Five for Friday – October 16, 2026

Birthday, Rates, Jobs, Deficits & Stocks, and Entrepreneurialism

1. Five

This week marked the current bull market's 4th birthday, an event “celebrated” two days later by the S&P 500 snapping a 53-day streak without a 1%+ decline. Despite the gloomy festivities, reasons for optimism remain. Though bubble talk lingers, this bull market falls short of the average length and magnitude of post-WWII bull runs. Moreover, those that make it this far have tended to deliver solid returns in year five: across the seven prior instances, the average gain was a stout 13.4%, with six of seven posting positive returns. We've also moved beyond a seasonally weak stretch and into one of the market's more favorable periods. Looking to the political calendar, midterm elections are typically a tailwind, with the calendar quarter of the midterm and the two that follow ranking as the three strongest of a full 16-quarter presidential cycle. None of this guarantees smooth sailing, but it does suggest the backdrop may be better than headlines imply. As our partners at Baird Strategas put it: "There is a legitimate wall of worry out there that demands attention, but a positive trend leaves us willing to give the market some leash to work through what currently bothers it."  

 2. Rates

First on the wall of worry is bond yields and the inflation pressures pushing them higher, with this week's hotter-than-expected CPI report increasing the odds of an October rate hike. Higher yields are also starting to impair credit markets, where junk bond spreads (the extra yield investors demand over Treasurys) are at multi-year highs. Investment-grade spreads (higher quality borrowers), however, remain relatively well-behaved and below recent peaks. That divergence may be a useful signal. While momentum stocks and weaker balance sheet companies have led much of 2026, a higher-for-longer rate environment should ultimately favor quality: businesses with strong cash flow, manageable debt loads, and disciplined management teams. At the very least, higher rates raise the bar for risk-taking…and make speculative growth stories a tougher sell.  

3. Jobs

The positive spin on the Fed's recent hawkishness is that it would be much more difficult to justify if the labor market weren't in better shape than it was a year ago. The U.S. economy has added more than five times as many jobs in the first nine months of 2026 (+612K) as in all of 2025 (+116K), initial unemployment claims remain historically low, and even demand for labor is beginning to improve. However, that strength can be a double-edged sword for investors. A healthier labor market may ease fears of near-term recession, but it gives the Fed more latitude to fight inflation with higher interest rates: a classic "good news is bad news" backdrop for stocks.

4. Debt

As investors dissect the reasons for higher yields, government debt and rising budget deficits are in focus (and rightfully so). But I’d caution against too much stock market pessimism based on these concerns alone. Consider Japan: its debt-to-GDP ratio (the critical constraint worth monitoring) has been the highest in the developed world for decades, and yet its stock market has been among the world's best-performing in recent years. Japan is a unique case for a handful of reasons, but the broader lesson remains: strong corporate profitability, powerful growth drivers (e.g., AI), and market-friendly policies can outweigh fiscal concerns for long stretches of time. At a minimum, it’s a reminder that government debt challenges alone are rarely a compelling reason to get overly defensive.  

5. On this day

in 1923, the Disney Brothers Cartoon Studio – later renamed the Walt Disney Company – was founded. The company today is on a long list of $100 billion (plus) enterprises founded during a recession, from Goldman Sachs in 1869 to Microsoft in 1975 to Uber in 2009. The lesson? Recessions may interrupt growth, but they have very rarely – if ever – interrupted America's penchant for incubating the innovators and entrepreneurs who drive it forward (even today).

Disclosures

This is not a complete analysis of every material fact regarding any company, industry or security. The opinions expressed here reflect our judgment at this date and are subject to change. The information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy. Market and economic statistics, unless otherwise cited, are from data provider FactSet.

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