Five for Friday – October 9, 2026
Recession Risk, New Highs, Valuation, Bear Markets, and Oil
1. Economy
While there is plenty of justifiable angst about the impact of rising yields on stocks, we should not forget this lesson from 2022 (when the most anticipated recession of all time failed to materialize): the economy and markets are less rate-sensitive than they used to be. Higher rates still weigh on more rate-sensitive sectors (housing, real estate, etc.), but the broader economy has become more insulated: most debt is fixed-rate (often at below-market rates, a la mortgages refinanced in 2020), corporate and consumer balance sheets are relatively healthy, and services now make up a larger share of GDP (vs. the more rate-sensitive manufacturing sector). Moreover, many of today’s growth drivers – AI spending, healthcare hiring, etc. – are more structural and less likely to be stemmed by a few mid-cycle adjustment-style rate hikes. This helps explain why our partners at Baird Strategas continue to see only a low probability of recession despite today's headwinds. After all, just as economic expansions are often undone by excesses and imbalances, the absence of those imbalances, particularly in the massive consumer sector, is a key reason near-term recession appears less likely.
2. All-time highs
Despite headwinds, the stock market climbed to a new all-time high on Tuesday, it’s 28th new high of the year and 124th of this bull market. And despite the threat of ongoing geopolitical conflict and higher interest rates, we’d be remiss not to reiterate that the S&P 500 actually tends to outperform when starting from a new all-time high.
3. Valuation
The path to this week’s new high was far from smooth, however. The market has chopped sideways for most of the summer and fall, with the S&P 500 up just ~2% since early June. But earnings estimates have risen much faster than stock prices, making the market quite a bit “cheaper” over those months. And because investors expect strong profit growth to persist, the market’s price/earnings-to-growth ratio (aka the PEG ratio, popularized by legendary investor Peter Lynch) closed last quarter at its cheapest level in 25 years. Valuations are not the most useful timing tool in the near term, but cheapening valuations and stronger fundamentals are rarely a bad combo.
4. On this day
in 2002, the dot-com bust hit its low point. Outside of tech-centricity, today’s bull market looks quite a bit different from 2000 but the dot-com unwind is a reminder of how punishing a bear market can be. And, critically, it’s a reminder that the V-shaped recoveries of recent years (2018, 2020, 2025) are not the only path a bear market can follow. In fact, across the 30+ months from March 2000 peak to October 2002 trough, the S&P 500 rallied about 20% three separate times…only to revert back to lower lows. Although such lengthy downturns are uncommon, the early 2000s showed why diversification is one of the best defenses against both market risk and investor emotion.
5. Also on this day
in 1865, the first successful oil pipeline in the U.S. began transporting oil, mostly underground, over the five miles from Pithole, PA to the railroad, skirting the burdensome cost of transporting oil in wagons on muddy roads. Ida Tarbell, in The History of the Standard Oil Company (published in 1904), “the day that the Van Syckel pipeline began to run oil, a revolution began in the business. After the Drake well it is the most important event in the history of the Oil Regions.”
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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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