We employ two distinctive dynamic market exposure models in our strategies: one tailored for growth-focused investors seeking aggressive opportunities and another designed for those with a more defensive approach, prioritizing capital preservation. *For illustrative purposes only.
US equities delivered mixed performance in October, with the S&P 500 ending the month roughly flat, the Dow climbing 1.8%, and the Nasdaq Composite underperforming, down 5.0%. This month has seen a significant rotation away from tech stocks, especially semiconductor and AI infrastructure companies, toward more defensive and value-oriented sectors such as healthcare (up 8.4%), utilities (up 9.6%), and consumer staples (up 11.1%). The shift can be attributed to profit-taking after a prolonged tech boom, growing concerns about returns on substantial AI-related capital spending, and a preference for more predictable earnings and cash flow. On the monetary policy side, the Fed kept the target rate unchanged at 3.75%–4.00% at its October meeting. In our view, the October pause does not signal the start of an easing cycle; rather, we anticipate the Fed will raise rates another 25bps in December, given the slightly more upbeat tone on the overall economy and still-elevated inflation. In the days leading up to the midterm elections, political developments dominated October headlines. Although investors might be tempted to rebalance their portfolios in response to short-term election-related volatility, we believe that maintaining a disciplined long-term investment strategy is generally a better approach. We remain moderately constructive on US equity, driven by resilient growth, healthy corporate earnings, and reduced political uncertainty after the midterm elections. However, downside risks remain amid stretched valuations, inflationary pressures, Fed policy uncertainties, and concerns about the return on AI capital investment. With this backdrop, we maintained our equity exposure at 84% in our defensive, tailored approach.
Midterm elections: In the days leading up to the midterm elections, political developments dominated October headlines. Although some investors may be tempted to rebalance their portfolios in response to short-term, election-related volatility, historical data suggests that focusing on long-term discipline and risk management is generally a better approach. Our research shows that market performance entering midterm elections has generally been weak as investors assess the possibility of changes in political control. The S&P 500 generated an average YTD price return of -0.6% through Election Day, based on the nine midterm election cycles since 1990. The two weakest midterm years occurred in 2002 and 2022, with YTD returns of -20.3% and -19.7% through Election Day. This year’s market behavior has been different, though, with the S&P 500 up 11.8% through 10/30, among the best starts to a midterm year since 1990. Historically, the market has recovered after Election Day, with an average S&P 500 return of 14.5% in the 12 months following the midterms. This pattern can be attributed to improved investor sentiment and reduced political uncertainty surrounding fiscal policy, taxation, regulation, and government spending.
Fed policy: As widely expected, the Federal Open Market Committee kept the target rate unchanged at 3.75%–4.00% during its October meeting. However, the decision was not unanimous with two committee members dissenting in favor of another 25bps rate hike. These members highlighted ongoing concerns about persistent inflation. At the same time, the statement demonstrated a more upbeat tone on economic growth, upgrading its assessment of economic activity from "solid" to "strong." The labor market has been resilient, with employment continuing to grow and unemployment remaining stable. Chair Warsh also announced a change to the FOMC's meeting schedule starting next year, with one meeting next year focused on strategy rather than a rate decision. In our view, the October pause does not signal the start of an easing cycle; rather, we anticipate the Fed will raise rates another 25bps in December, given the slightly more upbeat tone on the overall economy and still-elevated inflation.
Corporate earnings: The Q3 earnings season is still in its early stages, and the initial results are generally positive. As of 10/30/2026, 60% of S&P 500 companies have reported Q3 2026 earnings, among which 82% of the companies have reported a positive EPS surprise, and 70% of them have reported a positive revenue surprise. For Q3 2026, the blended (year-over-year) earnings growth rate for the S&P 500 is 30.2%. While the data indicates solid underlying corporate profitability, supported by a resilient economy and strong demand, market reaction has become more selective, and investors are paying closer attention to returns on substantial AI-related capital spending. For example, Alphabet stock fell about 13% on 10/29 after its disappointing revenue report and a loss of about $9 billion in free cash flow with climbing AI spending. Also, Intel stock fell 29% the next day on its lower-than-expected fourth-quarter revenue forecast, illustrating how elevated expectations can lead to negative market reactions.
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As of 10/30/26. Data provided by Bloomberg, NorthCoast Asset Management, Federal Reserve History.
The NorthCoast Navigator is a market barometer displaying NorthCoast's current U.S. and international equity exposure and outlook. This aggregate metric is determined by multiple data points across four broad market-moving dimensions: Technical, Sentiment, Macroeconomic, and Valuation. The daily result determines equity exposure in our tactical strategies.
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