Five for Friday – October 23, 2026

Market Rotation, Volatility, Consumer, Dollar, and IPO

1. Rotate

A recurring question around this market, especially with the S&P 500 near all-time highs, is why, despite well-known headwinds, does the market continue to grind higher with so little volatility? After all, we're now in one of the longest stretches of the past decade without a +2% or -2% daily move. Strong profits have helped smooth the ride but so has the rotational nature of the market itself: even as sector leadership has oscillated, money has remained in stocks.

For much of the year, AI companies carried the market higher while rising oil prices and bond yields pressured many other industries. Yet, at moments when enthusiasm for AI cooled, other areas like Healthcare, Energy, and Financials outperformed, keeping the market afloat despite its heavy concentration in Technology. The result is a market that’s calm at the index-level with elevated single-stock volatility (the proverbial duck gliding across the water while its feet churn furiously below). That's a good sign for bull market health, as it suggests investors still have an appetite for risk assets. But shock-absorbing market rotation can't insulate the broader indexes indefinitely; natural market rotation can complement diversification but shouldn't be mistaken as a substitute for it.

 2. Volatility

As for the market’s uncanny calm, we should recall that across the last 50 years, the S&P 500 has seen 25 drawdowns of 10%+. As we head toward 2027 without a -10% selloff since early 2025, it’s worth noting that plenty of these corrections occurred in up markets, with profits growing and the economy expanding. Take 2018: a midterm election year not too different from today – strong profit growth, fiscal stimulus, and economic expansion – that saw a ~20% selloff late in the year on a hawkish Fed and geopolitical tensions. That’s not to say that a big selloff is imminent, just to reiterate how normal they are. I believe whole-heartedly that investors who expect volatility are far less likely to let it derail a long-term plan.  

3. Spending

A parallel to the market resilience question is, what explains consumer resilience amid such high inflation? A drum tight labor market is the main driver, but the wealth effect (the idea that people spend more when they feel wealthier) is likely pulling a lot of weight too. Per our partners at Baird Strategas, “A recent central bank study noted that ‘while the post-Covid catch-up had fueled consumption growth since 2021, its role diminished in 2025…. In 2025, rising household wealth is estimated to have accounted for around half of consumption growth.’” Household net worth (adjusted for inflation) is up in recent years, due in large part by homeowners (66% of households) enjoying median home equity of $230,000.  

4. Dollar

One of the more underdiscussed stories of 2026 is the strength in the U.S. dollar. The greenback is up ~4% this year against a basket of foreign currencies, and headlines about de-dollarization have all but dried up. While not a universal positive for U.S. stocks (a stronger dollar cheapens imports but also lessens U.S. firms’ foreign profits), it is a sign that U.S. markets continue to attract capital. As Baird Strategas’ Tom Tzitzouris notes here, though the U.S. has its own fiscal issues, the recent action in the Treasury and dollar markets reinforces the U.S. status as a safe haven amid choppy seas.  

5. On this day

25 years ago, the original iPod was introduced by Steve Jobs. I won’t try to sum up its legacy in three lines, as it sits upstream from multiple generations of consumer tech innovation. But like many breakthroughs, it was born into a recession and debuted to lukewarm reviews. A useful reminder that the future is easiest to recognize with hindsight.  

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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