By Eric Parnell, CFA on October 23, 2026October 23, 2026 By Eric Parnell “Look around, Leaves are brown, And the sky is a hazy shade of winter” –Hazy Shade of Winter, Simon & Garfunkel, 1966 Look around. It seems as though the market sun is shining bright at first glance. The U.S. stock market as measured by the S&P 500 is trading within a heady three days rally range of all-time highs set earlier this month. Economic growth for the current quarter is set to clock in at a robust 3.5% according to the Atlanta Fed GDPNow forecast. Long-term inflation pressures remain largely in check according to the 5-year breakeven inflation rate based on market prices despite currently high food and energy prices. And corporate earnings are set to rise by nearly +30% on an annualized basis as the 2026 Q3 earnings season gets underway. As I look around at these key market indicators, the market looks set to stride strongly into the end of the year and into 2027. Leaves are brown. But behind the sunny facade of the U.S. stock market, a cloudier reality lurks underneath the surface. Yes, the headline large cap index remains near all-time highs, but what of the rest of the market? Consider the S&P 400 Mid Cap Index, which is down more than -9% over the past two months and remains listless despite stemming the bleeding in recent weeks. Or consider U.S. small caps as measured by the S&P 600 Small Cap Index, which remain adrift in correction territory down more than -10% since the beginning of August. Oh but these are the companies nobody cares about, you might say. All the money is in the AI trade! Perhaps, but when I look at the price performance of the NASDAQ 100 Index that contains so many of those high flying tech names, the case is arguably even less reassuring, as the tech heavy benchmark is lower by -5% since the beginning of June. There’s a patch of snow on the ground. Then there is the chart that is keeping me up at night more than any other lately. Check it. Below is a chart that shows the additional premium over comparably dated U.S. Treasuries that investors are demanding for owning the debt of the worst of the worst borrowers in the marketplace today (a.k.a. CCC and lower spreads). This reading that reached below 7% as recently as January 2025 has recently skyrocketed above 13% and is approaching nearly double where it was two years ago. Why on earth would stock investors care about the additional yields investors are requiring in the badlands of capital markets where few investors would think about lending money anyway? Because this chart below has historically been one of the earliest warning signals of impending sustained weakness across broader capital markets. Why? Because when investors are starting to become risk averse (read – wanting to sell instead of buy), this is among the first places in the market where they will start to feel this compulsion. Here is the second place where it starts to show up later (like since September 22). Let’s keep an eye on this one, shall we? Maybe it will be nothing and the patch of snow on the ground will eventually melt. But then again, if broader high yield spreads are suddenly surging past 5%, know that the next stop for downside will almost certainly be the broader equity market as measured by the S&P 500. “Look around, The grass is high, The fields are ripe, It’s the springtime of my life” –Hazy Shade of Winter, Simon & Garfunkel, 1966 Hang on to your hopes, my friends. So gloomy Parnell. Indeed, but now is the time to recall that for both the seasons and capital market that past the onset of winter comes spring. And even if winter were to come to pass, it can bring with it some of the most seasonally enjoyable experiences time has to offer. Yes, the tech sector may eventually wreck once more, as tales of excessive Internet capacity overbuild woe from days gone by potentially become papered over by the historical rhymes of excessive AI capacity overbuild. But even if this were come to pass, remember the following: There are eight other stock market sectors that are not Information Technology, Communication Services (home of Meta and Google), and Consumer Discretionary (home of Amazon and Tesla) that have been largely ignored by investors since the Obama Administration (in some cases even the Bush Administration). Clumping many of these stocks into that stock investment style that you may have heard about at one time called “Value”, results over the past year have not been too shabby from this area of the market. Springtime indeed. Then there’s chronically trailing U.S. small and mid-cap stocks, that have notably widened their relative underperformance gap to U.S. large caps in recent years. These are areas of the market that in some cases are trading at their deepest valuation discounts since the early 1990s. Build this same chart for developed international and emerging market stocks going back to 2010, and you’ll see even more relative underperformance and deep discounts (a US dollar strengthening from -2 standard deviations below its historical mean in 2011 (really weak) to +2 standard deviations above its historical mean entering 2025 (really strong) certainly helps with this type of shift (but will US dollar strength continue (insert pensive emoji)?). Such are the ripe opportunities in the stock market fields that continue to go largely unpicked today. Low hanging fruit anyone? And to complete the weaving of the capital market opportunity tapestry, we can plainly see that where once There Is No Alternative (TINA) has given way to There Are Reasonable Alternatives (TARA), as the US Treasury market is now giving more points than ever since the times before the Great Financial Crisis. Look around. Risks continue to accumulate under the surface of capital markets. But even if they rise to the surface and the AI trade finally hits its wall, look past the brown leaves and snow patches, as the investment fields remain as ripe as ever with opportunities that may otherwise be getting overlooked today. Eric Parnell, CFA | Chief Market Strategist Eric Parnell is the Chief Market Strategist for Great Valley Advisor Group. Eric applies his expertise in finance and economics to manage multi-asset portfolios, mitigate risk, deliver advice that promotes informed decision-making, and facilitate investors achieving their short-and long-term investment goals. He leads the GVA Asset Management platform overseeing the management of asset allocation models for GVA advisors and their end clients. Eric also provides economic, market, and investment related analysis and communications to the GVA network of advisors and clients as well as the broader financial media. Eric has appeared on CNBC, CNN, Money Matters TV, NPR-Marketplace, Seeking Alpha, and CFA Magazine. Eric has more than 25 years of financial and investment experience. Prior to joining GVA, Eric was the Founder and Director of Gerring Capital Partners, a Registered Investment Advisor serving clients nationwide. Eric also previously served as the Director of Investment Communications for SEI Investments and as an Economist at Moody’s Analytics. Eric is also an active member of the CFA Society of Philadelphia and the Global Interdependence Center. Disclosure: I/we have no stock, option, or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. 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