Executive Summary-- Bond Rally Equity Rotation Envelops World

THIS WEEK: 1st MIXED-Risk week after 1 Risk-OFF week. US Stocks MIXED, Foreign Stocks MIXED, Bonds UP and Gold DOWN

Bonds rallied off oversold for a third week aided by an overbought oil complex (USO) with WTI crude prices above $100 and Brent crude at $116. With the Fed meeting next week and US voters doing their thing a week after that, investors have been hedging their bets before taking a wait-and-see attitude. While the Fed isn't expected to hike rates until December, if they do hike next week, equity investors don't want to be caught flat-footed, so they've been rotating out of the mega-cap high-flyers and into small value. Among S&P strategies Value has replaced Momentum and Growth. More generically, US large caps (-0.4%) slid while small-caps (+2.0%) rose. US long Treasury prices jumped another 2.5%, on fears that Fed rates "higher for longer" will slow the economy. The 10-yr yield dropped to 4.99%, and the cash yield slipped to 4.03%, flattening the 3m-10y yield curve to 96 basis points. The Dollar (+0.1%) rose fractionally, adding to gold's weakness (-4.0%). Oil (+4.8%) and commodities (+1.1%) overcame the Dollar strength. Offshore stocks were generally lower, apart from Latin America (+0.4%). Asia-Pacific (-1.6%), Europe (-1.2%) and Japan (-0.8%), all pulled back. The models are on hold this week pending stop-loss readings on SPY.

GLOBAL OUTLOOK NEUTRAL (2 of 4, down this week). The Baltic Dry Index and 10Y Treasury yield are down on the quarter, but oil and copper prices are still higher, making the outlook neutral as of 10/23/26.                                                                                                                                                                        US INFLATION: No data releases this week. WTI oil prices up to $103. Global inflation per the Fed Check (84) still warrants tightening.

US ECONOMY: Global Activity Expanding, US LEI Flat, Starts & Permits Down, Consumers Pessimistic, But Jobless Claims Low. Yield curve positive and flattening this week. Recession chances a year out shrinking and minimal. Money market system healthy per SOFR. Above average US growth prospects. GDP Now estimate (Q3) at 3.5% as of 10/09.

FEDERAL RESERVE: Meeting this week. 1st rate hike since 12/25 rate cut five weeks ago. Fed Check (84) remains hawkish. The Fed's balance sheet currently stands at $6.75 trillion, with the Fed Funds Rate at 3.75-4.00%. By December, at least one more Fed rate HIKE (93%) is likely.

INVESTMENT STRATEGIES: There are no model switches this week.

INDEX MODEL: HOLD US Large-caps (SPY) 10/23/2026

1st MIXED-Risk week after 1 Risk-OFF week. US Stocks MIXED, Foreign Stocks MIXED, Bonds UP and Gold DOWN.

THIS WEEK: The best Global asset we monitor is US Large-caps (SPY). Positives: CI% is max. Technical strength is bullish (>60), and PMO is positive (>0). Negatives: PMO is weak and deteriorating. RSI is bearish (<50). SPY also touched a 20-day low (stop-loss) intraday on Friday but closed above it negating the stop for now.

BEST ALTERNATIVE: SGOV (cash) is the only other ETF in this model with a positive CI%, a TS+ greater than 50%, and a positive PMO.

Strong gold kept the Index model in bullion to start 2026, with GLD outperforming all equity asset classes through the first quarter. The model rotated into EEM in late Q1 as emerging market momentum accelerated and gold's relative strength began to fade. After the rotation, EEM added meaningfully to the year-to-date advance until US rate hikes strengthened the Dollar and SPY.

THE GLOBAL INDEX MODEL has been around for 34-years in one iteration or another. It is a momentum-based market timing model the latest version of which compares the relative strength of ETFs representing US stocks (SPY, IWM) and international stocks (EFA, EEM) along with US Treasuries (SHY, EDV) and Gold (GLD) in order to pick the single best asset class in which to invest your money. The model is updated weekly and the current recommendation is published each weekend in the Decision Moose newsletter.