, such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, and cyber attacks. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.

Investing is never a smooth ride: There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect as they build wealth in the markets. Always keep your stock market seat belts fastened.

Think long-term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t overcome. The long game remains undefeated, and it’s a streak that long-term investors can expect to continue.

For more on how the macro story is evolving, check out the previous review of the macro crosscurrents. »

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Key insights about the stock market 📈

Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.

10 truths about the stock market 📈

The stock market can be an intimidating place: It’s real money on the line, there’s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it’s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.

The makeup of the S&P 500 is constantly changing 🔀

Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.

The key driver of stock prices: Earnings💰

For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because long-term moves in a stock can ultimately be explained by the underlying company’s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings has a very tight statistical relationship.

Stomach-churning stock market sell-offs are normal🎢

Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.

How the stock market performed around recessions 📉📈

Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.

In the stock market, time pays ⏳

Since 1928, the S&P 500 has generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that there’s never been a period where the S&P 500 didn’t generate a positive return.

What a strong dollar means for stocks 👑

While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.

Stanley Druckenmiller’s No. 1 piece of advice for novice investors 🧐

…you don’t want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there’s overcapacity and they’re losing money. What about when they’re losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it’s going to be in 18 to 24 months as opposed to now. If you buy it now, you’re buying into every single fad every single moment. Whereas if you envision the future, you’re trying to imagine how that might be reflected differently in security prices.

Peter Lynch made a remarkably prescient market observation in 1994 🎯

Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That’s all there is to it.

Warren Buffett’s ‘fourth law of motion’ 📉

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.

Most pros can’t beat the market 🥊

According to S&P Dow Jones Indices (SPDJI), 79% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2025. As you stretch the time horizon, the numbers get even more dismal. Over three years, 67% underperformed. Over 5 years, 89% underperformed. And over 20 years, 93% underperformed. This 2025 performance was the 16th consecutive year in which the majority of fund managers in this category have lagged the index.

Proof that ‘past performance is no guarantee of future results’ 📊

Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, of the 334 large-cap equity funds in the top half of performance in 2021, 58.7% remained at the top half in 2022. However, just 6.9% remained on top through 2023. Only 4.5% stayed on top in the five consecutive years through 2025.

It’s much more dismal when you raise the bar. Of the 164 large-cap equity funds in the top quartile in 2021, just 20.1% remained in that category in 2022. That percentage fell to literally 0.0% in 2023.

The odds are stacked against stock pickers 🎲

Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers aren’t able to do this consistently. One of the reasons for this is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 19% of the stocks in the S&P 500 outperformed the average stock’s return from 2001 to 2025. Over this period, the average return on an S&P 500 stock was 452%, while the median stock rose by just 59%.

One thing that hasn’t changed is the principle that stocks are tied to fundamentals. More specifically, earnings drive stock prices.

That helps explain why the stock market is up this year, despite a heated geopolitical backdrop.

And history offers plenty of examples of this dynamic.

Read more

Often, you’ll see the market slide a percent or two in a given week.

Sometimes, those modest declines turn into 5% pullbacks.

Occasionally, those pullbacks will morph into a 10% correction. And suddenly you’re rattled, and you’re once again wondering if this is the beginning of a bear market or market crash. After all, all of history’s worst downturns by definition started as 10% declines. If you think harder about it, they all began as 1% declines before that.

For the uninitiated or the forgetful, this is where you can make a mistake, like selling during a run-of-the-mill market correction, only to have to buy higher later, doing irreparable damage to your potential long-term returns.

To be clear, the market does occasionally experience downturns that are worse than the milder ones we see every couple of months. But the data shows it is nearly impossible to trade in and out of these periods in a way that generates alpha. It’s usually better to stick with a sound long-term investment strategy that includes dollar-cost averaging and periodic rebalancing.

All this speaks to why it’s helpful to study history, remember how often markets get ugly, and not bury your head in the sand while in the throes of market turmoil.

I like how my friend Peter Lazaroff articulated this issue in his new book, “The Perfect Portfolio.” From Chapter 2:

EXPOSURE THERAPY FOR INVESTORS

Therapists treat phobias with exposure. A person who’s terrified of spiders doesn’t wake up one day and decide to be brave. They get small, repeated exposures to the thing they fear until their body stops reacting as if it’s in danger.

Investors benefit from the same approach. Each downturn can feel unique and frightening, but the data shows us that volatility is both common and survivable. By becoming more familiar with how stocks behave, you decrease the likelihood that any given decline leads to panic.

… Roughly two-thirds of calendar years have included a double-digit decline at some point along the way. Despite this, the S&P 500 delivered an average annual return of more than 10% because those losses were temporary setbacks — not permanent destruction.

Volatility is not the enemy — it’s simply the price investors pay for higher returns over the long run.

We are not machines. We’re humans with brains that often respond to unsettling developments in ways that make things worse. When it comes to money and investing, that can be a big problem.

So it can be unproductive to only think about what can go right. Because that can make you more vulnerable to making mistakes when things go wrong.

Of course, not all of us have or can develop the constitution it takes to hold stocks as prescribed in most generic investing advice. Some of us would be better suited by taking less risk. Some of us might actually want to take more risk.

“A portfolio built for ‘anyone’ is usually built for no one in particular,” Lazaroff writes. “No single mix of funds stays perfect across every job, every family situation, every tax bracket, every market environment, and every temperament. A portfolio works when it matches your purpose, your limits, your stage of life, and your ability to stay steady when markets get loud.”

If you’re looking to tailor your portfolio to better fit your wants and needs, check out “The Perfect Portfolio.” In it, Lazaroff guides readers through his process for forming an investing plan that aligns with individual goals while being mindful of one’s stomach for volatility. (You can pre-order it on Amazon.)

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Related from TKer:

• I’m nervous, too! 🤮

• Burying your head in the sand works for some investors, but it’s not the best advice 🫣

• Remembering moments when I thought things took a permanent turn for the worse 🙇‍♂️

• 10 truths about the stock market 📈

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Review of the macro crosscurrents 🔀

📉The stock market declined last week, with the S&P 500 shedding 0.1% to end at 7,650.50. The index is now down 1.9% from its August 13 closing high of 7,798.99 and up 11.8% year-to-date. For market insights, check out the Stock Market tab at TKer. »

There were several notable data points and macroeconomic developments since our last review:

🏛️ Fed hikes rates. On Wednesday, the Federal Reserve raised its benchmark interest rate target range to 3.75% to 4.00%, up by 25 basis points. The decision was unanimous.

From the Fed’s policy statement: “Economic activity is expanding at a solid pace. While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient. Productivity growth is strong, and capital investment is robust. Job gains have kept pace with the workforce, and the unemployment rate has changed little. Inflation remains elevated. Today’s policy action will support a timelier return to the Committee’s 2% goal. The Committee will deliver price stability.“

In its Summary of Economic Projections, the Fed raised its inflation forecast. It also raised its forecast for GDP growth while lowering its forecast for the unemployment rate. On balance, this supports the case for further rate hikes. Indeed, the Fed’s “dot plot” implies one more rate hike later this year, followed by a rate cut in 2028.

There’s some evidence to suggest a first rate hike is associated with short-term market volatility. But you’re always likely to face some volatility in the short run. For long-term investors in the stock market, what matters are the economic conditions in which these policy decisions are made. And right now, the economic backdrop remains supportive of earnings growth, which explains why the stock market remains resilient.

For more on what Fed policy could mean for markets, read: Does the stock market test new Fed chairs? 🏛️ and ‘When will the Fed cut rates?’ is not the right question for investors right now ✂️

⛽️ Gas prices rise. From AAA: “The national average for a gallon of regular gasoline is up 16 cents from last week at $4.43 and more than one dollar higher than it was a year ago. Crude oil remains high, averaging $100 per barrel amid continued volatility in the Strait of Hormuz. Gas prices are back to what they were earlier this year during the spring, and the national average is inching closer to this year’s record high of $4.56 set on May 21. The all-time high for the national average is $5.01 set on June 14, 2022.“

Here’s a longer-term look at the trajectory of gas and diesel prices, as tracked by the EIA.

For more on energy prices, read: Our love-hate relationship with rising oil prices in charts 💔🛢️📊

🛍️ Retail shopping activity rose to record levels. Retail sales in August increased 1.2% to a record $773.9 billion.

Excluding autos and gas, which tend to be volatile in the short term, retail sales increased 1.2%.

Here’s a look at the change in retail sales by category.

💳 Card spending data is holding up. From BofA: “Total card spending per HH was up 5.8% y/y in the week ending Sep 12, according to BAC aggregated credit & debit card data. The strength in spending growth was likely due to favorable base effects from the shift in Labor Day timing. Overall, spending remains steady in early Sep. However, K-shaped spending increasingly looks like a stale narrative.”

Consumer spending data has looked a lot better than consumer sentiment readings. For more on this contradiction, read: We’re taking that vacation whether we like it or not 🛫 and Household finances are both ‘worse’ and ‘good’ 🌦️

💼 New unemployment insurance claims, total ongoing claims remain low. Initial claims for unemployment benefits ticked down to 196,000 during the week ending Sept. 12, down from 206,000 the week prior. This metric remains at levels historically associated with economic growth.

Insured unemployment, which captures those who continue to claim unemployment benefits, ticked down to 1.73 million during the week ending Sept. 5.

For more on the labor market, read: Why mass tech layoffs have little effect on total employment 💾

🤔 Recent private job growth is picking up. According to payroll processor ADP, private U.S. employers added 16,500 jobs in the four weeks ending Aug. 29.

For more on the labor market, read: Things are looking up in the labor market 👍

🏠 Mortgage rates rise. According to Freddie Mac, the average 30-year fixed-rate mortgage rose to 6.95%, up from 6.76% last week.

As of Q2, there were 149.5 million housing units in the U.S., of which 87.0 million were owner-occupied and about 40% were mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the weekly movements in home prices or mortgage rates.

For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖

🏠 Homebuilder sentiment ticks lower. From the NAHB: “Buyer traffic has weakened across much of the country, largely because of rising mortgage rates. Builders also continue to face higher material costs, rising gas and diesel prices and persistent labor shortages. In some markets, builders report that increased immigration enforcement is discouraging legal workers from reporting to job sites.”

🔨 New home construction starts fell. Housing starts declined 2.6% in August to an annualized rate of 1.28 million units, according to the Census Bureau. Building permits fell 2.7% to an annualized rate of 1.39 million units.

It’s worth noting that the starts metric comes with a very large margin of error. For more on margins of error, read: Mathematical context can totally change the story 🧮

😬 This is the stuff pros are worried about. From BofA’s September Global Fund Manager Survey: “The biggest tail risk in September is a ‘disorderly rise in bond yields’ (33%), replacing last month’s #1 ‘AI bubble’ (drops to 28% from 32%)..”

Here’s how the biggest “tail risk” has evolved over the years.

For more on risks, read: Known worries and unknown unknowns 😬 and Two times when uncertainty seemed low and confidence was high 🌈

🛠️ Industrial activity cooled. Industrial production activity in August was flat from prior month levels. Manufacturing output declined 0.3% compared to the prior month.

📈 Near-term GDP growth estimates are tracking positively. The Atlanta Fed’s GDPNow model sees real GDP growth rising at a 5.1% rate in Q3.

For more on GDP and the economy, read: It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️ and Economic data can often be both ‘worse’ and ‘good’ 🌦️

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Putting it all together 📋

Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.

Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Personal spending activity remains at record levels. Core capex orders, which are a leading indicator of business spending, have been trending higher.

Growth rates have cooled: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like job openings and excess savings have faded. Job creation, while positive, is not as hot as it used to be. It has become harder to argue that growth is destiny.

Actions speak louder than words: We are in an odd period, given that the hard economic data decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.

Stocks are not the economy: There’s a case to be made that the U.S. stock market could outperform the U.S. economy in the near term, thanks largely to positive operating leverage. Since the pandemic, companies have aggressively adjusted their cost structures. This came with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.

Mind the ever-present risks: Of course, we should not get complacent. There will always be risks to worry about, such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, and cyber attacks. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.

Investing is never a smooth ride: There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect as they build wealth in the markets. Always keep your stock market seat belts fastened.

Think long-term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t overcome. The long game remains undefeated, and it’s a streak that long-term investors can expect to continue.

For more on how the macro story is evolving, check out the previous review of the macro crosscurrents. »

Subscribe now

Key insights about the stock market 📈

Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.

10 truths about the stock market 📈

The stock market can be an intimidating place: It’s real money on the line, there’s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it’s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.

The makeup of the S&P 500 is constantly changing 🔀

Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.

The key driver of stock prices: Earnings💰

For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because long-term moves in a stock can ultimately be explained by the underlying company’s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings has a very tight statistical relationship.

Stomach-churning stock market sell-offs are normal🎢

Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.

How the stock market performed around recessions 📉📈

Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.

In the stock market, time pays ⏳

Since 1928, the S&P 500 has generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that there’s never been a period where the S&P 500 didn’t generate a positive return.

What a strong dollar means for stocks 👑

While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.

Stanley Druckenmiller’s No. 1 piece of advice for novice investors 🧐

…you don’t want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there’s overcapacity and they’re losing money. What about when they’re losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it’s going to be in 18 to 24 months as opposed to now. If you buy it now, you’re buying into every single fad every single moment. Whereas if you envision the future, you’re trying to imagine how that might be reflected differently in security prices.

Peter Lynch made a remarkably prescient market observation in 1994 🎯

Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That’s all there is to it.

Warren Buffett’s ‘fourth law of motion’ 📉

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.

Most pros can’t beat the market 🥊

According to S&P Dow Jones Indices (SPDJI), 79% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2025. As you stretch the time horizon, the numbers get even more dismal. Over three years, 67% underperformed. Over 5 years, 89% underperformed. And over 20 years, 93% underperformed. This 2025 performance was the 16th consecutive year in which the majority of fund managers in this category have lagged the index.

Proof that ‘past performance is no guarantee of future results’ 📊

Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, of the 334 large-cap equity funds in the top half of performance in 2021, 58.7% remained at the top half in 2022. However, just 6.9% remained on top through 2023. Only 4.5% stayed on top in the five consecutive years through 2025.

It’s much more dismal when you raise the bar. Of the 164 large-cap equity funds in the top quartile in 2021, just 20.1% remained in that category in 2022. That percentage fell to literally 0.0% in 2023.

The odds are stacked against stock pickers 🎲

Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers aren’t able to do this consistently. One of the reasons for this is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 19% of the stocks in the S&P 500 outperformed the average stock’s return from 2001 to 2025. Over this period, the average return on an S&P 500 stock was 452%, while the median stock rose by just 59%.

It remains tough to generate stock market returns that beat (or outperform) a passively managed fund tracking the S&P 500.

According to new data from S&P Dow Jones Indices (SPDJI), just a third of U.S. large-cap equity fund managers outperformed the S&P 500’s 10% gain in the first half of 2026.

“Compared with recent years, active managers faced a more supportive market backdrop, characterized by broader participation and stronger performance outside the largest stocks,” SPDJI analysts led by Anu Ganti wrote. “In our largest and most closely watched comparison, 67% of all active large-cap U.S. equity funds underperformed the S&P 500. It was an improvement from the 79% rate observed over full-year 2025, but these seemingly favorable conditions were still not enough for most managers to capitalize on.“

Indeed, more stocks have been moving independently of each other. But as we discussed in July, just because market conditions increasingly favor stock pickers doesn’t mean more stock pickers are beating the market.

Here’s more on that from SPDJI’s report: “Conditions for stock selection were generally auspicious, but active managers had to contend with a shifting volatility landscape. Dispersion rose during the first two months of the year, however, idiosyncratic risks took a backseat to macro risks in March, as investors shifted their focus away from SaaS apocalypse fears and toward the war with Iran. Dispersion declined and stock-level correlations rose accordingly. Subsequently, easing geopolitical concerns and increased scrutiny faced by companies during the Q1 earnings season contributed to the return of company-level risk and a sharp rise in dispersion. The prospects for stock pickers in large-cap U.S. equities were most pronounced during May 2026, when S&P 500 rolling 21-day dispersion reached a high of 64%.”

We’re now on track for a 17th consecutive year in which the majority of fund managers in this category have lagged the index.

This is probably assumed. But as you stretch the time horizon, the numbers get even more dismal. Over three years, 77% underperformed the S&P 500. Over five years, 89% underperformed. And over 20 years, 93% underperformed.

To be fair, the goal of every fund manager and investor isn’t necessarily to beat some benchmark. Nevertheless, for active investors, seeing a low-cost index fund consistently outperforming may be disheartening.

Past performance is no guarantee of future results 📉

It’s great if you or your fund manager have generated industry-leading performance in recent periods. However, outperformers rarely continue to outperform.

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Why does that happen? The theory goes something like this: Analysts initially publish estimates that are a bit rosy, which is consistent with the fact that most stock ratings are “buy.” As the quarter progresses, reality almost always feels less robust as economic data, industry reports, and management comments trickle in. Perhaps executives are even guiding analysts in a way that lowers the bar.

Then, to analysts’ “surprise,” most companies ultimately report quarterly earnings that beat those lowered estimates.

But what if analysts flip the script and raise earnings estimates? Should investors be concerned? Are the odds higher that quarterly results fall short of these revised estimates?

I’m hearing these questions more often as analysts raise estimates ahead of Q3 earnings season (which kicks off in mid-October).

My response: I’m not convinced that raised estimates are any harder to beat than lowered estimates.

For starters, companies have a track record of clearing those elevated estimates.

Check out this chart from FactSet’s John Butters. It shows the change in analysts’ quarterly earnings per share (EPS) estimates during the first two months of each quarter. As you can see, analysts typically reduce estimates during the period. But on the right, you can see analysts have raised estimates for the current quarter, which pundits will remind you is unusual.

However, you’ll also notice that analysts raised their estimates for the recently completed Q2 more significantly.

And what did we learn from Q2 earnings season?

“For Q2 2026 (with 99% of S&P 500 companies reporting actual results), 87% of S&P 500 companies have reported a positive EPS surprise,” Butters wrote on Friday.

That’s right. 87% of companies beat those raised estimates.

“Earnings shattered the high bar, with the breadth of beats at a record high,” Deutsche Bank’s Binky Chadha observed in a recent note to clients.

And as TKer’s long-time subscribers already know, most companies beat estimates all the time.

Take a close look at this chart from Chadha showing the percentage of S&P 500 companies beating analysts’ estimates each quarter. Admittedly, it looks volatile. But look at the Y-axis: The beat rate never fell below 63% in any single quarter over the past 20 years!

Notably, the magnitude of the Q2 surprise was just barely above the long-term average of about 5%.

The bottom line: If you’re following the trajectory of analysts’ quarterly estimates, upward revisions aren’t something to worry about. Analysts tend to move estimates so most companies beat them, and by a margin of about 5%.

Why does this happen? You can read more about that here.

Is this really worth talking about?

My friend Morgan Housel often says, “Earnings don’t miss estimates; estimates miss earnings.”

In other words, whether a company reports better-than-expected earnings says just as much about the analysts covering the company as the company itself. Maybe more so.

So concerns about upward or downward revisions to quarterly estimates and where “the bar” is set may be missing the point for long-term investors. It’s why none of TKer’s 10 Truths About The Stock Market concerns companies beating analysts’ estimates.

That said, earnings certainly matter. And the fact that earnings are growing and expected to keep growing is a good thing.

And if you’re concerned that the pace of earnings growth is unsustainable, this may already be priced into the market. For more on that, read: The stock market may already be adjusting to a future with slower earnings growth 🤔

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Related from TKer:

• The truth about analysts’ deteriorating expectations 📉

• How to become one of Wall Street’s most accurate analysts in one step 🧮

• Is it easier to become a stock picker in a stock picker’s market?🕵

• 10 truths about the stock market 📈

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Review of the macro crosscurrents 🔀

📉The stock market declined last week, with the S&P 500 losing 0.8% to end at 7,656.98. The index is now down 1.8% from its August 13 closing high of 7,798.99 and up 11.9% year-to-date. For market insights, check out the Stock Market tab at TKer. »

There were several notable data points and macroeconomic developments since our last review:

🎈Consumer price inflation heated up. The Consumer Price Index (CPI) increased 3.4% year-over-year in August, unchanged from the prior month. Adjusted for food and energy, core CPI rose 2.4%.

On a month-over-month basis, CPI increased 0.4% as energy prices jumped 2.1%. Core CPI was up 0.3%. If you annualize the three-month and six-month figures — a reflection of the short-term trend in prices — core CPI climbed 2.0% and 2.6%, respectively.

For more discussion on inflation and monetary policy, read: The other side of the Fed’s inflation ‘mistake’ 🧐 and ‘When will the Fed cut rates?’ is not the right question for investors right now ✂️

🎈 Inflation expectations remain a bit elevated. From the New York Fed’s August Survey of Consumer Expectations: “Median inflation expectations at the one-year and five-year-ahead horizons were unchanged at 3.6% and 3.0%, while they decreased at the three-year-ahead horizon by 0.1 percentage point to 3.2%.”

⛽️ Gas prices rise. From AAA: “The national average for a gallon of regular gasoline went up 13 cents since last week to $4.27 as crude oil prices continue climbing. Volatility in the Strait of Hormuz has pushed crude oil back in the $100 per barrel range for the first time since July. Pump prices are currently comparable to early June. As the graph below shows, the national average is increasing during a season when gas prices typically go down due to lower gasoline demand.“

Here’s a longer-term look at the trajectory of gas and diesel prices, as tracked by the EIA.

For more on energy prices, read: Our love-hate relationship with rising oil prices in charts 💔🛢️📊

💼 New unemployment insurance claims, total ongoing claims remain low. Initial claims for unemployment benefits ticked down to 206,000 during the week ending Sept. 5, down from 207,000 the week prior. This metric remains at levels historically associated with economic growth.

Insured unemployment, which captures those who continue to claim unemployment benefits, ticked down to 1.774 million during the week ending Aug. 29.

For more on the labor market, read: Why mass tech layoffs have little effect on total employment 💾

🤔 Recent private job growth is picking up. According to payroll processor ADP, private U.S. employers added 15,000 jobs in the four weeks ending Aug. 22.

For more on the labor market, read: Things are looking up in the labor market 👍

💳 Card spending data is holding up. From BofA: “Total card spending per HH was up 7.8% y/y in the week ending Sep 5, according to BAC aggregated credit & debit card data. The surge in spending growth was likely due to base effects from the shift in Labor Day timing and the rebound in gas prices. However, ex-gas spending growth was also strong at 6.9% y/y in the week ending Sep 5.”

Consumer spending data has looked a lot better than consumer sentiment readings. For more on this contradiction, read: We’re taking that vacation whether we like it or not 🛫 and Household finances are both ‘worse’ and ‘good’ 🌦️

👎 Consumer vibes are in the dumps. From the University of Michigan’s September Surveys of Consumers: “Consumer sentiment receded less than 4 index points for the second consecutive month of decreases. Democrats and Republicans alike posted sizable declines, while independents were little changed from August. Year-ahead expectations for both personal finances and business conditions plunged. With a resurgence in fuel prices and trade tensions, consumers anticipate greater pressures on their pocketbooks to come. Five-year expected business conditions remained stable at readings well below their historical average, suggesting that consumers believe that emerging risks this month may not have further worsened the long-run outlook. Overall, sentiment is now 16% below February, prior to the start of the Iran conflict, and 13% lower than a year ago.”

For more on consumer sentiment, read: What consumers do > what consumers say 🙊

🏠 Mortgage rates rise. According to Freddie Mac, the average 30-year fixed-rate mortgage rose to 6.76%, up from 6.71% last week.

As of Q2, there were 149.5 million housing units in the U.S., of which 87.0 million were owner-occupied and about 40% were mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the weekly movements in home prices or mortgage rates.

For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖

🏚 Home sales fell. Sales of previously owned homes declined 2.0% in August to an annualized rate of 3.98 million units. From NAR chief economist Lawrence Yun: “Mortgage rates and home sales move in opposite directions, so it’s not surprising to see a mild dip in home buying activity due to high mortgage rates… The number of months it would take to exhaust the total inventory at the current sales pace has grown to 4.9 months’ supply—its highest level in over ten years. The ample supply of homes for sale on the market is giving homebuyers better opportunities to negotiate.”

Prices for previously owned homes declined from last month but rose from year-ago levels. From the NAR: “The median existing-home sales price for all housing types in August was $429,100, up 1.6% from one year ago ($422,400) – the 38th consecutive month of year-over-year price increases.”

👎 Small business optimism deteriorated. The NFIB’s Small Business Optimism Index declined to 98.7 in August, down from 99.8 in July. From the NFIB: “Uncertainty remains elevated among small business owners as they face a mixed set of challenges with weakened sales, supply chain disruptions, and inflation pressures. While expectations for the overall economy dimmed, Main Street owners remain largely positive in the health of their own businesses.”

Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.

For more on this, read: What businesses do > what businesses say 🙊 and 4 sometimes-conflicting ways I’m thinking about the economy 😬😞😎🙃

📈 Near-term GDP growth estimates are tracking positively. The Atlanta Fed’s GDPNow model sees real GDP growth rising at a 4.4% rate in Q3.

For more on GDP and the economy, read: It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️ and Economic data can often be both ‘worse’ and ‘good’ 🌦️

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🗓️The reports below were released after the last review of macro crosscurrents but are more than a week old.

💼 Jobs were created. According to the BLS’s Employment Situation report, U.S. employers added 21,000 jobs in August.

Total payroll employment rose to 159.08 million jobs in August.

The unemployment rate — that is, the number of workers who identify as unemployed as a percentage of the civilian labor force — stood at 4.1% during the month.

The labor force participation rate — that is, the number of employed and unemployed job seekers as a percentage of the civilian population — ticked up to 61.6% as 683,000 people entered the labor force.

The labor market is in decent shape, but clearly isn’t as hot as it was just a few years ago.

For more on the labor market, read: Things are looking up in the labor market👍

💸 Wage growth is cooling. Average hourly earnings rose by 0.3% month-over-month in August. On a year-over-year basis, August’s wages were up 3.1%.

💰 Job switchers still get better pay. According to ADP, annual pay in August for people who changed jobs was up 7.3% from a year ago. That better-pay gap has been widening a bit in recent months. For those who stayed at their job, pay was up 4.4%, about what it’s been for the past year.

For more on why policymakers are watching wage growth, read: Revisiting the key chart to watch amid the Fed’s war on inflation 📈

💼 Job openings rose. According to the BLS’s Job Openings and Labor Turnover Survey, employers had 7.27 million job openings in July, up from 7.18 million in June.

During the month, there were 6.92 million unemployed people — meaning there were 1.05 job openings per unemployed person. This remains one of the most straightforward indicators of labor demand. However, this metric has returned to prepandemic levels.

For more on job openings, read: Were there really twice as many job openings as unemployed people? 🤨

👍 Layoffs remain depressed, hiring remains firm. Employers laid off 1.77 million people in July. While challenging for the people affected, this figure represents just 1.0% of total employment. This metric remains slightly below prepandemic levels.

For more on layoffs, read: Mathematical context can totally change the story 🧮

Hiring activity remains well above layoff activity. During the month, employers hired 5.05 million people.

That said, the hiring rate — the number of hires as a percentage of the employed workforce — is relatively low, which could be a sign of trouble to come in the labor market.

For more on why this metric matters, read: The hiring situation 🧩

🤔 People are quitting less. In July, 3.06 million workers quit their jobs. This represents 1.9% of the workforce. The rate continues to trend below prepandemic levels.

A low quits rate could mean a number of things: more people are satisfied with their job, workers have fewer outside job opportunities, wage growth is cooling, or productivity will improve as fewer people are entering new, unfamiliar roles.

For more on this dynamic, read: The crummy labor market is yielding a ‘tenure dividend’ for corporations 💰

💪 Labor productivity increases. From the BLS: “Nonfarm business sector labor productivity increased 1.4% in the second quarter of 2026 … as output increased 1.7% and hours worked increased 0.3%. (All quarterly percent changes in this release are seasonally adjusted annualized rates.) From the same quarter a year ago, nonfarm business sector labor productivity increased 2.2% in the second quarter of 2026.”

For more, read: Promising signs for productivity ⚙️

🎈 Fed’s preferred inflation measure remains elevated. The personal consumption expenditures (PCE) price index in July was up 3.7% from a year ago. The core PCE price index — the Federal Reserve’s preferred measure of inflation — was up 3.3% during the month, unchanged from June’s rate.

On a month-over-month basis, the core PCE price index was up 0.2%. If you annualize the three-month trend in the monthly figures — a reflection of the short-term trend in prices — core PCE climbed 3.0%.

While inflation rates remain above the Federal Reserve’s 2% target, they are down considerably from peak levels just a few years ago. Nevertheless, how price trends evolve in the near term bears watching.

For more on the Fed’s impact on markets, read: ‘When will the Fed cut rates?’ is not the right question for investors right now ✂️

🛍️ Consumer spending ticks higher. According to BEA data, personal consumption expenditures increased 0.2% month-over-month in July to an annual rate of $22.2 trillion, an all-time high.

Adjusted for inflation, real personal consumption expenditures was unchanged from the prior month’s all-time high.

Here’s a breakdown of spending growth by category.

💰The personal saving rate is low, but that’s not obviously a bad sign. Personal saving — disposable personal income less personal consumption — has been shrinking over the past two years, causing the personal saving rate — personal saving as a percentage of disposable personal income — to trend lower. In July, the saving rate was 3.0%, near its lowest level in four years.

All else equal, this is not great. The implication is that more people are drawing from their savings to support their spending amid inflationary pressures. However, the saving rate tends to decline when net worths are rising. And net worths have been rising, driven by record-high home prices and elevated stock prices.

For more on this dynamic, read: A contrarian note about the falling personal saving rate 💸

🛠️ Industrial activity increased. Industrial production activity in July rose 0.2% from prior month levels. Manufacturing output rose 0.4% compared to the prior month.

🏭 Business investment activity ticked lower. Orders for nondefense capital goods excluding aircraft — a.k.a. core capex or business investment — declined 0.05% in July to $85.7 billion, just below the record level.

Core capex orders are a leading indicator, meaning they foretell economic activity down the road.

🏠 Home prices rose. According to the S&P CoreLogic Case-Shiller index, home prices were up 1.5% year-over-year in June and 0.1% month-over-month. From S&P Dow Jones Indices’ Rebecca Kaufman: “While home prices continue to decline in real terms, lower inflation and firmer nominal home price growth in June helped slow that pace of erosion… The housing market remains under pressure, with 30-year mortgage rates holding near 6.5% in June. As financing costs are kept high for prospective buyers, current homeowners remain reluctant to give up the low mortgage rates secured in prior years.”

For more on how home prices and how they may be affecting saving, read: A contrarian note about the falling personal saving rate...💸

🔨 New home construction starts fell. Housing starts declined 12.4% in July to an annualized rate of 1.24 million units, according to the Census Bureau. Building permits rose 5.0% to an annualized rate of 1.44 million units.

👎 Consumer vibes deteriorate. The Conference Board’s Consumer Confidence Index declined by 0.8 points in August. From the report: “The Expectations Index slipped further into negative territory, which was offset by a moderate rise in the Present Situation Index after declining in the past three months. Consumer appraisals of current business conditions were mildly positive. Perceptions of the current labor market improved, reversing three months of moderate decline. Looking ahead, consumers were more pessimistic about business conditions and the labor market over the next six months. Expectations for household incomes moderated but remained optimistic overall.”

More from the report: “On a six-month moving average basis, confidence across all age groups trended down slightly, remaining highest among consumers under 35. By income, confidence was mixed, but generally higher-income groups were more optimistic. By generation, confidence for Gen Z remained the highest, followed closely by Millennials on a six-month moving average basis. The three oldest generations—Generation X, Baby Boomer, and Silent Generation—trailed in confidence by a wider margin. By political affiliation, confidence among Independents and Republicans softened while Democrats were somewhat more positive in August.”

For more on consumer sentiment, read: What consumers do > what consumers say 🙊 and The economy may not be working for everyone right now, but it’s at least working for stock market investors 🎭

👎 Consumers feel slightly less bad about the labor market. From The Conference Board: “Consumers’ views of the labor market improved in August, recovering to April levels: 27.0% of consumers said jobs were ‘plentiful,’ up from 24.4% in July. Conversely, 19.5% of consumers said jobs were ‘hard to get,’ down from 21.7%.”

Many economists monitor the spread between these two percentages (a.k.a., the labor market differential). The direction of the spread reflects a cooling sentiment toward the labor market.

More from The Conference Board: “Consumers were more negative about the labor market outlook in August: 14.6% of consumers expected more jobs to be available, down from 16.4% in July. Additionally, 26.1% anticipated fewer jobs, up slightly from 25.3%.“

For more on the labor market, read: Things are looking up in the labor market 👍

😬 This is the stuff pros are worried about. From BofA’s August Global Fund Manager Survey: “On the biggest tail risk… ‘AI bubble’ took the top spot for the 2nd straight month, per 32% of investors (down from 45%). ‘Disorderly rise in bond yields’ rose to #2 at 27% (was #3 behind ‘2 wave of inflation’ in July).”

Here’s how the biggest “tail risk” has evolved over the years.

For more on risks, read: Known worries and unknown unknowns 😬 and Two times when uncertainty seemed low and confidence was high 🌈

🇺🇸 Most U.S. states are still growing. From the Philly Fed’s July State Coincident Indexes report: “Over the past three months, the indexes increased in 46 states, decreased in three states, and remained stable in one, for a threemonth diffusion index of 86. Additionally, in the past month, the indexes increased in 46 states, decreased in two states, and remained stable in two, for a one-month diffusion index of 88.”

For more on GDP and the economy, read: It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️ and Economic data can often be both ‘worse’ and ‘good’ 🌦️

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Putting it all together 📋

Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.

Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Personal spending activity remains at record levels. Core capex orders, which are a leading indicator of business spending, have been trending higher.

Growth rates have cooled: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like job openings and excess savings have faded. Job creation, while positive, is not as hot as it used to be. It has become harder to argue that growth is destiny.

Actions speak louder than words: We are in an odd period, given that the hard economic data decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.

Stocks are not the economy: There’s a case to be made that the U.S. stock market could outperform the U.S. economy in the near term, thanks largely to positive operating leverage. Since the pandemic, companies have aggressively adjusted their cost structures. This came with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.

Mind the ever-present risks: Of course, we should not get complacent. There will always be risks to worry about, such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, and cyber attacks. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.

Investing is never a smooth ride: There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect as they build wealth in the markets. Always keep your stock market seat belts fastened.

Think long-term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t overcome. The long game remains undefeated, and it’s a streak that long-term investors can expect to continue.

For more on how the macro story is evolving, check out the previous review of the macro crosscurrents. »

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Key insights about the stock market 📈

Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.

10 truths about the stock market 📈

The stock market can be an intimidating place: It’s real money on the line, there’s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it’s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.

The makeup of the S&P 500 is constantly changing 🔀

Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.

The key driver of stock prices: Earnings💰

For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because long-term moves in a stock can ultimately be explained by the underlying company’s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings has a very tight statistical relationship.

Stomach-churning stock market sell-offs are normal🎢

Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.

How the stock market performed around recessions 📉📈

Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.

In the stock market, time pays ⏳

Since 1928, the S&P 500 has generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that there’s never been a period where the S&P 500 didn’t generate a positive return.

What a strong dollar means for stocks 👑

While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.

Stanley Druckenmiller’s No. 1 piece of advice for novice investors 🧐

…you don’t want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there’s overcapacity and they’re losing money. What about when they’re losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it’s going to be in 18 to 24 months as opposed to now. If you buy it now, you’re buying into every single fad every single moment. Whereas if you envision the future, you’re trying to imagine how that might be reflected differently in security prices.

Peter Lynch made a remarkably prescient market observation in 1994 🎯

Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That’s all there is to it.

Warren Buffett’s ‘fourth law of motion’ 📉

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.

Most pros can’t beat the market 🥊

According to S&P Dow Jones Indices (SPDJI), 79% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2025. As you stretch the time horizon, the numbers get even more dismal. Over three years, 67% underperformed. Over 5 years, 89% underperformed. And over 20 years, 93% underperformed. This 2025 performance was the 16th consecutive year in which the majority of fund managers in this category have lagged the index.

Proof that ‘past performance is no guarantee of future results’ 📊

Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, of the 334 large-cap equity funds in the top half of performance in 2021, 58.7% remained at the top half in 2022. However, just 6.9% remained on top through 2023. Only 4.5% stayed on top in the five consecutive years through 2025.

It’s much more dismal when you raise the bar. Of the 164 large-cap equity funds in the top quartile in 2021, just 20.1% remained in that category in 2022. That percentage fell to literally 0.0% in 2023.

The odds are stacked against stock pickers 🎲

Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers aren’t able to do this consistently. One of the reasons for this is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 19% of the stocks in the S&P 500 outperformed the average stock’s return from 2001 to 2025. Over this period, the average return on an S&P 500 stock was 452%, while the median stock rose by just 59%.

So then why hasn’t this year’s interest rate rally led to job cuts, weaker spending, and disappointing earnings? Why is the S&P 500 down less than 3% from its all-time high?

As we’ve been discussing, it’s more complicated than “higher interest rates are bad.”

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If you’re looking for something to pass the time, check out 12 stock market charts that caught my attention 📊📈 and 24 quick thoughts on the markets and the economy 📋.

I also recommend reading Liz Ann Sonders’ compilation of investing quotes, which she reshared last week.

One of the older quotes on her list explains simply why long-term investors sometimes make costly mistakes in the short-term.

I found that it also explains why investors should be wary when a markets pundit goes on TV and predicts that stocks are about to tumble.

I wrote about it two years ago. I’m resharing the post in a free newsletter today below.

By the way, make sure to check out TKer’s searchable archives. There’s lots of stuff in there that you might find helpful today.

AUG 25, 2024

Liz Ann Sonders, chief investment strategist at Charles Schwab, compiled an outstanding list of quotes from history’s investing legends. (I recommend reading her post from start to finish.)

One quote that stuck out to me came from Edwin Lefevre, author of “Reminiscences of a Stock Operator”:

Speculators buy the trend; investors are in for the long haul; ‘they are a different breed of cats.’ One reason that people lose money today is that they have lost sight of this distinction; they profess to have the long term in mind and yet cannot resist following where the hot money has led.

Some people try to make money trading the stock market over short-term periods. Some aim to build wealth by investing in the stock market over long, multi-year timeframes. Many do some combination of both.

All of these people seek out information and insights that might help them get an edge and improve their returns.

Unfortunately, trading tips and investment advice come with a lot of the same jargon that makes it easy to confuse the two if you’re not paying careful attention.

When a markets expert starts talking, the first question you should ask is: “What is the timeframe?”

Is it one month? One year? Several years? One day?

Why? Because it’s possible that the same person who’ll tell you stocks will fall in the coming weeks will also tell you they expect prices to be higher in the coming years. In fact, I can almost guarantee you that the Wall Street strategists who expect the S&P 500 to fall this year will also tell you it’ll be much higher in three to five years.

All this relates to Step 4 of TKer’s “5-step guide to processing ambiguous news in the markets and the economy”: “Beware the motivations of those communicating the information.”

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The hot shot hedge fund manager on financial TV may present a compelling, eye-catching case for why the stock market could tumble from here. However, reporters don’t always follow up and ask what to expect when you stretch the timeframe, which may be more relevant to long-term investors. This lack of temporal context is common in the news industry, which tends to focus on the recent past and the near future.

This doesn’t mean that investors should completely ignore what the pros are saying about what could happen in the coming weeks or months. While expectations for volatility in the near-term might not affect how you position your long-term investments, they can serve as valuable reminders to keep your “stock market seat belts” fastened.

After all, the odds that stocks fall are relatively high when you look at short timeframes.

As my friend Joseph Fahmy says: “The majority of arguments on FinTwit have to do with timeframe. One person could be selling a stock because they think it will go down over the next 2 days and another could be buying because they think it will go up over the next 2 years. Don't assume everyone trades like you.”

FinTwit, the community of people posting about finance on X, sees lots of heated bulls vs. bears debates about markets that come to no resolution. And it’s often the case that one side may be making the case for a short-term trade whereas the other side is making the case for a long-term investment — but the two sides aren’t aware of the disconnect. They’re not necessarily in disagreement; they’re just arguing about different things.

Zooming out 🔭

TKer Stock Market Truth No. 1 says: “The long game is undefeated.“ In other words, the stock market usually goes up over time.

Meanwhile, TKer Stock Market Truth No. 2 says: “You can get smoked in the short-term.” That is to say long-term investors should be prepared to experience a lot of sell-offs on the way up.

When I compiled this list of truths, I deliberately put these two next to each other because I wanted to make clear that bearish market developments can occur within a bullish long-term framework.

All of this is to say that it’s possible to be bullish and bearish simultaneously. The nuance is in the timeframe.

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Related from TKer:

• The stat explaining why the stock market gets so much negative news coverage 📺

• A 5-step guide to processing ambiguous news 📋

• Beware alarming business stories that get a lot of news coverage 🗞️

• The best investing wisdom shares a common theme 🧐

• 10 truths about the stock market 📈

Year to date, the S&P 500 is up over 11%.

Meanwhile, the index has experienced an intra-year max drawdown of 9%, below the historical average of 14%.

In other words, we’d have to get a pretty ugly market sell-off in the next four months for 2026 to go down as an average year — which is certainly possible and why investors should always keep their stock market seat belts fastened.

As TKer’s 10 Truths remind us, while the long game is undefeated, a lot can go wrong — and right — in the short term.

With that in mind, here are some charts about the present moment that caught my eye.

Many stocks are going in the opposite direction of the market

For those catching up, beta measures how much an individual stock moves relative to the market average (e.g., the S&P 500). For example, if an S&P stock has a beta of 1, then it has historically moved in tandem with the index. If its beta is greater than 1, its moves have been more amplified than the index (e.g., a tech stock that goes up 2% on a day the S&P 500 goes up 1%). If its beta is between 0 and 1, its moves have been more subdued.

If a stock’s beta is negative, then it’s been moving in the opposite direction of the market. Historically, few S&P stocks have had negative betas.

That brings us to this observation by Janus Henderson’s Richard Bernstein.

“The stock market’s recent narrow leadership … has left a near-record number of companies with negative betas,” Bernstein wrote. “That should sound very odd to everyone, but it was true during and after the Tech Bubble, and it’s true again today.”

“Leadership has been so narrow that stocks can diversify stocks!“ Bernstein quipped.

This helps us better understand why correlations within the S&P have tumbled.

There’s much to be said about this. For now, one point I’ll make is that it would not be unprecedented for many stocks to lag even as the market averages continued to trend higher.

But for those of us who lived through the Tech Bubble, this development is understandably unsettling.

Related: The first half of 2026 confirmed a valuable stock market lesson 🤔

Getting the midterms behind us could be bullish

The second year of a president’s term tends to be the weakest of the four years. Strategists typically blame midterm elections for raising uncertainty.

On the plus side, the stock market has performed consistently well once we get a clearer indication of what the results could look like.

“Since 1970, the market has started to rally on average around a month (22 trading days) before a midterm election, as polling data provides clearer indications of results,” BlackRock analysts wrote. “As event risk passes post-election, equities have historically experienced tailwinds, with an average return of 14.1% in the following six months compared to 5.7% in non-midterm years.”

Interestingly, election results don’t necessarily have to be “good” or “bad” relative to your political leanings.

“Regardless of the outcome, midterms can help reduce uncertainty, with markets often rallying after the event,” the analysts added.

This is true of presidential elections too.

You could make the case that some outcomes are more favorable for business than others.

But in the business world, the only thing worse than a less favorable outcome is uncertainty about the future.

Related: If you think things are bad now, just keep in mind that they could get much worse 📉

Pension funds have been doing well, which could be a headwind for stocks

The stock market’s impressive gains have been a win for those invested.

Ironically, this may have created a headwind for … the stock market.

From Citadel Securities’ Scott Rubner: “The top 100 U.S. pension plans are approximately 112% funded, their highest funding levels since 2001. Strong funding levels continue to incentivize plans to de-glide and immunize portfolios, creating the potential for mechanical equity selling and fixed income buying into quarter-end.”

It makes sense. If I were tracking well ahead of my savings goals, I might adjust my allocations to reduce risk in my portfolio, too.

That said, I’m not sure I’d personally trade this development.

I only highlight it because it’s one of the countless things going on in the market that may or may not explain why prices do what they do in the short term.

It’s more complicated than ‘higher interest rates are bad for stocks’

All else equal, higher interest rates mean higher financing costs. All else equal, higher interest rates mean lower theoretical valuations.

But the stock market’s relationship with interest rates is far more complicated than that. Consider the simple chart below.

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Unfortunately, much of the economic data we get regularly is based on surveys, which means it comes with a margin of error. And even after it’s published, the data is often revised as more information comes in.

For example, the July new home sales report showed sales fell 10.5% during the month. But the Census Bureau also noted that the margin of error at the 90% confidence interval was ±14.0%, which means sales could have actually climbed by 3.5%.

With the July jobs report, the Bureau of Labor Statistics revised the tally for May and June lower by 103,000 jobs.

These revisions usually aren’t a big deal. But growing concerns about data quality and the politicization of revisions have made this wonky topic something that more people are thinking about.

In particular, downward revisions to economic activity metrics seem to get a lot of attention.

On that, I have two thoughts for stock market investors.

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When interest rates climb to multi-year highs, it means you’ll soon hear more market pundits pontificate about the equity risk premium (ERP), which can be roughly defined as the additional return investors expect from stocks relative to bonds.

Read more

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The economy is doing pretty well, earnings growth is great, and the stock market just set new all-time highs.

In recent weeks and months, much of the major news we’ve gotten has been consistent with ongoing market narratives, which we’ve covered in this year’s free and paid newsletters.

But I know we’re all busy, and most of us aren’t able to read through every newsletter.

So for your convenience, I’ll do a speedrun through some of the data and insights shared in some of these newsletters that you might find helpful today.

• History continues to confirm that the stock market can trend higher even as the market’s leaders struggle. (Link)

• Many of the popular arguments for why this year’s stock market rebound “doesn’t make sense” are getting the story wrong. (Link)

• Most of the time, the stock market has bigger concerns than the next quarter-point move by the Fed. (Link)

• Some people are worried about earnings growth cooling. There’s evidence that the market has been pricing in this concern for a year. (Link)

• Energy costs are nothing compared to labor costs for most big, publicly traded companies. (Link)

• For stocks, the direction of interest rates isn’t as important as the rate of change. (Link)

• Things that make obvious economic sense aren’t always consistent with what happens in the stock market. (Link)

• Investing in the stock market at all-time highs has produced slightly better returns than investing during other periods. (Link)

• Investing in non-U.S. stock markets doesn’t always reduce your exposure to the U.S. economy. (Link)

• All but two of the world’s major stock markets are more concentrated than the U.S. (Link)

• The S&P 500’s index inclusion requirements are pretty good. But they also have some big issues. Maybe it’s time for a change, which wouldn’t be unprecedented. (Link)

• A falling saving rate doesn’t mean households are financially stretched. In fact, it may reflect increasing financial strength. (Link)

• Consumers have become less sensitive to inflation. (Link)

• Many of the most successful companies in history have pivoted to businesses their initial investors would have never anticipated. (Link)

• Some advisors recommend investors bury their heads in the sand to avoid making mistakes. I think that’s bad advice and will make you more prone to making mistakes. (Link)

• Stocks have been a good hedge against inflation. (Link)

• Even though it has increasingly become a “stock picker’s market,” there’s not much evidence that more stock pickers are beating the market. (Link)

• Anything in the news that matters for investors can be tied to line items on a business’s income statement. (Link)

• We spend a lot of time worrying about things that won’t happen and not enough time worrying about things that will. (Link)

• Wall Street’s first 2027 stock market forecast is out, and it’s basically exactly what TKer subscribers might expect. (Link)

• No matter how good things get, most people will never be satisfied with what they have, and that’s bullish. (Link)

• Profit margins are at record highs, and they’re trending higher for most sectors. (Link)

• For investors, many macro debates are resolved every three months. (Link)

• I can make the argument that expecting a 10% stock market decline isn’t actually bearish. (Link)

There’s more from where that came from. If you have questions about the stock market, chances are you’ll find answers in TKer’s archives. Use the search🔎 function in the upper right corner of TKer.co and type in some keywords.

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Related from TKer:

• It’s too ambiguous to just say ‘the economy’ 🤦🏻‍♂️

• My definition of ‘bearish’ is different from yours 🧸

• How do I think of today’s AI craze relative to past bubbles? 🫧🤖🚂🚗

• 2 market-crash facts that surprised me 📉

• ‘Better-than-expected’ has lost its meaning 🤷🏻‍♂️

• Two seemingly contradictory charts about economists and the economy 📈📉

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Review of the macro crosscurrents 🔀

📈The stock market rallied to all-time highs, with the S&P 500 setting an intraday high of 7,816.70 and a closing high of 7,798.99 on Thursday. The index is up 13.7% year-to-date. For market insights, check out the Stock Market tab at TKer. »

There were several notable data points and macroeconomic developments since our last review:

💰Household finances are stable and mostly normalizing. Household finances strengthened considerably during the COVID-19 pandemic, helped by a combination of limited spending options and government financial support. Over the past three years, finances have deteriorated but are mostly normalizing to pre-pandemic levels.

The New York Fed’s Household Debt & Credit report suggests finances continue to stabilize at those more normal levels. From the Q2 report: “Aggregate delinquency rates improved slightly in Q2 2026, with 4.7% of outstanding debt in some stage of delinquency.“

“Transition into early delinquency rose slightly for auto loans and mortgages but was largely steady for credit cards and ‘other’ debts. Delinquency transitions improved slightly for HELOCs.“

“Transition rates into serious delinquency remained mostly unchanged. Student loan delinquencies were an exception, with the continued impact of the re-reporting of defaulted student debt causing some distortions.“

And while credit card debt balances often steal headlines, it’s a mistake to suggest consumers are maxing out their credit cards. The $1.26 trillion in credit card balances as of Q2 represents just a tiny fraction of credit card limits.

One popular way to look at debt relative to income is household debt service payments as a percent of disposable income. This is a metric that has been deteriorating since 2021. But relative to history, it remains pretty strong.