“I never worry about the problem. I worry about the solution.” – Shaquille O’Neal
We know two things: Tomorrow is historically the best day of the year for stocks, and Kevin Warsh has been at the Federal Reserve (Fed) for three meetings, and the S&P 500 fell 1.21% in June, 1.52% in July, and 0.45% in September. In other words, when Warsh talks, the market hasn’t liked it, but tomorrow is usually a good day. Time to buckle up!
Let’s get one thing clear. In no way, shape, or form do we ever suggest investing purely based on one day. In fact, that isn’t investing, and we’d argue it’s more like gambling. Either way, October 28 is my birthday, and it is also the best day of the year for the S&P 500, with an average gain of 0.50%. Coincidence?
Taking this a step further, the third week of October can be rough, and it was this year, but stocks tend to form a major low right about now. With many signs of extreme fear out there, the odds of another major low in late October are quite high.
Sentiment Check
It really has been a fascinating market, as the S&P 500 has simply chopped around in a sideways fashion for many months now, yet worry and concerns in some cases are quite extreme. All of this is happening right as we reach the historically bullish late October period.
According to Goldman Sachs, hedge funds had one of their worst days ever last Thursday, as the names most hedge funds are long versus the most-shorted names fell 4.2%, the worst day since the US debt downgrade in August 2011. The same measure was down more than 10% month-to-date as of Friday.
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Adding to the pain that hedge funds are seeing and could continue to see, Bloomberg noted that hedge fund shorts were near a five-year high. History is full of plenty of examples when the crowd is hedged like this. When that happens, the most painful market is one that moves higher, and this could happen again.
Another angle on this is that the Goldman Sachs Prime Book showed that selling of global equities recently was the most extreme since late March of this year, not the worst time to look for a historic rally in April and May.
Source: Goldman Sachs, Prime Book: Global Equities 10/23/26
Lastly, my friend @MacroCharts shared this chart recently and it shows a huge move into money markets and cash-like ETFs. Yes, some of this could be because you can finally get something on cash and many are moving away from bonds, but you can see on the chart that previous surges have marked nice times to get long and expect a rally in stocks.
MacroCharts is not affiliated with CWM, LLC
We continue to expect a nice move higher into the end of the year. With the seasonally bullish November and December ahead, along with signs of extreme pessimism, the stage could be set nicely for a rally. Of course, we need something to spark it. As we’ve been saying for a while now, it’s all about tech right now. Strong earnings from some of the big hyperscalers could go a long way to sparking the rally.
Thanks as always for reading and for our latest thoughts on AI, be sure to watch our latest Glass Half Full video.
For more content by Ryan Detrick, Chief Market Strategist, click here.
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