Rochdale Speedometers^SM

Over the past several weeks, investors have been reminded of something important. A strong economy does not guarantee a smooth stock market. October ended with a particularly difficult trading session, as concerns surrounding corporate earnings, the midterm elections and a major cryptocurrency security breach combined to push investors away from risk. The question now is whether we’re witnessing deterioration in economic conditions or traditional market repricing.

Our view remains constructive, but cautious, as we assess the return potential through the end of this year. Last Friday’s market decline is a great place to start. The S&P 500 fell 1.8%, while the technology-heavy Nasdaq declined nearly 3%. Several developments converged at once. Earnings announcements revived questions about the level of capital being invested in artificial intelligence. Political uncertainty continued to build ahead of yesterday’s elections. And a major security breach at Binance occurred, with over $6.3 billion in cryptocurrency assets stolen.

But there’s an important distinction between what has happened in technology stocks and what has happened across the broader market. Since October 7, the technology sector has declined roughly 10%, communication services nearly 16%, and semiconductor stocks, about 18%. Over that same period, the broader S&P 500 declined less than 3%. That’s a substantial difference. It suggests that we’re experiencing a repricing in some of the market’s most influential companies, while other sectors have absorbed much of the pressure.

Now, this doesn’t mean the repricing is finished. But it does mean we should be careful about interpreting market weakness in technology as evidence that growth is slowing or the economy is weakening. For much of the past two years, companies were rewarded for announcing major investments in AI. Today, investors want to understand when those investments will generate profits and returns. That’s a reasonable question, particularly when interest rates are elevated and the cost of financing new projects is increasing.

We continue to believe that AI represents a significant long-term investment opportunity. There’s a difference between questioning the price of an investment and the long-run value of the underlying opportunity.

On the political front, we’re finally through the midterms, which have been a major source of anxiety for the market, with the potential to disrupt near-term momentum. But we don’t believe investors have been focused enough on the fundamentals. There is a volume of historical evidence that elections act more as a clearing mechanism than a headwind. My anxiety was high until I woke up this morning and realized that, while political gridlock may be in store over the next two years, the market has one less thing to worry about.

This doesn’t erase concerns that have plagued the AI trade over the past few months, including hyperscaler spending, negative free cash flow, the increasing cost of capital and credit concerns. However, as we have been making clear, market returns tend to exceed long-term averages over the 12 months after the midterms.

One thing that we are taking a microscope to is the data center build-out. At a top level, the election result has the potential to disrupt data center development and could slow down the growth of AI, which, in turn, could create a headwind for the market.

There is also the market’s response to potential changes to future tax policy, government debt and the regulatory environment. Over the next two years, a divided government reduces the likelihood of major legislative changes, but it does not eliminate concerns surrounding federal deficits or the growing cost of financing the government. And, while language has improved around Iran at the margin, it’s unclear whether the administration will resume attacks. An escalation could place renewed pressure on energy prices, potentially overshadowing any relief associated with the election.

The big picture is that a major source of market anxiety has been removed. In the short run, that’s positive. But we remind investors that not every risk facing the markets has disappeared.

Turning to our November Speedometers, we’ve made five adjustments this month. Four indicators moved modestly lower, while one improved. Importantly, all five remain within our Neutral category.

Dial 1: Monetary Policy, 4:26— Let’s begin with Monetary Policy, which we slightly increased. The Federal Reserve held interest rates steady at its October meeting, and, while another increase remains possible, policymakers have more flexibility to evaluate incoming economic data. A more patient Fed is a welcome development for financial markets.

Dial 2: Consumer Sentiment, 4:46— Our second adjustment is to Consumer Sentiment, which we’ve lowered. Consumers remain pessimistic about the economy, particularly inflation and affordability. Yet, the contrast between how consumers feel and what they’re actually doing remains striking. Household spending continues to expand, and companies are still reporting meaningful demand for goods and services. We’ve emphasized this distinction before. Consumer surveys are important, but actual spending provides a more direct measure of economic activity.

Dial 3: Disposable Personal Income, 5:20— Our third adjustment is to Disposable Personal Income, which also moved lower. Households continue to face pressure from elevated energy prices and higher borrowing costs. Although consumer spending remains healthy, the financial flexibility available to many families is becoming more limited.

Dial 4: Fiscal Policy, 5:36— Our fourth adjustment is to Fiscal Policy, which has moved modestly lower. Persistent federal deficits and elevated Treasury borrowing needs are constraints on government spending that are likely to be magnified by the recent election results. Legislative gridlock could make it harder for policymakers to respond to unexpected economic developments.

Dial 5: Energy Costs, 5:56— Finally, we’ve lowered our Energy Costs Speedometer. The conflict in the Middle East continues to create uncertainty around global energy supplies and transportation. Even as oil shipments have improved and oil prices have come down slightly, the risk of further military escalation has kept energy prices elevated; but there is also an opportunity here. A sustained reduction in energy prices would relieve pressure on consumers, improve business margins and potentially provide the Federal Reserve with additional flexibility.

Stepping back, these five adjustments reflect a somewhat more challenging financial environment, but they do not indicate that an economic contraction is imminent.

Our Business Outlook and Corporate Profit Growth indicators remain Positive, and, while borrowing costs have increased, we have not seen convincing evidence that credit has become broadly unavailable. The economy is still strong.

We expect real U.S. economic growth of 2% to 2.5% in both 2026 and 2027. Corporate profitability remains an important support for financial markets, and we expect profit growth of 25% to 30% in 2026, followed by a slower, but still above trend, growth rate of 15% to 18% in 2027.

We have raised our year-end 2026 inflation forecast to a range of 2.75% to 3.25%, reflecting the impact of energy costs and other persistent price pressures, but we continue to believe inflation’s run rate will slow over 2027. We also expect longer-term interest rates to remain relatively elevated, with our 2026 forecast for the 10-year Treasury between 4.75% and 5.25%.

So, what does all of this mean for investors? We moved overweight equities in late August, including increasing our exposure to U.S. large-cap stocks and emerging markets, and we continue to support that position. The conditions for economic expansion are largely intact.

At the same time, we’re not ignoring the market’s warning signs. The correction in technology stocks has been meaningful. Higher interest rates are making investors less tolerant of disappointing earnings, and geopolitical developments could introduce additional volatility.

Knowing that, we’re watching whether weakness begins to spread beyond technology into consumer spending, corporate earnings expectations and broader credit conditions. Those developments would give us more reason to reconsider our outlook. For now, we believe the appropriate response is greater selectivity and a more cautious assessment of risk, rather than a broad retreat from equities.

We also recognize that some of today’s uncertainties have the potential to resolve favorably.