Market Report: November 2026

Rock, Sand, or Gravel

Many of us who attended Sunday school when we were kids remember a song titled “The Wise Man Built His House Upon the Rock,” that, believe it or not, can be applied to investment management. The song obviously has a religious message, but we are focused on the words here and how they can be directed to investment management. The song talks about how one (wise) man built his house upon rock and another (foolish) man built his house upon sand and then, when the rains came down and the floods came up, the house upon the rock stood still, while the house built on sand collapsed. Applying this to investing means building your portfolio on the rock of fundamentally sound investments that allow one to stand firm through the storms of economic and market turmoil. Some take the approach of day-trading, and others try and time the markets; those approaches are high risk/high reward strategies that, for most, do not end well. That approach, in keeping with our theme, would be to build your portfolio on the sand. Now, one should certainly not take the ostrich’s approach and stick your head in the sand even with a fundamentally sound strategy, but applying a consistent, fundamentally sound approach generally offers more consistent results. This is especially true in the investing environment we have been in now for some time where the economy is generally healthy, inflation is problematic, the markets are somewhat overvalued and volatile, and the crystal ball is cloudy. Then, when you throw in election results that dramatically change the political landscape, and the need to be fundamentally sound is readily apparent. Let us review the markets and the economy and see if the wise approach is the one built on solid fundamentals or if those fundamentals do not matter as much right now. In other words, are we standing on solid rock, sand, or a mixture of both (gravel)?

Financial Markets

Uncertainty is not something the markets like and that played out in October, especially when it came to the more technologically related companies and indexes. On the other hand, there was a flight to safety in both the broader equity markets and even in the bond market. The picture really was one of shifting sands (momentum or higher-risk ventures) versus solid rock (more fundamentally sound or diversified positions). On the positive side of the ledger, the Bloomberg US Aggregate Bond Index gained 2.44% during October, reversing much of September’s losses. On the equity side, October saw the Dow Jones Industrial Average add 1.76%, the S&P 400 gained 1.90%, and the S&P 600 added 3.18%. Other major indexes lost ground in October, such as the S&P 500, the NASDAQ, and the EAFE, which lost 0.87%, 5.28%, and 0.80%, respectively. The S&P 500 Equal Weighted Index gained 5.00% during the month, as the more diversified positions outside of the Magnificent Seven added value, which bodes well for the broader markets and economy.

Bonds were buoyed by a flight to quality, as investors sought a safe space given some of the economic uncertainty surrounding the war in Iran and the upcoming (now past) election. This helped push yields on the ten-year Treasury back below 5%.

Market valuation data as of October 31st, 2026 (Buffett Indicator as of 11/3/26), however, continues to show markets as strongly overvalued, although all of the metrics except Dividend Yield have come down slightly due to strong earnings data and a rough October in the equity markets. It is interesting to note that the Forward P/E remains below its 5-year average. The post-election volatility in the equity markets and the subsequent impact on valuations will be worth keeping a close eye on.

The Economy

Solid footing or not? That is the question many are asking these days when it comes to the economy. Looking at employment data, including productivity, GDP, consumer spending, the markets (until recently), corporate earnings, and manufacturing data, and the economy looks like it is undergirded by rock, not sand. On the other hand, or perhaps under the other foot, things may be a bit squishy, like standing on sand at the seashore. Consumer confidence is at all-time lows, savings rates are declining, housing is still unaffordable for many, the Fed is raising interest rates, energy prices are high and sticky (not good entering the winter heating season), and inflation is too high.  While these issues are discussed below, the divergence in the data leaves many with an uneasy feeling over where the economy may be headed.  For now, though, the gravel is a bit rockier (therefore sturdier) than the general mood, but that does not mean that a strong storm could not hurt either. Much of the economic strength is related to AI and the buildout of data centers as the buildout goes way beyond just what the tech companies are doing. Think construction jobs (many are high paying), tax receipts (in some areas the tax receipts are so strong that they are funding schools and other infrastructure projects), and other ancillary elements that come into play beyond just the upfront visual of the data center project. Should all of that be hindered, or stopped, at least in the short run, it would have a wider impact on the economy than just stopping the tech companies.

GDP (Gross Domestic Product) – While the economy may feel like it is built on gravel right now – some solid rock, some sand – from a GDP perspective things are looking pretty good. So far in 2026, we saw the first quarter grow by 2.5%, the second quarter by 2.2%, and, according to the initial estimate, the third quarter grew by 3.4%! Growth has been stronger than expected as we entered the year and reflects the strength of the American consumer. There are issues to be sure, largely tied to inflation and the long-run impact it may have on consumers. High energy prices will be a drag on economic growth, especially if the consumer is forced to cut back on other spending. With the holidays rapidly approaching, this is something to keep an eye on. GDPNow’s fourth quarter estimate (as of November 4^th) stands at an encouraging 3.4%. Let us hope the economic gravel is mixed with more stone than sand going forward for the health of our economy.

Inflation – Stability, whether building a house, or when talking about the economy, is a valued trait. Unfortunately, inflation is acting more like a base of sand to the economy than rock. Largely due to energy costs, although housing costs, and more contribute as well, the rate of inflation has only ticked up in recent months, undercutting some of the strength in the rest of the economy. September saw prices increase by 0.6% to a rate of 3.7% over the past year. Truflation, which estimates the rate of inflation based on current data, has been rising as well, and now sits at 3.29% as of November 4^th. While we reported on this last month, the inflation news is not great, obviously, but it is interesting to note that the average inflation rate in the United States from 1914 through 2026 was 3.29% – not much different than what we are facing today. On a brighter note, if energy prices just stabilize, we will see the annualized inflation rate drop over the next year, likely to around 2.5%. And should prices in energy and/or other areas of the economy fall, the rate of inflation will follow suit. That would help shift our viewpoint from sand as a base to the economy to gravel at worst. In addition, it is worth noting for investors, that the rate of growth in dividends per share is outpacing the rate of growth in inflation by more than 2% (based on data from 1979 to 2025), and that can provide a potential hedge against purchasing power erosion due to inflation. That, at least, is some rocky ground to stand on!

Employment – What is good for the economy is also what is good for workers, and that is stable employment. We, as workers, want to know that our job is secure (certainly we must do our job and preferably do it well) because that allows us to put a roof over our head and food on the table and hopefully have some left over to travel and do other things that we enjoy. Not having that stability puts the necessities of life in jeopardy and minimizes the ability to spend on discretionary items as well. Multiply that by millions of households and you can see the impact on the economy. The ground upon which our economy functions is employment and that ground needs to be rock or the potential for breakdown greatly increases. That brings us to the October jobs report which blew past expectations, as 165,000 jobs were added during the month versus the 59,000 that were expected. Just as exciting as the numbers are is the fact that the gains were in business and professional services, healthcare, and manufacturing, which is greatly encouraging. The unemployment rate fell to 4.1% and the Sahm Rule sits at 0.00 as of November 6^th            , no change from a month earlier.   As a reminder, anything above 0.50 would be considered recessionary and anything below that number (especially if falling) would indicate a recession is not imminent or likely. Madison’s preliminary unemployment rate for September stood at 2.50%, while Wisconsin’s preliminary unemployment rate came in at 3.20%. Both remain well below the national average. At least through October, the employment ground is more rock than gravel and certainly more so than sand!

The Fed Watch

Paying attention to what the Fed does and says is back in vogue this year. Not only because of a change at the top of the Fed to Chair Warsh, but also because of the impact inflation is having on Fed policy. The Fed raised rates by twenty-five basis points in September for the first time since July 2023 in an attempt to cool inflation. As expected, the Fed held interest rates steady at its October meeting (although there were a couple of dissenters on the Board that wanted to raise rates) mainly to avoid any political issues. It is widely expected that the Fed will raise rates by another twenty-five basis points at its December meeting. With the unemployment figure holding steady, the Fed is able to focus on inflation. Energy prices have been the biggest issue causing inflation this year, and yet if those prices just stabilize over the coming months, we will see inflation fall. The Fed will have some interesting decisions to make in the coming months given the resilience of the economy given where inflation is currently and where it may be as we go through 2027. The ground may be a bit unsteady here.

Outlook/Summary

With just about everything in our lives, we hope to be able to stand on solid ground, and that is certainly true when it comes to investing. So much of what we need to know to make prudent (wise versus foolish) decisions when investing is out of our control and may not be readily available or apparent. That is why it is best to produce a plan based on one’s goals, needs, and desires, and then work that plan out in how you save and invest. That planning is usually based on fundamentals such as figuring out income and expenses, savings, and investing levels necessary, and not based on riskier elements such as making the purchase of lottery tickets (or market timing) your investment strategy! Earnings are strong, and growing, GDP is growing above the recent trendline, inflation should fall over the next year as energy prices stabilize, and unemployment is not expected to rise dramatically. All those things, if they continue to hold true, should allow the consumer to become more confident that the ground they are standing on – economically speaking – will not be swept away. The same goes for investors as the markets will continue to plow higher if the fundamentals continue to be strong, and that starts with earnings. The broadening out of the markets beyond the tech giants is a good sign that things are better than just AI. So, with apologies to the original song, here is perhaps the investors version of some of the lyrics…”The wise investor built his house (portfolio) upon the rock (fundamentals)” versus the “The foolish man built his house (portfolio) upon the sand (get rich quick strategies)” and then when “the rains (short-term negative economic news) came down and the floods (short-term negative impact on the economy) came up, the wise man’s house (portfolio) stood firm while the foolish man’s house (portfolio) went splat”!  Given that things are more gravel than rock or sand, do not let your portfolio go “splat” by not being well informed and having a solid, consistent approach to investing.

No matter what, our approach will not change. We will not chase momentum, nor market time, but will remain diversified and look to protect the downside while seeking upside return. As we have said, it is a slow and steady approach, but it also allows us to deal more effectively, we believe, with the world around us.

Should you like to discuss your portfolio or learn if our strategy can work for you, please call the Wealth Management division of Lake Ridge Bank at (608)826-3570. We look forward to speaking with you.

Market/Economic Data

As of October 31st, 2026…. Unemployment data is through October for national, September for Wisconsin (preliminary) and Madison (preliminary); inflation data is through September, Truflation as of 11/4/26:

Thank you for your business – we look forward to speaking with you soon. (Note – this commentary used various articles from JP Morgan, Morningstar, the Wall Street Journal, Investor’s Business Daily, Northern Trust, CNNMoney.com, msn.com, Kiplingers.com, nytimes.com, Fidelity Investments, American Funds, LPL Financial and other tools as sources of information.

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