Hello reader, welcome to the latest issue of HX Weekly!

Each week we bring you a new edition of HX Weekly that includes three distinct sections.

In the first section, Thoughts on the Market, we'll offer insights into current economic and market news or timeless insights.

In the second section, HX Daily Redux, we'll revisit investing concepts, tactics, and more from past issues of HX Daily.

And in the third section, Market Wizard’s Wisdom, we’ll share thoughts, quotes, and theories from the greatest investing minds of all time.

Now, let's dive in!

Thoughts on the Market

What’s In Store For Quarter Four

It is that time of year again, the fourth quarter!

Like the end of a football game, this is where many money managers figure out how much they are going to get paid for the year.

For individual investors, it is just a date but still one by which many measure their success.

More importantly, it is a period with some of the strongest seasonal factors. Factors that can make us money!

Here are some technical indicators we think are interesting going into Q4 2026 and the end of the year…

1) The BEST Day to Buy – October 6

This is an interesting analysis from Bespoke Investment that looks at forward three-month returns of every day of the year.

It looks historically and analyzes what the average return over the last 25 years would have been had you bought on this day.

The top chart shows the average return. The bottom chart shows the probability of making money.

This last week, we saw the BEST day to buy – October 6.

Over the last 25 years, buying the S&P 500 on that date has produced a +7.72% and made money 88% of the time!

We like those odds…

2) The BEST Month to Buy – October – Month 22 of the Election Cycle

Here is another analysis from our colleague J.C. Parets. This looks at forward seven-month windows and each month of a four-year election cycle.

Similar analysis as the first one, but it is looking at the 48 months of the Presidential term. It looks at what happens if you bought on the first of the month and held for seven months.

This October is month 22 of the 48 months in the cycle.

Over several decades of data, THIS month was the best month to buy with a +18.3% average return over the next seven months.

By comparison, all October to April periods produce an average return of +8% and all seven month periods a return of +5.4%.

Buying in month 22 produces an average return three times greater than just buying in any normal month.

Buying in month 22 also resulted in a positive return of an amazing 94.7% of the time. This compares to 76% and 72.6% of the time for those other windows.

Impressive.

3) A Good Start = A Good Finish – The Daily Version

Here is another good insight from analysis firm Bluekurtic Market Insights.

The S&P 500 traded higher on the first trading day of October AND over the first 5 trading days.

This has happened 33 times in the last 75 years.

Historically, the stock market was higher for Q4 90.6% of the time with an average return of +4.2%.

This is another good sign!

4) A Good Start = A Good Finish – The Year-To-Date Version

Here is another one.

When the NASDAQ 100 was higher at least +20% at the end of the third quarter, it has exceptional returns over the next two months, through year-end and over the next six months.

Below is the data from Nautilus Investment Research.

Going back 30 years, this has happened 11 times prior to this year.

The NDX was higher 82% of the time over two and three months forward and 91% of the time over six months.

The returns are also particularly impressive.

For instance, the average six-month return is +21.32% or almost three times the average six-month return over all periods in this study.

Take special notice of the returns in 1999. We think this year is lining up very similarly to that period.

Again, another good sign.

5) Earnings Revisions are NOT Good – They Are AWESOME!

Our readers know that the changes to Wall Street analysts’ estimates for earnings growth are the single best predictor of stock prices in the short-term.

Below is a chart from Bespoke Investment Group showing the three-month change in EPS estimates for the S&P 500 for the year forward.

In this most recent period, they have been revised upwards by almost +12%.

Look closely at the chart and you will see this level of change usually only happens during a recovery post-recession.

The AI led growth in the economy is unprecedented.

Now, the question is – how sustainable will it be?

That question, though, is a question for later.

We think this earnings momentum continues into the Q3 2026 reporting season that starts next week and helps drive stocks even higher into year-end.

6) The Next Move in Bond Yields is Likely DOWN

Our final chart today.

This one is from our friend Frank Cappeleri and is a relative strength index (RSI) chart of the yield on the benchmark U.S. Government 10-year bond.

The top chart is the yield, and the bottom chart is the RSI.

Look at when the RSI has traded above 70 in the last few years. Then look at the price chart above.

You will notice that every time we have seen it trade sustainably above the 70 level, the yield has proceeded to fall over the next few weeks and months.

We think this will happen again now.

Falling rates will be another positive catalyst for stocks and help fuel the strong finish.

The overall verdict?

We think that the finish to the year in the stock market has a very high probability of being good and a possibility of being GREAT!

Let’s go make some money…

As we enter into Q4, we thought we would share a note that we wrote at this same time of year back in 2024. If you read the note above, you will see that the data is lining up very similarly in 2026.

HX Weekly Redux

The Big Finish!

Our regular readers know that we are big proponents of the idea that the time of year can affect stock market returns. This is referred to as “seasonality.”

In financial theory, where we are on the calendar shouldn't matter. However, it does in the real world of trading.

There are many reasons why it has an impact.

Companies report financial results every three months or “quarter.” They are also measured on a calendar year basis, which means that their results and guidance can change throughout the year.

The 3^rd quarter is often volatile because companies no longer have enough of the year to compensate for disappointing results. These results are usually reported in October but previewed in September if there is a problem.

This is one reason why September has historically been a tough month for the market. Here is a table showing the average monthly returns for the S&P 500…

This year, September went against this trend, and the S&P 500 was +2.1% for the month.

The seasonality trends are about probability, not certainty. This year, we saw some volatility to start the month, but there were not many negative pre-announcements or bad economic news.

This now sets us up for the end of the year, and seasonality has been strongest here by far.

Here are a couple of tables from one of our favorite research shops – Bespoke Investment Group – that show the average return and how often the stock market is up in the fourth quarter…

You can see that since World War II, the S&P 500 has been up almost double the average for all quarters and positive almost 80% of the time.

Those are both solid returns and a high probability of a positive outcome.

We discussed how the earnings reporting season can drive weakness in September and October. Why does the year-end lead to market strength?

It is for similar reasons having to do with the calendar.

Most professional money managers are compensated on a calendar year basis. At the end of the year, they are highly motivated to see the market rise.

They know they will get paid based on their performance as of December 31, so they will do everything they can to raise the market.

Also, if the stock market is strong going into Q4, then managers have a "cushion" with which to support it.

If a manager is flat or down going into Q4, then they are not likely to be aggressive and buy stocks when they are down.

However, if that manager is up solid double digits, then they are likely to buy every dip.

The stock market in 2024 is up historically. It is quite rare for it to hit a new all-time closing high on the last day of Q3, but it did so this year.

Here is another great chart from Bespoke showing when this has happened in the past and what happens in both October and Q4…

This is rare, having only happened four times since 1945. All four times, the stock market was higher in both October and the fourth quarter. The Q4 returns have also been solid.

We think we are likely to see a similar outcome in 2024, but we also think it makes sense to be cautious in the very near term.

Here is a chart from Ryan Detrick of Carson Investment Research showing what happened in October when the stock market was up more than 20% going into Q4…

The S&P 500 has been down most of the time, although there was only one bad month in 1987.

The strength of the stock market and economic data has pushed sentiment towards the high end of the spectrum.

Too many people on one side of the boat leave it vulnerable to volatility if it hits even a small stone in the river. That is where we think we are right now and would remain nimble in our trading allocations. Take profits when you have them.

We are cautious in the near term (weeks) and BULLISH on the stock market in the intermediate term (Q4).

Over the next year?

One last great table from Bespoke shows the BULL market's duration and magnitude since World War II…

The average duration has been over 1000 days, and the S&P 500 has more than doubled. We are about two-thirds of the way there on both measures.

We think this BULL has legs and will continue to run into 2025. Stick with it for the ride!

Here is another note we wrote around this time of year two years ago where we shared the wisdom of the most famous member of the Austrian school of economics, Frerich Hayek. Enjoy!

Market Wizard’s Wisdom

The Individual is Everything: An Introduction to Austrian Economics

We took a two-week trip through five Eastern European countries at the start of this month.

We began our trip in Budapest, Hungary, and spent much of that week sharing the investment insights of legendary investor George Soros. Regardless of the controversy over his political activism, he still has some incredible wisdom for investors.

We finished our trip in Vienna, Austria, which got us thinking about a hugely influential group of economic thinkers that many readers may not know. They represent a group of economic philosophies that are referred to as the Austrian school of economics.

Look them up on Wikipedia, and you will read the following…

The Austrian school is a heterodox school of economic thought that advocates strict adherence to methodological individualism, the concept that social phenomena result primarily from the motivations and actions of individuals along with their self-interest. Austrian-school theorists hold that economic theory should be exclusively derived from the basic principles of human action.

Wow – that is a mouthful! What does it mean?

This group of economists believes that everything we see in society and economics is driven by each of us as an individual trying to get the best result for ourselves and our families. We added the "our families" part here because we think that most of us think not just of ourselves but also of our immediate group.

What we do NOT think when making most decisions about is the larger group of society. We are biologically programmed to get good results for ourselves, our family, and our “tribe.”

Regardless of the advancements in philosophy, economics, and technology, we will ALWAYS be humans driven by this biological programming.

We often emphasize this when discussing TRADING and INVESTING. Our evolution creates biases that we must overcome to be successful.

This approach contrasts with traditional views of economics, which are driven more by model-building and statistical methods. Economic traditionalists often dismiss it.

We think this is a mistake as it has far more applicable insights than any of those academics. Understanding our individual biases is valuable in trading.

This is why it is referred to as a “heterodox” school of economic thought.

(Editor’s Note – Do you know what the “HX” in “HX Research” stands for? Do the math…)

The Austrian school of economics focuses on these biases as the basis for our actions in society and the economy. Understanding them can help us better appreciate how society and the economy can develop and evolve.

We encourage you to learn more about this unique branch of economic study.

Today, we are going to share several quotes from the most famous Austrian school economist, Fredrich Hayek. He won a Nobel Prize in Economics in 1974 with his partner Gunner Myrdal, and he stands out for his insights. Enjoy…

“’Emergencies” have always been the pretext on which the safeguards of individual liberty have been eroded.”

Hayek lived from 1899 to 1992 and witnessed some of the most horrific events in human history during World Wars I and II. He saw firsthand how authorities used a time of concern to take away individuals' rights, often with terrible results.

COVID?

“I do not think it is an exaggeration to say history is largely a history of inflation, usually inflations engineered by governments for the gain of governments.”

Another Hayek quote that predicts the future.

He rightly points out that the history of governments is one where they consistently devalue their currencies to protect the survival of the government.

While government most often begins with the best interest of the people in mind, it always ends up being focused on its own best interest.

“Our faith in freedom does not rest on the foreseeable results in particular circumstances but on the belief that it will, on balance, release more forces for the good than for the bad.”

This is a key concept in both libertarianism and capitalism.

The idea is that, if put in the proper system of rules, choices driven by individual (and family) self-interest will ultimately drive the best outcome for everyone. It is not a perfect system by far, but it is the best.

“Liberty not only means that the individual has both the opportunity and the burden of choice; it also means that he must bear the consequences of his actions and will receive praise or blame for them. Liberty and responsibility are inseparable.”

This statement is a key “proviso” to the Austrian school’s emphasis on actions driven by individual self-interest.

There has to be ACCOUNTABILITY to ensure that society and the economy can properly evolve and function.

We hope that you’ve enjoyed this week’s issue of HX Weekly…

Do you have any thoughts, questions, or feedback? Tell us more in the comment section or at [email protected].