To Inform:

There’s an old Halloween song that goes like this:

“I was working in the lab late one night when my eyes beheld an eerie sight, for my rotation trade from his slab began to rise, and suddenly, to my surprise he did the AI smash.”

Ok, so it didn’t go quite like that. Boris Pickett’s Monster Mash remains a masterpiece of the 1960s. You may be reading this wondering, “how is he going to connect the Monster Mash to markets?” Well, depending on how one is positioned, the rotation we’ve seen in markets this month can either be a wonderful treat or a spooky lesson.

One of the drumbeats we regularly march to here at TJG is that of “anti-fragility”. I also like the phrase “all-weather”. Our goal is not to thrive in just one type of market environment; it is to construct portfolios that can meet their objectives in all sorts of market conditions – when both seas are calm and when the gales of November come early. If you’ve been following market news, much of 2026 has been dominated by a couple of narratives. One, that long-term interest rates are out of control and by extension, bonds are uninvestable. And two, simply “buy AI”.

To some extent, we’ve leaned into these narratives. But, at the same time, we’ve been preparing for a rotation. For much of 2026 many of our objectives-based strategies were “underweight” high-quality bonds. But, after what to us felt like a “blow-off top” in interest rates in late summer, the risk/reward calculus for owning bonds had shifted more in favor of bond investors. This led to us closing the underweight to bonds in many client accounts we have the privilege of managing early this month. The chart below tracks the month-to-date performance of the US Aggregate Bond Index, the S&P 500 Index, and the Nasdaq 100. While the S&P 500 is only off modestly this month, bonds are up nearly 2% and are significantly outperforming the Nasdaq (think tech stocks) which is down around 6%.

Source: YCharts

The other dominant narrative has been simply to be invested in AI however possible. While it is far too early to say that this month’s volatility marks an end to the AI boom, it isn’t beyond reason to say that it could be time to take a breather. Clients invested in a range of our portfolios certainly have exposure here (it is quite hard to escape it). That said, we’ve also ensured client portfolios have exposures to other parts of the market because while we may not know the day and the hour, rotations in markets are as sure as the Charlie Brown Halloween special airing on TV every year.

The chart below shows the returns of a handful of indexes within the stock market itself for the month of October. At the bottom is the return of a US semiconductor index, which is down about 13% this month. The fainter yellow line above it is the Nasdaq index. One of the lines in positive territory shows the returns of an index that tracks “Wide Moat” companies, up nearly 7% this month. The other is an index of healthcare stocks, up nearly 9% this month.

Source: YCharts

Between market headlines around geopolitics and midterm elections next week there is enough to keep an investor on edge, but market returns and big rotations don’t have to be spooky. This year, depending on how you’re invested, you may not have really noticed AI-related stocks selling off. As mentioned earlier, our goal is to construct portfolios that can deliver on an objective, not ones that can be tied to a single narrative. Hopefully you can unwind and have some fun this weekend and, whenever you hear the Monster Mash, you’ll think about objectives-based portfolios and TJG’s all-weather approach!

Written by Alex Durbin, CFA, Partner and Chief Investment Officer