SPEAKER_01 0:00

TGIF, everyone. It's Friday, October 9th, 2026. This week's topic, Franco American. But before we start, here's a word from our attorneys.

SPEAKER_00 0:09

The information and opinions presented in this podcast, including the views of guests not affiliated with the Blue Spring Wealth, are for general informational and educational purposes only and should not be considered investment in tax or legal advice. Any references to specific securities, sectors, industries, products, or services, do not constitute a recommendation or endorsement. All investments involve risk, including the possible loss of principle. Listeners should consult their own financial professionals before making any financial decisions.

SPEAKER_01 0:46

It also brought extensive heat to the Bay Area, also uncommon. September is historically the worst month for stocks, with weakness continuing into early October. This tenth month on the calendar has seen its fair share of market bottoms, followed by late month strength, which accelerated through November and December. That's been the normal course of action. Of course, what's even normal these days? The stock market, as measured by the SP 500, was basically flat in September. It declined by less than 1%. That sounds pretty tame. It wasn't. It was a much different story below the surface. Roughly 80% of the index components were down on the month by an average of 5%. That was the average. Many fared far worse. Only two sectors rose in September. Perhaps no surprise, the largest contributor was tech. The AI trade was back on as summer turned to fall. Leadership narrowed considerably. The tech titans led the charge. Bigger was definitely better for investors. Forty-one of the top 100 holdings in the SP increased on the month. But looking at the bottom, 190 of them were down. Smaller companies are struggling to stay above water. Size definitely matters in the stock market. The top 100 stocks contribute nearly 70% of S P five hundred earnings. The top ten alone account for one third. Those ten companies are responsible for half the earnings growth. Of course, that group is largely comprised of the Tech Titans. On the flip side, the bottom 100 stocks generally account for less than 2% of the SP 500 earnings. This year, this group is actually experiencing an earnings contraction. They're a drag on the overall growth. The age-old adage still holds water. More than anything else, it's earnings that drives stock prices. Perhaps the biggest development has been the spike in bond yields. Higher rates act like speed bumps for larger companies, but they're like barricades for small companies and home buyers. These higher yields weighed heavy on rate sensitive stocks. The oil price has been a big driver of yields as it triggered rising costs throughout the economic chain. The Fed was forced to make its first rate hike in three years. The market expected rate cuts at the start of the year. Economic growth ran hotter while inflation proved stickier. Artificial intelligence is fueling that growth. In corporate America, predominantly the big boys and girls, are seeing it fall to the bottom line. Expectations are pretty high as the Wall Street calendar shifts back to earnings season. The big banks lead things off next week. The street now estimates earnings to have grown 29.5% in Q3. That's a nice bump from the 26.7% modeled at the start of the quarter. If that hits as expected, it would be the third consecutive quarter of 25% plus earnings growth. It's not just profits that are up. Revenues are expected to grow over 12%, which would mark the third straight quarter of double digit growth. Importantly, all 11 sectors in the SP are slated to report growth, but of course it will be dominated by energy and tech. Energy companies are estimated to report a 114% increase in earnings compared to last year. Tech is set to report a 65% increase. The reason is pretty simple. It's about oil and AI. OpenAI already raised some questions about the size and sustainability of the growth, and Delta made it clear that high fuel prices are really hurting industries. Oil prices fell a bit into October, though they rose at the end of the week in response to more Middle East risks. However, bond yields have not. Investors are requiring more premium to be compensated for taking risk. The yield on the 10-year treasury jumped nearly 1% in Q three. That was the largest quarterly increase since 1994. It was worse in Europe. Bond yields in both Italy and France soared well over 1% in the September quarter. Here's the problem. Those numbers could rise further. Debt is the issue. Italy owes 150% of its annual economic output. Both the US and France are above 100% too. Those are numbers that rival World War II levels. Large debt positions are usually built during a crisis while the government tries to stimulate growth. It's not usual for it to occur in a healthy environment with the stock market at all time highs. The point is it's not healthy and it's not sustainable. This is not new. But the market is finally paying attention. It wants to see better fiscal discipline and less spending. For pretty much the entirety of this century, it's been the opposite. America's economy is the healthiest when debt is low and small businesses flourish. They're struggling. Small caps have underperformed large caps for years. The French bond weakness is being driven by escalating anxieties over the country's deteriorating public finances, economic slowdown, and political uncertainty. France also has an election coming up. France is currently running a budget deficit of over 5%, well above the European Union's required limits. A deeply divided National Assembly is struggling to pass major spending cuts or unpopular tax increases that are required to rein in the deficit. That's led to legislative deadlocks and government instability. The far left presidential candidate said France should quote, throw it in the fire, end quote, referring to its debt obligations. The market did not like that. The far right candidate, currently the front runner, isn't exactly instilling investor confidence either. It's been reported that France's finance minister said the government is prepared to exercise special constitutional powers and circumvent parliament to pass billions in spending cuts if negotiations stall over the 2027 budget. He is willing to negotiate on all aspects of the budget, but his red lines include sticking to a maximum budget deficit of 5% of GDP and avoiding any changes that hurt growth. Our sources indicate the European Central Bank is monitoring the situation closely while maintaining a position of strict calculated reluctance, whatever that means. What is clear is the ECB is refusing to bail out France or intervene directly in its bond market, at least for now. For weeks, students have walked out of classrooms and poured into the streets. It's estimated these protests have taken place at roughly one third of the high schools across the country. The uprising from the French youth is polarizing the political landscape ahead of the nation's presidential election. This is likely to be an ongoing issue until the French people head to the ballot box in the spring. Americans do it sooner. America's debt is also a brewing issue. Forty trillion dollars large now, with no end in sight. Uncle Sam spends seven trillion dollars but only brings in five. The math does not work. Both parties are guilty. Washington remains a math-free zone. Apparently Paris is too. I can't remember a time where there was so much tension underpinning such a powerful bull market. But the leadership has been quite narrow, and the stresses in the system have been showing their faces. They say the market climbs that wall of worry. That has certainly been evident. It's paid to be a contrarian, disciplined, and keep it simple. Earnings drive stock prices. We are going to learn a lot in the coming weeks when corporate America releases its quarterly report cards. Expectations are high. A lot of good has been priced in. One thing to remember about the stock market regarding earnings and price action it's not about being good or bad. It's about better or worse. It's all about expectations and the ability to deliver. Have a nice weekend. We'll be back dark and early on Monday. I'm Mike Frasier.