Wall Street is bracing for impact!

Sell your stocks! Buy gold! Head for the hills!

Midterm elections are tomorrow, and the political hype machine is running at full speed.

Everywhere you turn, someone is warning about what might happen if the wrong party wins.

But before you make any investment decisions, you should know something…

The stock market doesn't care nearly as much about who wins elections as some headlines would make you think.

I know that sounds crazy in today's political climate. But I've got decades of experience and market data to back it up.

And what those numbers reveal might surprise you.

The Market Doesn’t Have a Favorite Party

Politicians would have you believe that your financial future depends on their victory.

And the media has every reason to keep you watching, clicking, and worrying until the last vote is counted.

But the stock market has spent decades ignoring much of that political drama.

Consider this chart from Charles Schwab. It shows what $1 invested in a broad basket of U.S. stocks did between 1961 and 2025.

Growth Of $1 Invested In Stocks, 1961–2025

Source: Schwab Quarterly Chartbook, Q1 2026, Data provided by Morningstar.

In that time, that dollar grew to roughly $750.

Along the way, America elected presidents from both parties and saw Congress change hands many times.

We lived through the soaring inflation of the 1970s, the 1987 market crash, the dot-com bust, the 2008 financial crisis, and the COVID pandemic.

Through it all, stocks kept climbing over the long run.

And notice something else.

Some of the biggest market crashes took place under Republican presidents, while others happened under Democrats.

The same is true of major rallies.

That's because stock prices depend on far more than whoever happens to occupy the White House.

Company profits, interest rates, inflation, new technology, and the health of the economy all play huge roles.

And those forces don't suddenly reset every time Americans head to the polls.

Of course, presidents don't govern alone. Congress controls spending and helps shape the laws that affect businesses and investors.

So, what happens when we look at the different ways power can be split in Washington?

RBC Capital Markets studied average annual S&P 500 returns under six forms of party control from 1953 through 2025.

Here's what it found.

How Stocks Have Performed Under Six Scenarios

Source: RBC Capital Markets

Notice anything interesting? Stocks posted positive average annual returns under all six setups.

A Republican president with Republican control of Congress? Positive returns.

A Democratic president with a split Congress? Positive returns.

A Republican president facing a Democratic Congress? Positive returns.

In fact, the chart shows average yearly gains ranging from roughly 5% to 17%, based on who held power.

Now, that doesn't mean all six outcomes are equally good for stocks. And past averages can't tell us what will happen after any one election.

But they do expose a major flaw in the idea that one party winning must spell disaster for your portfolio.

Neither party has a monopoly on stock market gains.

That doesn’t mean the market is completely indifferent to elections, though. History shows the months following midterms have been quite good for stocks.

BlackRock studied S&P 500 returns around midterm elections dating back to 1970. Take a look.

Average S&P 500 Returns Surrounding Midterm Elections

Source: BlackRock

Stocks have often struggled in the months leading up to midterms, then bounced back as Election Day draws near.

And the gains that followed have been striking.

According to BlackRock, the S&P 500 gained an average of 14.1% in the six months after midterms, compared with 5.7% during similar periods in non-midterm years.

That's nearly 2.5 times the average return.

Why? One possible reason is that markets hate uncertainty.

Once an election is over, investors have a clearer sense of what lies ahead. They can refocus on the economy.

Of course, other forces are at work, including the business cycle and Federal Reserve policy.

We can't give elections all the credit for those gains.

Still, the historical record hardly supports the idea that midterms are a reason to flee the stock market.

Quite the opposite.

The Cost of Voting With Your Portfolio

Imagine selling your stocks every time the party you disliked took control of Washington. You'd have missed some huge rallies.

BlackRock found that investors who moved to cash whenever their preferred party was out of power would have earned roughly half the returns of those who stayed invested.

Think about that.

All that political fear, all those dire warnings, and all those efforts to protect your money from the other party could have cost you a fortune.

And this isn't a problem limited to one side.

Republicans have watched stocks rally under Democratic presidents.

Democrats have watched stocks climb under Republican presidents.

That's why I believe as investors, we need to keep our political views separate from our investment choices.

You can care deeply about an election without letting its outcome dictate what you do with your money.

Before I go, I want to leave you with one warning.

The charts we've examined cover decades when American politics was often less divided than it is today.

Politicians more often accepted election results. Members of both parties could work together. And the news wasn't driven by today's endless fight for clicks and outrage.

The government also played a smaller role in our economy.

In 1960, total government spending was about 27% of GDP. Today, it's closer to 38%. In countries like France, that figure tops 50%.

That doesn't mean bigger government leads to worse stock returns.

But as Washington spends more and takes a larger role in trade and business rules, its decisions may have more power to move markets.

And if America's political divide keeps growing, the past may become a less useful guide to how stocks react to elections.

I certainly hope that doesn't happen.

In my opinion, one of America's greatest strengths has been its ability to let private firms grow, compete, and create wealth no matter which party runs Washington.

That's a tradition worth keeping.

So, by all means, take tomorrow’s election seriously. Vote for the candidates you believe will best serve the country.

But don't confuse your political views with an investment plan.

Today's stock market faces real risks, including the vast sums being poured into artificial intelligence.

I've spent plenty of time warning you about them.

Those risks deserve your attention. Election hysteria doesn't.

Because when it comes to building wealth, what happens on Wall Street over the next several years matters far more than who celebrates victory Tuesday night.

Here we are, diving right into the uber-bullish midterm election season during a generational artificial intelligence boom… and stocks just refuse to play nice.

October has been a month full of failed breakouts and false moves.

The month started off strong as the Nasdaq Composite threatened to break higher, only to immediately reverse. It’s spent the rest of the month in correction mode, dropping as much as 7% from its Oct. 6 highs.

One day, AI stocks firm up and start to run. The next, they roll over as skittish traders ditch them for healthcare names.

The market’s dangling money right in front of our faces, only to yank it away at the last second like the old fisherman from those State Farm commercials…

“I got you a dollar. You gotta be quicker than that!”

Yes, seasonality is bullish. And I’d love a nice post-midterm melt-up rally to help us finish the year strong. But hopes and dreams aren’t going to help us rake in any trading gains.

Instead of trading the markets based on what we want to happen, let’s remove the tickers and blindly analyze the next three charts.

The purpose of this exercise isn’t to guess the stock before I reveal it.

Take the time to figure out whether you would buy, sell, or do nothing — without knowing what you’re looking at.

This is the art of chart reading. Let's dive in…

Chart No.1: A buy-the-dips opportunity?

Here we have a name that’s just recently undercut its 200-day moving average (orange line) and has rallied back toward its early October highs.

You can clearly see the move to new year-to-date highs back in August, followed by a quick correction that picked up steam in September.

But unlike many of the bigger tech names, this name has rallied more than 5% over the past two weeks and is now knocking on the door of a bigger breakout if it can cross above $285 (red horizontal line).

Rapidly improving momentum (as measured by RSI at the bottom) is also notable here, as this name is posting its highest RSI reading since its August highs, suggesting the start of a more bullish momentum regime this week.

I’m a buyer if we see a clean break above $285, with an aggressive target of $300 and new 2026 highs.

Chart reveal: iShares Russell 2000 Index Fund (IWM).

Comments: Small-caps could be a great place to look for gains in November, especially if the bigger chip stocks continue to underperform.

Chart No.2: Choose your own adventure

Here’s an interesting situation…

We have a stock that enjoyed an amazing run back in the second quarter. But it hasn’t been able to recapture the magic that helped it rally from $450 to more than $1,000 in a matter of months.

The big issue here is the stock has refused to break down so far. Instead of completely falling apart, it’s teased the bulls and bears alike with more than a few false moves since the late summer. Shares broke back above $1,000 in September, only to roll over earlier this month.

Just yesterday, the stock failed to retake its 50- and 100-day moving averages following a strong four-day rally. Back in the chop it goes…

As for which action to take, I’m afraid this is a “no touch” for me. I’d get more bullish if it broke back above $1,000. Conversely, it might be time to get short if it can’t hold onto its swing lows near $850.

Chart reveal: Micron Technology Inc. (MU)

Comments: This crowded trade might be an obvious chart that you guessed right away. But there’s no denying how important the DRAM stocks have been during this year’s rally. Time will tell if the rest of the tech sector can continue to march higher without this popular chip stock participating.

Chart No.3: Fake it ‘til you make it

I’m always paying close attention to charts that are near important inflection points, and this next example is no exception.

This name enjoyed a strong run-up April-June, but subsequently gave back every cent of those gains by the end of the summer.

To make matters worse, this name broke to new year-to-date lows earlier this month. That’s our line in the sand (red horizontal line).

As you can probably imagine, most of the bulls have probably been scared out of this name over the past five months. Therein lies the potential opportunity…

Take a look at the action in this name over the past week. Price has snuck higher for five straight days. It even managed to rally nearly 1% on Thursday while the Nasdaq dropped more than 1.6%. 

Because of this recent bullish action, I’m putting this name on failed breakdown watch. If this name can push back above our line ~$43, we could see a massive rally as sold-out bulls begin to chase. From failed moves come fast moves in the opposite direction!

Chart reveal: Procure Space ETF (UFO)

Comments: Space stocks came back to Earth following the hype of the SpaceX ETF. But the group is showing signs of life as November approaches. Keep your favorite space stock on failed breakdown watch heading into next week!

You should be.

Because what I’m about to tell you will sound crazy at first.

Maybe even impossible.

But by the time I’m done, I think you’ll see it the way I do.

I believe NVIDIA is about to lose investors more money over the next three years than any stock in human history.

And before you click away thinking, “Good thing I don’t own NVIDIA”… You almost certainly already do.

The chipmaker makes up nearly 8% of the entire S&P 500.

That's one company out of 500.

And it’s more than 8% of the Nasdaq-100, the index behind QQQ, one of the most popular funds on the planet.

So, if you own an index fund… a 401(k)… an IRA… a target-date fund… You have money riding on NVIDIA right now.

Maybe a lot of it. Whether you know it or not.

Millions of Americans are in the exact same position. Their retirements are chained to the fate of a single stock.

And Wall Street is walking them straight into a trap.

NVIDIA's $1 Trillion Problem

Over the past three fiscal years, NVIDIA generated about $407 billion in total revenue.

Now Wall Street expects the company to generate roughly $1.1 trillion in combined sales during fiscal 2027 and 2028.

That's nearly three times the revenue NVIDIA earned in the previous three years combined.

And the forecasts get even more ambitious.

By fiscal 2029, analysts expect annual sales to approach $900 billion. Some believe NVIDIA could reach $1 trillion.

Source: MarketScreener (Hatched bars show estimates).

But where will all that money come from?

Most of NVIDIA's growth depends on companies spending vast sums to build and equip AI data centers.

Yet projects face power shortages, delays, and rising costs. And some customers are developing their own chips.

Wall Street is making two enormous bets: that customers can fund this spending on schedule, and that NVIDIA will capture the lion's share.

I think both assumptions are becoming harder to defend.

Billions in Chips With Nowhere to Plug Them in

On Oct. 20, Business Insider reported that Amazon planned to receive about $5 billion in NVIDIA server racks, followed by roughly $3 billion more each month.

But some Amazon data centers don't have enough electricity to run the equipment. So Amazon is storing completed systems in warehouses until those sites are ready.

Source: Business Insider

Amazon calls this “Early Rack Receipt” and says it's normal practice. Not all the equipment is sitting idle.

But here's the risk: NVIDIA can sell billions of dollars in chips long before customers can put them to work.

If Amazon's warehouses keep filling while its data centers wait for electricity, why would it continue ordering at the same pace?

Amazon isn't alone.

Microsoft recently walked away from a planned data center in England run by NVIDIA-backed Nscale.

The power grid reportedly wouldn't be ready until the 2030s.

Oracle and OpenAI also dropped plans to expand their Stargate data-center site in Texas earlier this year.

These changes don't prove NVIDIA lost chip orders. Projects could move or change.

But they show how easily ambitious spending plans can slip behind schedule.

And that's a major problem for NVIDIA's forecasts.

The Money Is Getting More Expensive

Even if the power problems are solved, another question remains.

How will NVIDIA's customers pay for all these chips?

Oracle plans to raise up to $50 billion through debt and equity-related financing.

Meta expects to spend $135 billion to $145 billion on AI infrastructure this year and is exploring new ways to raise capital.

Meanwhile, yields on some CoreWeave bonds recently approached 16%.

That's an extraordinary borrowing cost for a company whose growth depends on building more data centers.

As financing costs rise, companies may have little choice but to delay projects or cut spending.

And there's another concern.

Some AI infrastructure debt is being placed in special-purpose companies and financed through loans or securities tied to data centers and equipment.

In some cases, even NVIDIA chips serve as collateral.

The structure isn't identical to the mortgage-backed securities that helped fuel the 2008 financial crisis.

But the growing web of borrowers, lenders, and investors should sound familiar.

If one major borrower runs into trouble, the damage could spread well beyond that company.

NVIDIA Knows the Risk

Here's what makes this story especially striking.

NVIDIA warns about this very problem in its own SEC filings.

In its latest quarterly report, the company states:

“Customers may postpone purchasing new architectures due to the lack of availability of data center infrastructure to deploy our products.”

And NVIDIA has already made huge bets on future demand.

As of July 26, it had $279 billion in manufacturing and supply commitments, up from $119 billion just one quarter earlier.

These are NVIDIA's commitments to suppliers, not firm customer orders.

But they show how much the company is counting on future sales.

If customers change their plans, NVIDIA could face extra inventory, higher costs, and pressure on profit margins.

It doesn't need to lose its customers for this to happen. It just needs them to buy less than Wall Street expects.

The King Has New Challengers

Some of NVIDIA's biggest customers are finding other ways to power AI.

On Oct. 27, Oracle announced plans to offer Google's custom AI chips, known as TPUs, starting in 2027.

Oracle builds and operates data centers for customers including OpenAI. Its cloud customers will soon have another option beyond NVIDIA.

Oracle is still expanding its NVIDIA business. But the new deal signals change.

Reports on Oct. 28 also indicated that OpenAI plans to buy Google's AI chips.

OpenAI is also working with Broadcom on custom chips.

Amazon has its own Trainium chips. China's Huawei is building rivals. SpaceX and Tesla are also pursuing plans to make their own chips.

NVIDIA still has a powerful advantage in CUDA, the software platform developers use to build and run programs on its GPUs.

That makes it difficult for many existing customers to switch away from NVIDIA.

But Google and Amazon don't need to beat NVIDIA at its own game. They can offer customers an entirely different way to run AI.

None of these efforts will replace NVIDIA overnight.

But consider the timing.

Customers may slow orders while they work through chips they've already bought. And when they start buying again, some of that money could go elsewhere.

NVIDIA could remain the world's top AI chipmaker while winning a smaller share of future spending.

What If Wall Street Is Wrong?

Let's return to NVIDIA's revenue forecasts.

Wall Street expects the company to generate roughly $1.1 trillion in combined sales during fiscal 2027 and 2028.

But what if customers can't keep spending at that pace?

What if power shortages delay more data centers, rising borrowing costs force companies to scale back, and some of their chip budgets shift to competitors?

Instead of $1.1 trillion, imagine NVIDIA generates just $600 billion over those two years.

That would still be an extraordinary business.

But it would mean roughly $500 billion less revenue than Wall Street expects, a shortfall of about 45%.

Now, I'm painting an extreme picture here.

But I'd argue that Wall Street's revenue forecasts are also extreme.

And here's what concerns me most.

NVIDIA might not need to miss those forecasts by anything close to 45% for its stock to suffer serious damage.

Even a much smaller shortfall, paired with weaker guidance, could force analysts to cut future earnings estimates.

Investors might also decide NVIDIA no longer deserves the premium valuation they've assigned to its shares.

Under those circumstances, would a 30% decline in NVIDIA's stock really be unreasonable?

I don't think so.

At a market value of roughly $5.25 trillion, that would erase about $1.6 trillion in shareholder wealth.

But given NVIDIA's enormous market value, it wouldn't take a collapse in its business for shareholders to suffer historic losses.

And the consequences won’t stop there.

With so much of the AI boom tied to NVIDIA's success, a sharp drop in its stock could shake confidence in the entire trade.

Which brings us to the biggest risk of all.

The Biggest Card in the House

NVIDIA sits at the center of a vast network of AI companies, investors, and lenders.

Some firms buy NVIDIA chips while also receiving funding or other financial support from NVIDIA.

The company has even agreed to buy computing power from certain AI cloud firms under specified conditions, helping support their expansion plans.

Source: Bloomberg

There's a certain irony in this chart.

Given everything we've just discussed about a possible AI bubble, it's a fitting image.

The biggest bubble in the chart belongs to the company whose success is helping hold the entire AI boom together.

These relationships help fuel the AI boom.

But if chip orders slow, investors may begin questioning whether heavily indebted data-center operators can earn enough to repay their loans.

NVIDIA could also become less willing to fund the firms buying its products.

A slowdown at NVIDIA could put pressure on the same companies that have helped drive its growth.

When the AI King Falls

NVIDIA could remain the world's leading AI chipmaker for years.

But Wall Street has set expectations so high that even this extraordinary company may struggle to meet them.

Its customers face growing financial pressure, data center projects are falling behind schedule, and competition is heating up.

That's why I believe NVIDIA is headed for a historic destruction of shareholder wealth over the next three years.

And remember, you don't need to own NVIDIA directly to get caught in the fallout.

Its shares are a major part of the S&P 500 and Nasdaq-100, putting millions of retirement accounts at risk.

Remember, NVIDIA doesn't have to lose its crown for my prediction to come true. It only has to disappoint Wall Street.

That was Peachtree Tower talking to me as I turned final for Runway 3 right at Peachtree–DeKalb Airport, just north of Atlanta.

If you're not a pilot, it probably sounds like gibberish. But it's one of my favorite radio calls to hear.

When the tower clears you "for the option," it means you don't have to make a final decision yet.

You can land and come to a full stop. You can touch down and take right back off. Or you can fly low over the runway and climb out without touching the pavement at all.

As the pilot, you get to choose what happens at the very last moment based on what you see out the windshield.

After some time away from flying, I got back in the left seat this fall. I'm now working toward my instrument rating.

Every time I hear "cleared for the option," I think about the market. Because that call is almost a perfect description of what an option gives you as a trader.

I’ll show you what I mean using a real-world example.

More Than One Way to Bet on Amazon

It’s a busy week for the stock market. The Federal Reserve announces its latest rate decision this afternoon.

On top of that, roughly a third of S&P 500 companies report earnings this week, including some serious heavy hitters.

Microsoft and Alphabet report today after the close, and Amazon takes its turn tomorrow night.

Most investors looking at Amazon only have one decision to make. They either buy the stock or they don't.

If you buy 100 shares of Amazon at its recent price near $250 per share, that would cost about $25,000.

Options traders, on the other hand, have several different choices. And those choices aren’t nearly as expensive as buying the stock outright.

But before I go any further, let’s make sure we’re all on the same page.

There are two basic types of options contracts.

A call option gives you the right, but not the obligation, to buy a stock at a set price (the "strike") before a set date. Calls gain value when the stock goes up.

A put option gives you the right, but not the obligation, to sell a stock at a set price before a set date. Puts gain value when the stock goes down.

You pay a price for that right, called the "premium." (Or as you'll see in a minute, you can be the one who collects the premium.)

With those two tools, here are five different ways to approach Amazon's earnings, depending on what you think will happen.

Choice #1: "I think Amazon is heading higher."

If you think shares of Amazon will go up, you could buy a call option. I like in-the-money calls, which are just calls with a strike price below where the stock trades today.

A $230 strike call expiring on Dec. 18 costs about $30, or $3,000 for one contract covering 100 shares.

Because it's already in the money, this call moves roughly $0.75 for every $1 Amazon moves. So you get stock-like gains for a fraction of the cost of owning the shares.

The tradeoff is that unlike shares, your call option has an expiration date. It can’t sit in your account forever, and it loses a little value each day that passes.

Choice #2: "I think Amazon is going to disappoint."

If you think shares of Amazon will go down, you can buy a put. If Amazon falls after earnings, your put gains value.

This is a cleaner way to bet against a stock than shorting it.

When you short shares, your potential loss has no ceiling if the stock rallies. When you buy a put, the most you can lose is the premium you paid.

No margin calls, no sleepless nights.

Choice #3: "I'd love to own Amazon, just at a lower price."

This is where you get paid to buy a stock you want to own already.

You can sell a put with a strike price below today's price. Say you sell a $230 put and collect $6 per share in premium.

If Amazon stays above that strike, you keep the cash and walk away. If Amazon drops below it, you buy the shares at the strike price.

Your real cost is even lower, because you already pocketed the premium.

Either way, you were paid for your patience. (You do need to keep enough cash set aside to buy the shares if that happens.)

Choice #4: "I already own Amazon, and I'm a little nervous."

You have two good tools here. A protective put works like an insurance policy.

If earnings go badly and the stock drops, your put rises in value and offsets part of the damage. You pay a premium for the protection, just like any insurance.

A covered call goes the other direction. You sell a call against shares you own and collect income.

If Amazon rallies past your strike, your shares get "called away" at a profit. If it doesn't, you keep the premium and your shares.

Choice #5: "A big move is going to happen… I just don't know which way."

You can buy a call and a put at the same strike. Traders call this a "straddle."

If Amazon makes a big move in either direction, one side can make more than both cost you.

But here's what most new traders don't realize. The options market already knows a big move is coming. Right now, Amazon's options are pricing in a move of about $19 after earnings.

Premiums swell before the announcement and shrink fast once the news is out.

So for this trade to pay off, Amazon has to move more than the market already expects. That's why this is the hardest of the five to get right.

It's also a useful habit no matter which choice you pick: before you place any earnings trade, check the expected move.

Now Guess Which One I'm Using

In the interest of full disclosure, I hold a bullish Amazon options position in my Income Alliance portfolio right now.

So here's a little challenge. Which of the five choices above do you think I'm using? (Hint: it lives in a portfolio built for aggressive, but still reliable, income.)

Send me your guess at AskZach@paradigmpressgroup.com.

I'll reveal the answer next week and explain why I chose it over the other four. And I’ll even show you how the trade held up through tomorrow’s earnings.

Until then, I’ll leave you with one final thought...

Good pilots never force a landing they don't like. If the approach doesn't look right, you go around and try again.

Trading works the same way.

You don't have to place a trade on every earnings report, and you don't have to commit to one way of playing a stock.

Options let you choose the approach that fits what you see, and change course when the picture changes.

That flexibility is why I love trading options. And it's what I'll be showing you, one strategy at a time, in the weeks ahead.

The idea is pretty simple.

Stocks have historically performed much better during certain months of the year than others.

In fact, the best six-month stretch has traditionally been November through April. Hence, “sell in May.”

Of those six months, the best three-month period of the year has historically been November through January.

So if you know that stocks tend to do their best work starting in November, wouldn’t it make sense to start looking for opportunities in October?

My friend Jeff Hirsch, editor of the Stock Trader’s Almanac, has a saying I love: “Buy in October and get your portfolio sober.”

I was just with Jeff a couple of weeks ago. He’s a longtime friend, someone I’ve learned a tremendous amount from over the years.

His research into how stocks behave at different times of the year has made this book a staple on the desks of serious traders all across Wall Street.

Of all the seasonal patterns I’ve studied over the years, this one might be my favorite.

Because we’re not just entering the best six months of the year.

We’re also entering what has historically been the strongest stretch of the entire four-year presidential election cycle.

That’s right. The next few quarters have historically been the sweet spot for stocks.

And it starts right now.

The Sweet Spot

Every four years, Americans elect a president.

Two years later, we have the midterm elections, when voters decide who represents them in Congress.

For whatever reason, stocks have developed a pretty interesting pattern around this four-year calendar.

The middle of the president’s term has historically been the weakest period for stocks.

In particular, the second and third quarters of the midterm year have been especially difficult.

That’s April through September of the second year.

But then something interesting happens. Starting in October of the midterm year, stocks have historically taken off.

And that strength tends to continue through the first half of the following year.

Look at the numbers from Jeff Hirsch and the “Stock Trader’s Almanac.”

During this three-quarter sweet spot, the Dow Jones Industrial Average has historically gained an average of 19.3%.

The S&P 500 has gained 20.2%. And the Nasdaq has climbed an average of 29.4%.

Those are some pretty remarkable numbers for just seven months.

Remember, those are historical averages, not predictions for what happens next.

Now, here’s what makes the current setup even more interesting.

Stocks were supposed to struggle during the second and third quarters of this year. That’s what the historical pattern suggested, anyway.

But they didn’t. In fact, stocks held up pretty well.

The period that was supposed to be the weakest stretch of the entire four-year cycle wasn’t particularly weak at all.

Think about that for a second.

If stocks couldn’t go down when they were supposed to, what’s going to happen when we enter the part of the calendar when they’re supposed to go up?

I don’t know the answer to that question.

But I sure as hell want to find out.

So, what does all of this mean for investors?

Well, for starters, I think we should be looking for opportunities to buy stocks.

Not because some calendar says we have to. And certainly not because the market owes us anything.

But because we’re entering a period that has historically provided one of the strongest tailwinds investors can ask for.

And when the wind is at your back, I’d rather be looking for opportunities to take advantage of it than spending all my time worrying about what might go wrong.

My Playbook for Right Now

Stay with the direction of the primary trend. It’s still a bull market, and everything we do must fit within the current landscape. The last thing we want to do is fight major trends.

Watch previous areas of support. If buyers stepped in at a certain price before, I want to see if they show up there again.

Look for relative strength. I want stocks that refuse to go down even when the broader market is struggling.

Right now, Charles River Laboratories (CRL), CrowdStrike (CRWD), and ConocoPhillips (COP) are all on my radar. These are some of the highest-scoring stocks across trend, relative strength, and momentum.

That doesn’t mean I’m blindly buying them. But these are exactly the kind of stocks I’ll be watching as we enter this historically strong window.

Because some of the best market leaders begin separating themselves from the pack during corrections and periods when money is moving from one group of stocks to another.

You don’t always have to wait for the entire market to start rallying to figure out which stocks investors want to own.

A lot of times, they’re already telling you.

And if we’re about to enter a period when stocks historically do very well, I want to know which ones are already leading before that tailwind really gets going.

But there’s another side to this that I think is just as important.

What Would Change My Mind?

What if we enter what has historically been the strongest period of the entire presidential cycle, and stocks struggle?

That would get my attention.

When the market is supposed to go down and doesn’t, that’s information. And when the market is supposed to go up and doesn’t, that’s information too.

The market doesn’t care about our calendars. It doesn’t care what happened in 1954 or 1986 or 2010.

It certainly doesn’t care what we think should happen next.

That’s why we study these patterns in the first place.

It’s not because they’re guaranteed to repeat, but because they give us something to measure the market against.

So, from an execution standpoint, I’m looking for opportunities to put money to work.

I want to buy strong stocks, take advantage of volatility, and find situations where the potential reward is much greater than the risk.

From a bigger-picture analysis standpoint, I’ll be watching how stocks behave during a period when history suggests they should be doing very well.

If they respond the way they historically have, great. We want to participate.

If they don’t, that’s something we need to pay attention to.

Either way, we’re going to learn something.

And I can’t think of a better time to give another shout-out to my friend Jeff and the “Stock Trader’s Almanac.”

There are plenty of seasonal tendencies worth studying.

But this particular stretch of the presidential cycle is one of the most powerful I’ve ever come across.

Stocks just made it through what was supposed to be the difficult part of the calendar without much difficulty.

Now we’re entering the easy part.

Let’s see what they’ve got.

In that time, I’ve made money in bull markets, bear markets, and even financial crises.

One thing I've learned is that you don't have to predict the next crash to navigate it successfully.

You need to recognize the risks and be prepared.

That's why I've been studying financial bubbles, looking for lessons that might help us navigate today's AI boom.

Last week, I wrote to you about technology bubbles and some of the most notable examples in modern history.

This week, I want to turn your attention to something potentially even more dangerous — credit bubbles.

We're going to look at three examples, going all the way back to 1837. As you’ll see, the lessons are still relevant today.

But before we hop in the time machine, let’s talk about what a credit bubble is.

What Is a Credit Bubble?

Credit is borrowed money.

Consumers like you and me use credit to buy homes, businesses use it to expand, and investors use it to purchase stocks and other assets.

And that's a good thing. Borrowing helps fuel economic growth.

But problems arise when lenders get too comfortable extending credit and borrowers take on more debt than they can afford.

As asset prices rise, both sides grow more confident, fueling even more borrowing.

Eventually, the entire boom depends on one assumption: Tomorrow will be even better than today.

When that assumption breaks down, the consequences can spread far beyond the original borrowers, threatening banks, businesses, and sometimes the entire economy.

And while every credit bubble is different, history reveals striking similarities in how they develop and eventually burst.

Drawing on decades of economic research and financial history, we can identify six stages that often appear as credit bubbles develop and then collapse:

1. Displacement: A new opportunity captures investors' attention, whether rising land prices, a booming industry, or a promising investment strategy.
2. Credit Expansion: Lenders rush to finance it. Borrowing becomes easier, and rising asset prices encourage more lending.
3. Euphoria and Leverage: Confidence turns into overconfidence. Investors borrow heavily, convinced prices will keep rising. Lenders overlook mounting risks.
4. Distress and Margin Calls: Prices fall, or financing tightens. Borrowers must find more cash, repay loans, or sell assets.
5. Contagion: Losses spread to lenders and businesses. Fear grows, and even healthy companies struggle to secure financing.
6. The Crash: Defaults, forced selling, and collapsing confidence turn financial trouble into a broader crisis.

These stages can overlap, and sometimes the worst outcome is avoided.

The most notable example in our lifetimes was the 2008 Global Financial Crisis (GFC), when a debt-fueled housing bubble collapsed and nearly brought down the global financial system.

The GFC deserves its own deep dive. But that’s not one of the crises I want to talk about today.

The Panic of 1837: America's Land Bubble

In the 1830s, Americans believed buying land out West was a ticket to riches.

The country was expanding rapidly. Land values were soaring. And banks were eager to lend money.

Speculators borrowed heavily to buy property, often with little interest in developing it.

Why bother? As long as prices kept rising, they could sell the land to someone else for a profit.

Banks issued more loans, driving prices higher and attracting more speculators.

But cracks were forming.

President Andrew Jackson had helped dismantle the Second Bank of the United States, leaving the country without a comparable national banking institution.

Then, in 1836, he ordered that most federal land purchases be paid for in gold or silver rather than paper money.

That pressured banks' reserves. Meanwhile, tighter lending conditions in Britain and falling cotton prices made it harder for American borrowers to repay debts.

By May 1837, New York banks had stopped redeeming paper money for gold and silver.

As panic spread, banks stopped lending and businesses began to fail, plunging the economy into a severe downturn.

Archival illustration depicting the Panic of 1837. Source: Wikipedia

The speculation started with land. But the damage spread through the banking system.

The lesson: Credit bubbles don't require revolutionary technology. They need an asset people believe will keep rising in value, and lenders willing to finance that belief.

The Great Crash of 1929: How the Great Depression Began

Ever wonder what triggered the Great Depression?

It began with one of the most spectacular stock market crashes in history.

In October 1929, Wall Street suffered a series of devastating selloffs that wiped out billions of dollars in wealth.

A crowd gathers on Wall Street after the 1929 Crash. Source: Wikipedia

But the disaster's roots had been growing for years.

During the Roaring Twenties, Americans became convinced that stocks were an easy path to riches.

And thanks to the growing popularity of buying on margin, investors didn't need enough money to buy shares outright.

For example, at times during the 1920s, buyers could put down just 10% and borrow the remaining 90%.

That meant $1,000 could control $10,000 worth of stock.

A 20% gain would turn that $1,000 into $3,000, before borrowing costs. But a 10% decline could wipe out the investor's entire stake.

By September 1929, loans to stockbrokers had reached roughly $8.5 billion.

As stocks fell, lenders demanded more cash. Investors sold shares to repay loans, pushing prices lower and triggering more forced selling.

By July 1932, the Dow had lost nearly 90% of its value from its 1929 peak.

Dow Jones Industrial Average (1929–1932)

Source: Wikipedia

The stock crash wasn't the sole cause of the Great Depression.

Banking panics from 1930 through 1933, falling spending, and policy mistakes deepened the disaster.

But excessive borrowing helped turn a roaring bull market into a financial trap.

The lesson: Debt magnifies gains when prices rise. When prices fall, leverage can create a vicious cycle of forced selling and mounting losses.

The 1998 LTCM Crisis: Disaster Averted

Our final example ends differently.

In the 1990s, a hedge fund called Long-Term Capital Management (LTCM) employed some of Wall Street's brightest minds, including two Nobel Prize-winning economists.

Its strategy used mathematical models to profit from tiny price differences between financial assets.

The strategy delivered impressive returns, but exploiting those small differences required enormous borrowing.

By the end of 1997, LTCM had borrowed roughly $30 for every $1 of its own capital.

Then, in August 1998, Russia devalued its currency and defaulted on domestic government debt.

Investors fled risky assets, and markets moved sharply against LTCM's trades.

The fund lost approximately 44% in August alone.

As its capital evaporated, its assets reached roughly 55 times its remaining capital.

The chart below shows what happened to a hypothetical $1,000 investment in LTCM compared with the Dow Jones and U.S. Treasuries.

After years of spectacular gains, LTCM's value collapsed in 1998, wiping out nearly all those profits.

LTCM vs. Dow Jones and U.S. Treasuries (1994–1998)

Source: Wikipedia

Because LTCM had extensive dealings with major banks, a sudden collapse threatened widespread forced selling and losses throughout financial markets.

On September 23, 14 financial firms agreed to a roughly $3.6 billion private rescue coordinated by the New York Fed. The Fed itself provided no money.

LTCM's investors suffered enormous losses.

But the intervention let its positions unwind gradually rather than dump into already stressed markets.

A wider financial disaster was avoided.

The lesson: Even when dangerous leverage threatens the financial system, decisive action can sometimes contain the damage.

Could AI Become a Credit Bubble?

Now, let's return to today's AI boom.

Tech giants are spending unprecedented sums on data centers, chips, and electricity.

This massive capital expenditure (or CapEx) is pressuring cash flow and driving more borrowing.

And as more companies seek financing, borrowing costs can rise, making future investments more expensive.

Meanwhile, circular financing also exists.

For example, a chipmaker might invest in an AI company that then uses that money to buy its chips.

Such arrangements can fuel growth. But they also create financial dependence between companies, increasing the risk that trouble at one spreads to others.

Then there's off-balance-sheet financing.

Companies can make financial commitments that don't immediately appear as liabilities on their balance sheets.

For example, a hyperscaler might agree to lease a data center when it's completed.

The developer can use that commitment to obtain financing. At the same time, the hyperscaler generally won't record the lease liability until the lease begins.

Sound familiar?

Off-balance-sheet financing played a major role in the 2008 GFC.

Banks used separate entities to hold mortgage-related investments. When those investments soured, some risks came roaring back onto their balance sheets.

Today's arrangements are different.

But the lesson remains: Financial obligations don't become harmless simply because they're off the balance sheet.

A recent analysis on X by ZeroHedge estimates roughly $3.6 trillion in off-balance-sheet commitments across eight major AI-related companies.

Source: ZeroHedge on X

These include future purchases, leases, guarantees, and other obligations. Not all are debt or directly tied to AI, and many stretch years into the future.

Still, the scale is extraordinary.

And what happens if AI demand grows more slowly than expected?

If AI demand falls short of expectations, developers could struggle to repay their loans, potentially causing lenders to cut off financing and spreading trouble throughout the industry.

That's how a technology bubble could turn into a credit bubble.

To be clear, I'm not predicting another 2008.

But I am closely watching whether AI revenues and cash flow can support these enormous financial commitments.

Are We Watching a Slow-Motion Crash?

Cracks are already appearing in the stock market.

As of Oct. 22, nearly 60% of S&P 500 stocks were at least 10% below their highs, while roughly one-third had fallen more than 20%.

The S&P 500's Hidden Decline: Stocks Below Their 52-Week Highs

Source: FinViz

Yet the overall index remained close to its record.

So, are we watching a slow-motion car crash, with everyone seeing the danger but unable to stop it?

Or could these market corrections, along with greater scrutiny of AI spending and borrowing, help prevent a much bigger crisis?

The crises of 1837 and 1929 show just how devastating credit bubbles can become.

But LTCM reminds us that the worst-case scenario isn't inevitable.

I'm not a bear, and I'm certainly not hoping for another crash.

But after more than 30 years on Wall Street, I know that understanding the warning signs can help investors protect their wealth, avoid costly mistakes, and find opportunities when others are panicking.

That's why we're studying these bubbles.

In the end, history tells us what can go wrong, but not what must happen next.

It shows that the highest beta names have been reeling since July. And the bears are coming back for more action this week.

In other words, the red-hot momentum run from earlier this year has turned into an outright dumpster fire.

The financial media has no idea who’s to blame for the selling.

Asian markets trended lower heading into Thursday’s session. There’s also been a lot of fear about cyberattacks this week. Then, we have the ever-popular “rising tensions in the Middle East.”

If you’re feeling frustrated, you aren’t alone. No one likes the stock market right now.

Fortunately, there are still ways you can avoid the worst areas of the market. While the Nasdaq Composite tumbled 2.5% yesterday, the equal-weight S&P stayed strong, gaining more than 0.25%.

Simply put, there’s a huge gulf between the “haves” and the “have-nots” right now. You just have to know where to look.

Before we dig into some ideas, let’s start with our market framework:

• For now, I’m trading on the assumption that the AI boom has not peaked. The semiconductors and other dominant AI trades are stuck below their summer highs. But they have not broken down to the point that signals a major change in trend. I will avoid trying to catch these falling knives at the moment. But I’m not totally writing off these stocks yet. More information needed!
• Seasonality remains favorable. Remember, this is still a midterm election year. The seasonal trends are very bullish from here through the end of the fourth quarter. While this does not guarantee the market will rally, it’s a helpful roadmap that can keep us grounded through these tough moments. On the flip side, we’ll know the market has deeper problems if it continues to break down during a period where it’s usually rallying. Seasonality data is most useful as a contrarian indication when the market moves against it.
• I don’t have to trade when the market is in flux. There’s no hard and fast rule that says I have to continue trading through choppy or difficult markets. If I continue to run into trouble, I can simply move to the sidelines and wait for conditions to change. Cash is a position!

Now that we have our market thoughts in order, it’s time to find some places where we can hide from the momentum carnage.

1. Tractor Supply Co. (TSCO)

Tractor Supply has not been a great performer in 2026. The stock is down more than 30% year-to-date and has remained near its lows for the better part of the past six months.

The company reported strong earnings Thursday morning, beating both top- and bottom-line estimates. Traders were unimpressed during the pre-market session.

But something changed after the opening bell…

TSCO didn’t stay down for long. After opening down 8%, buyers rode in and pushed the stock into the green, creating this beautiful reversal candle. By mid-afternoon, the stock was up more than 4%. That’s a double-digit reversal since the open.

I love these earnings reversal plays. The early sellers got it all wrong and the stock ripped, breaking out above its early October swing highs.

TSCO is a nice hiding spot from the AI correction as traders turn back to these old-fashioned retail names. Over the next several weeks, a $40 target (the green tractor) back to the 200-day moving average is a solid target for this reversal play.

2. Amplify Cybersecurity ETF (HACK)

Cybersecurity stocks have managed to buck the AI drop. And artificial intelligence fears are likely the reason these names have flourished since the software sector bottomed out in April.

This week, we’ve seen several stories about AI agents disrupting banks, as well as multiple major hacking scares across the internet. In fact, I’m guessing that these worries are partly responsible for the moves lower we’ve seen in the tech space heading into the weekend.

While AI stocks are reeling, we can get involved with the one group that’s been trending higher during the chaos.

There’s no need to pick a specific stock when the entire industry looks so strong. Just look at how HACK has perfectly bounced off its 50-day moving average in September and October (the green arrows).

HACK has now posted four straight constructive days in a row while the Nasdaq Composite has slipped lower. We can participate in this bounce here in the low $120s, with a conservative upside target of $135 over the next several weeks.

3. Altria Group Inc (MO)

Markets can be difficult at times, but I wouldn’t recommend taking up smoking to deal with the stress.

Nevertheless, tobacco is one of those stalwart safety trades that can thrive when the market gets messy. And as you can see from the chart, MO is heating up with a beautiful breakout to new 2026 highs this week:

This safety trade is now up more than 30% year-to-date, easily besting the Nasdaq. Its latest run began after a picture-perfect retest of its 200-day moving average near $67 at the start of the month. Perhaps it has another momentum run in it following this breakout above $75. I wouldn’t be surprised to see it top triple-digits at some point in Q1 2027.

Remember, you don’t have to trade right now. But if you do, stick to setups like these in this tumultuous tape.

If and when the momentum trade switches back on, you’ll have plenty of opportunities to get back into the tech names that are getting slaughtered right now.

The market will reward your patience.

During SpaceX's earnings call Tuesday, Elon confirmed that both companies have formed special committees to explore a merger.

When asked whether he thought it was a good idea, his answer was simple…

"Yes."

Prediction market Kalshi has put the odds of a merger before 2028 as high as 80%.

Source: Kalshi

It's far from a done deal. Shareholders would need to approve it, and then that leaves the regulatory uncertainty.

While this would easily be the biggest merger of all time, I don't see a great opportunity in either SpaceX or Tesla's stock.

I expect both to trade in a volatile range while the merger details and approvals are worked out.

But I believe a deal could create huge opportunities in several other companies.

Some could become takeover targets for Musk…

Others might be bought by rivals looking to compete…

Still others could gain from the billions Musk plans to spend.

I've identified three stocks that could benefit in a big way. And I’ll give you the names of each one.

But first, let’s talk about why Elon wants this merger now. It all boils down to seven reasons.

1. Elon Is Creating the Ultimate Tech Empire

Elon has spent years building the pieces of an awesome business empire.

Tesla makes electric vehicles, develops self-driving tech, and builds humanoid robots.

SpaceX launches rockets, operates the Starlink network, and, through xAI, develops advanced artificial intelligence.

Together, they would create a remarkable entity.

One company would control the AI brains, robots, vehicles, communications networks, and the infrastructure connecting them all.

Imagine millions of Tesla robotaxis and Optimus robots connected through Starlink, with AI driving the entire system.

The companies already cooperate in several areas. A merger could speed up that work and make it more efficient.

For Elon, the appeal is clear.

2. Building an Empire Takes Money

Elon's plans require vast amounts of capital.

Tesla has spent an estimated $50 billion on capex in its history, and the space business has spent $20 billion.

That's a combined $70 billion.

Now, he’s saying he’ll spend another $35 billion in Q4 2026 alone!

So, in two quarters, he will spend more than he did in 20 years with these two huge companies. And that's before the full cost of Tesla's robotics and self-driving plans.

Meanwhile, OpenAI, Anthropic, Google and other rivals are racing to build more powerful AI systems.

Elon needs money, and lots of it.

On CNBC Wednesday, Altimeter Capital's Brad Gerstner explained why a merger could help:

"He wants to accelerate scale now because if you have scale around capital and you put the companies together, it's easier to borrow money."

That's the key.

A larger, more diverse company with huge assets and cash flow could gain greater access to credit markets, perhaps at lower rates.

In a race where capital is key, that could provide a major advantage.

3. Elon Could Raise $200 Billion in a Flash

Imagine Elon announcing a merger that creates a company worth roughly $3.5 trillion.

People would rush to invest in what could become the world's most powerful technology empire.

Why not exploit that excitement?

A $200 billion stock offering could provide a massive war chest for Elon's next moves.

That money could enhance AI development, expand Starlink, or fund major acquisitions.

It could also divert investor capital and attention from rivals like OpenAI and Anthropic, which also need massive funding.

Of course, $200 billion is just my scenario, not an announced plan. An offering like this would dilute existing investors, and demand isn't certain.

But the chance to raise large amounts of money during a merger-hype wave could be a strong incentive.

4. Elon Could Cement His Control

Elon's plans require more than money. They require control.

He owns roughly 20% of Tesla and about 48% of SpaceX. Yet SpaceX's share structure gives him almost 85% of its voting power.

A merger could reshape ownership of both companies.

In fact, Barclays analysts estimate Musk could gain 56% voting control of the combined company.

That would give him greater freedom to pursue long-term projects without constant shareholder pushback.

Of course, Tesla investors would have to approve the deal.

But his desire for greater control is obvious.

5. Elon Could Go on a Buying Spree

Elon doesn't just want to compete in current markets. He wants to reshape them.

Consider telecom.

SpaceX already operates Starlink and recently agreed to purchase $8 billion in wireless spectrum from Grain Management.

That's a major step toward becoming a broader mobile communications provider.

But building a nationwide ground-based wireless network could cost tens of billions of dollars.

Why not acquire one instead?

Imagine Elon buying an established telecom company and combining its cellular network with Starlink's satellite coverage.

Or he could acquire smaller companies with technology that could fast-forward his plans.

Such deals would face major hurdles. But a merged company with vast resources and valuable shares would have far more options.

6. The Political Window Is Open

Elon may also have a reason to move quickly, as a merger of this size will face intense scrutiny in Washington.

Trump will remain in office for another two years, and Elon maintains close ties to him.

While those political ties wouldn't guarantee approval, Elon likely believes the current administration would view the deal favorably.

And political conditions can change quickly.

If Elon believes the timing is good, why wait?

7. The Rockets Are Already in Flight

Perhaps the strongest evidence that a merger could happen is that the process has already begun.

Both companies have formed special committees to study a possible deal.

That's a big step forward beyond the idea investors have discussed for years. And Musk has already publicly endorsed the idea.

There's also an important date approaching.

Tesla's annual shareholder meeting is scheduled for Dec. 3.

That could provide Elon with a high-profile chance to update investors or even announce a proposed merger.

Again, this is all hypothetical (for now).

No merger vote is scheduled, and Elon has warned that Tesla would need support from holders of at least half its outstanding shares.

Still, with formal talks underway, the next several weeks could prove pivotal.

3 Stocks That Could Win Big

I'm watching three companies that could benefit from his next moves, whether through takeovers, rival deals, or a surge in spending.

T-Mobile (TMUS) operates one of America's largest wireless networks.

Buying it could give Musk quick access to millions of customers, nationwide infrastructure, and valuable wireless spectrum.

It's a risky possibility given the cost and legal barriers, but worth watching.

There's another possible takeover target, but not for Musk.

AT&T or Verizon could seek to buy AST SpaceMobile (ASTS) to gain its satellite-to-phone technology and better compete with Starlink.

Amazon, Google, or even a foreign government could also want access to its tech.

As Musk expands into wireless service, ASTS could become a prime takeover target.

This last one may be the most overlooked opportunity.

SBA Communications (SBAC) owns and operates cell towers.

If SpaceX builds a ground-based wireless network to strengthen Starlink, it could become a major new customer for tower operators.

Adding tenants to its towers would drive new revenue for SBAC without building anything.

A merger could increase demand for its services.

Now, I’m not necessarily saying to go out and buy these stocks today.

But they are three strong examples of companies to follow closely as events unfold.

Even though a Tesla-SpaceX merger isn’t guaranteed, I believe it’s highly likely.

Elon has the vision, the financial incentives, and now a formal path forward.

While Wall Street focuses on what happens to Tesla and SpaceX shares, I think the bigger story is what comes next.

A combined company could spend billions, buy new businesses, and force rivals to make bold moves of their own.

And some of the biggest gains could come from companies most investors aren't watching yet.

I'll keep you posted as this historic story unfolds.

Railroads were going to change America.

By the early 1870s, tracks were pushing farther west, connecting cities, opening markets and creating enormous new opportunities.

Money poured in as Wall Street watched the network grow and saw little reason the excitement should stop.

Then came September 1873.

A major banking failure tied to railroad financing helped set off a panic that wiped out wealth across the country.

But the railroads hadn’t failed. They would ultimately prove every bit as revolutionary as people believed.

The mistake was assuming that being right about the future meant every investment tied to it would pay off.

We may not think of railroads as “technology” today, but that’s exactly what they were. And the frenzy surrounding them became one of America’s earliest great technology bubbles.

It was a mistake Wall Street would repeat with electricity, radio, computers, telecommunications and the internet.

And now, the rush into AI may be setting us up for the same bubble all over again.

The Four Ingredients of a Technology Bubble

When most people hear the word "bubble," they think of wild stock prices, reckless speculation and investors losing fortunes.

But that’s usually how a bubble ends, not how it begins.

Technology bubbles usually start with something real — a genuine breakthrough that could change the world.

After studying history's biggest technology booms and busts, I've identified four recurring features.

1. Revolutionary Technology
   
   It starts with a new invention or breakthrough that promises to change how people live and work.
   
   
2. Enormous Economic Potential
   
   The technology promises major gains in productivity, efficiency or economic growth. It could create new markets and cut costs. But those benefits may take years to arrive, while investors often price them in immediately.
   
   
3. Too Much Money, Too Fast
   
   Investors and businesses don’t want to be left behind, so they pour money into new projects, often building more capacity than customers need or paying stock prices that assume huge future profits.
   
   This is where trouble begins.
   
   Money goes out long before enough comes back in.
   
   
4. Mania Followed by a Crash
   
   Eventually, excitement pushes stock prices to extreme levels.
   
   But when profits disappoint, or financing dries up, prices can collapse.

Of course, not every breakthrough creates a bubble and not every investment boom ends badly.

But when these four features come together, the losses can be severe.

We’ve seen it happen many times before.

Railroads: America's First Great Technology Bubble

The railroad story we started with is a good example of how quickly those four ingredients can come together.

After the Civil War, America was undergoing a transportation revolution. In just six years, the amount of track operating across the country nearly doubled, from about 39,000 miles in 1867 to more than 70,000 miles by 1873.

And building all that track wasn’t cheap.

The Northern Pacific Railroad alone set out to raise $100 million — roughly $3 billion today — for an ambitious line stretching from the Great Lakes to the Pacific Coast.

Banks sold railroad bonds to investors in the United States and overseas, while companies borrowed heavily to acquire land, lay hundreds of miles of track, build bridges and stations, buy locomotives and hire workers.

For a while, there seemed to be no shortage of money available. Investors had watched earlier railroad projects produce strong returns and every new mile of track offered another chance to profit from America’s expansion.

Railroad Construction in the American West, 1869

Source: Library of Congress

Building the network that would transform the country was enormously expensive, and making all that money back was another matter.

Think about what went into laying a new line in the 1870s. Companies had to acquire land, lay hundreds of miles of track, build bridges and stations, buy locomotives and hire workers, all before collecting a dollar from the first passenger or shipment of freight.

Much of that money was borrowed on the assumption that once the tracks were finished, enough business would follow to make the numbers work.

Companies raced to lay competing routes, driving construction costs higher even when there weren’t enough passengers and freight to support them. The railroads looked impressive on a map, but many simply couldn’t generate enough revenue to justify what they had cost to build.

That left heavily indebted railroad companies increasingly dependent on new money to keep going.

One of the biggest players was Jay Cooke, a prominent banker who had helped sell Union bonds during the Civil War.

Cooke became a major backer of the Northern Pacific Railroad, an ambitious project to connect the Great Lakes region with the Pacific Northwest.

But the project ran short of money, and Cooke couldn't raise enough new funds to keep it going.

On September 18, 1873, his banking firm suspended payments.

The news helped trigger a financial crisis.

The New York Stock Exchange closed for ten days, and the country entered a long economic downturn.

Yet railroad construction didn’t disappear with the investors’ money. New lines continued to be built, traffic continued to grow and the industry eventually emerged on the other side of the crisis.

Many of the investors who bankrolled the boom weren’t so fortunate.

It’s a lesson worth remembering… revolutionary technology can create enormous economic value while destroying much of the wealth that financed its rise.

Britain had experienced a similar railway mania in the 1840s.

Share prices crashed even as workers continued laying new tracks.

Radio and Electricity: The Roaring Twenties' Technology Mania

Fast-forward about 50 years and America was in the middle of another technological revolution.

Electricity was powering factories and homes. Radio was bringing news, music and entertainment into living rooms across the country.

Family Listening to Radio – 1920s

Source: Library of Congress

To investors, the possibilities seemed limitless.

Few companies captured that excitement better than Radio Corporation of America, better known as RCA.

During the 1920s, RCA became one of Wall Street's hottest stocks.

Investors weren't simply buying shares in a radio company. They were buying what they believed was the future of mass communication.

As radio sales and broadcasting expanded, RCA shares soared.

By September 1929, the stock had reached a reported split-adjusted price of roughly $115.

Then came the crash.

By May 1932, RCA shares had fallen to approximately $2.63.

That's a staggering loss of nearly 98%.

RCA was hardly the only company swept up in the enthusiasm for new technology.

Electric utilities were another Wall Street favorite in the Roaring Twenties.

Companies built power plants, expanded electric grids and brought electricity to millions of new customers.

There was plenty of real demand behind that expansion, but extending that network across the country came at a steep cost.

Some utility holding companies borrowed heavily and created increasingly complex corporate structures to fund their growth. Samuel Insull built one of the largest, assembling a sprawling network of electric companies that made him one of the most powerful figures in the industry.

That structure became far more difficult to support once the market crashed and the Great Depression took hold. Insull’s empire eventually collapsed in 1932.

Economic-history research shows utility stocks fell roughly 55% between late September and late November 1929. Some individual stocks lost even more.

These companies didn’t collapse in a vacuum. The broader market crash and Great Depression played major roles in these losses.

But none of that stopped the technology itself from moving forward.

Radio kept transforming communication and electricity became essential to modern life.

Once again, the technologies succeeded. The investments did not.

Computers: When Growth Became Everything

By the 1960s, Wall Street had turned its attention to computers, which were quickly becoming an important part of American business.

Companies like IBM were helping businesses process information, automate tasks and operate more efficiently.

IBM Mainframe Computer at the U.S. Department of Agriculture, 1964

Source: Wikipedia

Investors correctly recognized the enormous potential.

But once again, stock prices began racing ahead of reality.

During the so-called "Go-Go Years," investors rushed into fast-growing companies, especially those tied to computers and electronics.

Mutual funds competed to own the hottest stocks. At the same time, traditional measures of value took a back seat to future earnings expectations.

Why worry about today's profits when a company might dominate tomorrow?

Unfortunately, those expectations left little room for disappointment.

During the 1969–1970 bear market, many popular computer and technology stocks suffered steep losses.

Some historical accounts report declines of nearly 80% in selected groups of these stocks.

Yet the computer revolution was only beginning.

Over the following decades, computers became essential to nearly every major industry.

The technology delivered on its promise.

But investors who paid too much for future growth often paid a heavy price.

A similar craze emerged in the early 1970s with the "Nifty Fifty," a group of popular growth stocks that included IBM and other household names.

Many suffered steep losses during the 1973–1974 bear market.

Through each of these booms and busts, we see that great companies can become terrible investments when their stock prices get too far ahead of reality.

What History Is Telling Us About AI

That brings us to the boom unfolding today.

AI promises to transform industries, boost productivity and reshape how businesses operate. That potential is real. It’s already proving useful across the economy, from software and medicine to manufacturing and finance.

But as we’ve seen throughout history, revolutionary technologies usually are useful. That’s what attracts so much money in the first place.

Like the railroads, AI requires enormous infrastructure investments long before the full profits become clear.

Like the electric utilities, its expansion depends partly on complex financial deals and access to borrowed money.

And like the computer stocks of the 1960s, investors are paying high valuations for companies expected to dominate the next technological revolution.

Two comparisons stand out…

According to research by Columbia Business School professor Stijn Van Nieuwerburgh, annual AI infrastructure spending is projected to average 3.63% of U.S. GDP from 2025 through 2032. That's well above the 2.24% of U.S. GDP spent on American railroads from 1870 to 1890.

Meanwhile, research from Bianco Research shows that 41 AI-related companies account for roughly 49% of the S&P 500's market value.

Source: Bianco Research, October 2026.

As the chart shows, AI's market share now exceeds the peaks of nearly every major investment boom over the past 150 years.

These comparisons use different methods and the AI spending figure is a forecast. Neither proves a crash is coming.

But both show how much is riding on AI's success.

Investors are committing enormous sums today based on profits they expect to arrive years from now.

History shows why that can be dangerous.

The Technology Survives. Will Your Portfolio?

If there’s one thing the last 200 years have taught us, it’s that revolutionary technologies can change the world…

• Railroads transformed transportation.
• Electricity powered the modern economy.
• Radio revolutionized communication.
• Computers changed nearly everything.

The people who believed in those technologies were right, but plenty of them still lost money.

That’s worth remembering as billions pour into AI today.

Artificial intelligence can live up to its enormous promise without every company riding the wave living up to its valuation.

Knowing the difference can help us recognize when expectations have run too far ahead, avoid paying too much for growth that may take years to arrive and protect our wealth if the excitement eventually fades.

There is, however, one more part of this history that we haven’t spent much time on yet.

Many of history's worst financial collapses weren't fueled by investor enthusiasm alone.

They were fueled by something potentially even more dangerous:

Debt.

And that's exactly what we'll explore in our next issue, so stay tuned.

We’ve all witnessed plenty of meltdowns in our lifetimes — the crash of ‘87, the grinding dot-com unwind, the Bear Stearns failure leading into the Great Financial Crisis, COVID, the post-COVID trading bust and on and on the list goes…

The crises are different, but every time, we act irrationally during these periods when the market is in flux.

That’s why one of Warren Buffett’s most famous bits of stock market advice resonates so deeply with investors:

Be fearful when others are greedy, and greedy when others are fearful.

When the going gets tough, the stock market pressure cooker can lead to terrible decisions that negatively impact your wealth for years to come.

Yet Buffett promises a better way forward. If we can only snap out of the market’s trance at these extremes, we too can bank life-changing returns.

Here’s something most investors don’t think about often enough:

Selling out at the lows isn’t the biggest market fear we’ll ever face. The truth is, most of us are terrified of buying the top.

We see the S&P or the Nasdaq post a huge, multi-year rally, and that little voice in the back of our head starts warning us that it all could fall apart at any minute. The easy money has been made. We missed it! So, we sit back and wait for a correction that could take months — or even years — to materialize.

If you find yourself struggling with the emotional side of these trading extremes, you aren’t alone.

Thankfully, some math geeks quantified these market extremes, then tested Buffett’s advice against the data.

What they found was surprising. Not only was Buffett wrong, his folksy advice could end up costing you a fortune – especially when the averages are pushing to new highs like they are this month.

Let’s dive in…

A Tale of Two Extremes

To test Buffett’s wisdom in real-world market conditions, we’re going to need a measuring stick for investor emotions.

This is where the CNN Fear and Greed Index comes into play.

If you aren’t familiar with CNN’s Fear and Greed Index, it’s simply a gauge of the emotions driving the market at any given point in time. The gauge runs from 0-100, with zero being “extreme fear” and 100 signifying “extreme greed”. You can learn more about the factors that make up the score here.

As I’m writing this note, the index sits firmly in “fear” territory at 38. During more tumultuous market events, such as the depths of the 2008 financial crisis, it has dropped below 1 – well into “extreme fear” territory.

So, what would happen if we were to go back to just before the financial crisis and take Buffett’s adage to heart?

The analysts at Quanterlab attempted to answer this exact question by recreating the Fear and Greed Index from scratch and tracking the hypothetical results.

Here’s what they found:

If we traded like Uncle Warren from the 2009 low to today (that’s buying extreme fear and selling extreme greed), we would have turned $1 into $4.74. 

On the surface, this isn’t a terrible result. There’s just one problem: buying and holding the S&P would have easily bested the Buffett rule. Hanging tough with a buy-and-hold strategy would have turned $1 into $7.57.

Quanterlab compared other strategies, as well. Along with Buffett’s rule, they modeled a “crowd rule” that follows the herd: buying greed and selling fear (which likely accurately mirrors investors’ herding behavior in the real world). Unsurprisingly, this was the worst performing model in the above graph.

Then there’s the 200-day average rule, which acts as a simple trend following strategy where you only own the index when it’s above its 200-day moving average. Not only did this strategy underperform buy-and-hold over the study’s timeframe, it also lagged the Buffett rule.

Fixing Warren’s “Mistake”

So, where did Warren go wrong?

In fairness to the Oracle, I don’t think blindly following the Buffett rule as laid out in this study accurately interprets his investing style. As the Quanterlab analysts note, Buffett admits his holding strategy is essentially forever, I doubt he would be systematically unloading all his positions during periods of extreme greed.

With that in mind, a modified Buffett strategy would be effective for longer-term minded investors. Initiate and add to positions during periods of extreme fear, then continue to hold through the more bubbly years. By doing less and buying when the herd won’t, you’re well on your way to maximizing returns.

But when it comes to more active trading styles, you’re going to need to learn how to buy when others are fearful and greedy.

The entire point of trading is to beat buy-and-hold returns. If your active trading strategy isn’t compounding more than the S&P, you’re just wasting your time. That means you likely won’t get ahead by sitting on the sidelines during the boom times.

The numbers back up this assumption. Quanterlab analysts note that the year immediately following an extreme greed reading is actually the strongest period of their testing timeframe. If you are strictly following the Buffett rule and selling as soon as the market indicates it’s getting frothy, you’re likely missing out on the strongest period of returns near the finale of the bull market cycle.

Look back to any major bull market and you will see this period of extreme acceleration toward the final year of the bull (1986-87 and the 1999 dot-com climax come to mind).

Over the past year, we’ve discussed the possibility that the artificial intelligence bull is potentially charging toward a similar “climax year” that has the potential to deliver outlandish returns as we’ve seen in these other historic bull cycles. And today, we’re even closer to a potential lift-off point for such a move.

If we do experience a major market acceleration in the next six to nine months (or sooner), I expect we’ll hit extreme greed readings and continue higher.

If this is the case, you won’t want to cash out and sit on the sidelines. Not yet!

Active traders like us will need to stay focused and prepare to take advantage of the bubbly conditions. Don’t sell too early and miss out on all the action!