This Week in Review | Bull Market Birthday, Q3 Earnings, US Inflation

Transcript

Hello and welcome to This Week in Review. This weekly segment is designed to highlight a few things you may have missed this week, what they could mean for financial markets, and why they matter to investors like you. To stay up-to-date with our latest market insights, subscribe to our YouTube channel or visit Fisherinvestments.com. Now, let's review what happened this week.

First, this bull market turns four. Monday marked the current bull market's fourth birthday. As we reflect on this period, there are a few important things to keep in mind. Arguably, the biggest thing to note is that bull markets don't die of old age. The average length for a bull market is around five years, but that average includes both shorter and longer runs. This one is getting closer to an average length, but again, age alone isn't a reason to expect a market peak. The record holder, the 2009 to 2020 bull market, lasted over twice as long. Watch for risks, but absent a compelling reason to be bearish, we'd say to stay bullish.

Secondly, old fears die hard. Historically, investors tend to fight the last war, focusing on what caused the last downturn, fearful it will drive the next one. During the 2022 bear market, inflation was the dominant fear. And though inflation today remains well below that mid-2022 peak of 9%, the memory of high inflation remains fresh in the minds of investors. We view this as a brick in the classic wall of worry that bull markets love to climb. Misplaced fear can help keep a check on sentiment and lower investor expectations, supporting the positive surprise that actually fuels bull markets.

And the third thing to keep in mind, bull markets are resilient, but they're not calm. This year gave us a clear example. When the Middle East conflict began in February, global stocks fell nearly 10%. By June, stocks recovered and had reached new highs. Swings like that can be unsettling, but they're normal even in a healthy bull market. Think of them as the price of admission for the long-term returns that stocks can deliver. Across these three takeaways, one message stands out: gloomy headlines, familiar fears and sudden drops will always be a part of investing. None of them are a reason to abandon your long-term plan.

Next, Q3 2026 earnings season. This week, Q3 earnings season began in earnest. Earnings season shows how companies results are meeting, exceeding or falling short of expectations. Profit margins and related expectations are a major driver of stock prices, and currently the bar is high. Analysts expect S&P 500 earnings to grow by 29.6% compared with the same quarter last year. Hitting that mark would mean the third straight quarter above 25%.

Banks and other financial firms are typically among the first to report quarterly earnings, and so far, results are mixed. Some big banks beat expectations, others fell short in a few areas, even as they sounded more upbeat about the months ahead. Analysts calls touched on the opportunities and risks associated with AI, citing robust financing demand and operational advantages, but also the potential threat posed by rogue agents. As for the results, it's normal to see a mix of hits and misses. But individual company results aren't the main story. The bigger question is whether profits across the whole market keep growing and beating expectations. Stocks look ahead. Since this bull market began in October of 2022, stocks have been rising, partly because investors expected corporate profits to recover. In the last few quarters, those profits have been showing up big time. If broad earnings growth holds this quarter, it's more evidence that this bull market rests on real profits, not just enthusiasm.

That doesn't mean that everything is perfect. Optimism around tech and artificial intelligence keeps growing, and we think that's worth monitoring. For example, investor expectations for tech sector sales growth versus the tech industry's own estimates have changed over time. Investors expected less sales growth than industry insiders in early 2025, but now the public has rosier sales growth projections. This suggests positive surprise may be more difficult than it once was for technology stocks. Rising sentiment can be a sign that a bull market is maturing, but optimism alone typically doesn't end a bull market. Stocks can keep climbing as long as actual results keep pace with what investors expect. So what does this mean for you? Over the next few weeks, you'll hear plenty of headlines about companies that beat or missed expectations. Try not to get too caught up in any single release. The broad earnings trend tells you far more about where the market stands, and right now, the trend looks healthy.

Finally, September US inflation figures. On Wednesday, the U.S. Bureau of Labor Statistics released September Consumer Price Index data, or CPI. Headline inflation came in hotter than expected, rising 3.7% year-over-year. That's up from 3.4% in August and above economists' 3.6% forecast. But as we discussed recently in MarketMinder, the picture under the hood looks much more encouraging. Core CPI, which strips out food and energy prices, came in at just 2.6%. The recent acceleration suggests increases are concentrated mostly in energy costs tied to the Middle East conflict, rather than spread broadly across the economy. And the Fed's preferred inflation measure, headline Personal Consumption Expenditure Index, or PCE, shows a similar pattern, with core PCE holding steady at 3% since June.

And while we recognize the impact growing energy prices have on all of us as consumers, our goal is to look at developments like this for their impact on markets. And for stocks, the key isn't the inflation number itself, but how reality compares with expectations. Inflation fears have remained elevated, but even this hotter reading is actually below what many consumers expected. If inflation proves less persistent than feared, that positive surprise could support markets. And as we've noted in the past, sustained broad-based inflation usually comes from rapid money supply growth. Global money supply growth has accelerated recently, but remains moderate. That suggests these energy-related pressures should fade over time, rather than spilling over into broader-based inflation.

As for the Fed, you'll hear plenty of speculation about what this report means for their policy meeting later this month. But don't overestimate the Fed's ability to steer markets. Ultimately, long-term returns depend more on economic growth and corporate profits than any single Fed decision. One month's inflation reading isn't a reason to deviate from your long-term investment strategy.

That's it for now. Thanks for tuning in to This Week in Review. If you're looking for more insights, don't miss our other series Three Things You Need to Know This Week, released every Monday. You can also visit Fisherinvestments.com anytime for our latest thoughts on markets. Thanks again for joining us, and don't forget to hit like and subscribe.