Today’s post is about data versus narrative — and right now, those two are telling very different stories.
I spent time last month talking about the market being at all-time highs and how that is not something we should be afraid of. As of Friday's close, the Dow Jones Industrial Average hit another one. The narrative says the market’s overvalued, AI is overheated, and a pullback is inevitable. CNBC guests are cautious, hedge fund managers are cautious, and half the people I talk to swear this market has “gone too far, too fast.” Even my Uber driver this weekend was nervous, and that’s saying something.
Wise Words from Wes (Written 10.27.2025):
But here’s the thing: bull markets don’t end in doubt — they end in euphoria. Like when everyone’s convinced stocks only go up, and suddenly your neighbor quits his job to “trade full-time.” I don't think we are there. You can probably thank inflation a little for that, too. It’s expensive out there.
That’s where the data comes in. My friend Scott Brown over at Brown Technical Insights recently highlighted data showing that when the market’s up more than 10% in the first three quarters of the year, the following fourth quarter and even the next couple of years tend to be strong (see photo).
The data says the average Q4 gain is 4.3%, and the market finishes positive 84% of the time. In the first year of a presidential cycle, that average jumps to 6.1%. Those odds of the 4th quarter being positive is one I think even Vegas would take.
On the flip side, I mentioned that the data also said that August and September were supposed to be rocky. Historically, they’re the “hangover months” for investors. But this year? Not so much. The S&P gained 1.9% in August and 3.5% in September — the best September since 2010. So much for seasonal weakness. I guess that means the data isn’t always right, either.
The narrative says the sky is about to fall. The data says we’re still standing tall. So, what do I think?
Sure, there are cracks in the system: unemployment trends, uncertainty around short-term AI profits, geopolitical noise — but that’s ALWAYS true. If you waited for perfect conditions, you’d never invest at all. But the data looks solid, the skeptics are loud, and history is on our side. That’s a combo I’ll take every time, even if it doesn't always work out.
Side note — I do want to remind everyone of something; and honestly, I have to remind myself too. There’s a big difference between the stock market and the economy.
The stock market is a forward-looking machine. It tries to price in what investors expect to happen six to twelve months from now — not what’s happening today.
The economy, on the other hand, is backward-looking. Economic data tells us what has already happened — last month’s inflation, last quarter’s GDP, last year’s job growth, etc.
So it’s completely possible and even normal for the stock market to be booming while the economy still looks rough, or for the market to be falling while the economy looks strong.
To end my Ted Talk: Stay invested. Tune out the noise. Let's enjoy our last quarter of 2025, which has flown by.
(And if your next “stock tip” comes from a TikTok influencer, I hope it works out.)
Until next time,
Wes
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