Stock Market Breakout or Fakeout?

It’s funny how on Monday my LIVE presentation was focused on the Q4 2026 Stock Market Outlook.

My main point was that stocks look to be stuck in a range under the previous highs until an Iran peace deal came together thus lowering energy prices...inflation concerns...and stopping the rise of the 10 year treasury.

As they say, “Man plans and God laughs”.

Sure enough the very next day the S&P 500 was breaking to new highs putting some egg on Ol’ Reity’s face. But I stand by my basic stance because as the S&P 500 was making new highs the Russell 2000 fell on the day and is actually 7.8% below its highs.

Meaning I am not buying the verity and permanence of this rally. I will explain the rest further below in the Market Commentary section.

Market Commentary

I was just about to write down pretty much everything I said in my Monday LIVE presentation. So instead of me getting carpel tunnel typing it all out...better for you to just see the presentation and then I will add in a few more notes to complete the story.

10/5/26 LIVE Presentation: Q4-2026 Stock Market Outlook >

When you boil it all down the most important thing for the stock market at this time is the relationship between the Earnings Yield and 10 Year Treasury Yield:

Yes, the economy matters as does Iran...energy prices...inflation expectations...Fed decisions etc. But only as it really pertains to improving the above investment picture.

Since the earnings yield is now below the 10 Year Treasury, for the first time in about 22 years, it is becoming more compelling for investors to go for bonds and other interest paying investments over the broader market.  

The key word being “broader”. There is always a bull market somewhere and the Zen Ratings does a great job in helping us track that down. But the overall/broader market is just not that attractive right now.

No...I am not calling for a bear market either. That is very hard to do with the economy on pace for another 3%+ GDP. And with earnings growth ramping up (but that is mostly about tech & energy earnings).

For now, I expect the broader market to be range bound to slightly lower. And sadly the S&P 500 is no longer beneficial in telling us what the true broader market is doing because of its Mega Cap/Tech bias.

The broader market is better viewed through these 2 indices:

Equal Weighted S&P 500 (RSP): Down -5.1% from its peak

Russell 2000 (IWM): Down -7.8% from its peak

Yes, both down from their highs while the S&P 500 “seems” to be enjoying a bullish breakout. Unfortunately, I don’t buy that bullish sentiment...and certainly not for long until this investment equation makes stocks look more favorable vs. bonds.

That happens in one of 3 ways.

1. Treasury Yields head lower. That should happen with an Iran peace deal leading to lower energy prices. But if the deal comes through and rates don’t retreat...then we have a much bigger problem on our hands. That being long term concerns about the unsustainability of US debt. Lets call that chickens coming home to roost. I discussed that in a bit more detail in the 9/21 LIVE webinar.

1. Earnings for the S&P 500 rise more than expected helping push up the earnings yield for stocks. Note this could take a while to be significant enough to be more favorable for stocks. 

1. Share prices come down enough to make stocks look more attractive. This is everyone’s least favorite...but very well could be in the cards IF Treasury yields don’t head lower.  

Even if we are rangebound for a while, the best stocks will rise. And gladly we have one of the most powerful filters to find those best stocks which is the 115 factor review of the Zen Ratings.

The reliance upon the Zen Ratings explains our strong returns for the Zen Investor portfolio year to date @ +50.29%.

This also explains how we continue to outperform over the past few months even as the broader market has endured a bit of a correction.  

This marks a good spot to transition to the next section...

What To Do Next?

Discover my Zen Investor portfolio that relies upon my greater than 40 years of investing experience in combination with the outperformance found in the Zen Ratings quant model. 

During those past 40 years I have learned vital lessons from 7 bear markets…8 bull markets and just about everything else the “Mr. Market” can throw at us. 

I use this knowledge to create a detailed investment plan. Then lean into our proven Zen Ratings quant model to select the best stocks given their proven outperformance. 

In total the Zen Investor portfolio now has 20 top stocks that are hand picked for today’s unique market landscape. 

And as shared above it is doing very well in 2026 as our portfolio is up +50.29% YTD far surpassing the benchmarks.  

I know that sounds like some kind of marketing BS. So feel free to check out my daily performance tracking sheet here. (focus on column K).

Plus 2 new stocks were added this week that both have stellar upside potential. 

If you are curious to learn more, and want to see my current top 20 stocks, then please click the link below to get started now. 

Discover the Zen Investor & Top 20 Stocks >

Wishing you a world of investment success!

Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)

Editor of the Zen Investor

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