by Jason Bodner
October 20, 2026
Each fall in Alaska, the wood frog lets itself freeze. Up to 60% of its body turns to ice and its heart stops. It’s pretty much dead, and it can stay “dead” for seven months. But to train for this near-death experience, the frog first goes through 10 to 15 freeze-and-thaw cycles to build up glucose that works like antifreeze.
Then, come spring, this wood frog’s heart starts beating again, after seven months in a deep freeze.
The market has been playing “frozen frog” for last few months (the southern hemisphere winter, which we call summer). Since June 1, the S&P 500 is up just 2% and remains just 1% off its October 6 record.
Underneath, however, the bulk of small stocks have been frozen. The Russell 2000 is down 4.8% since June 1. Of the roughly 5,300 stocks we track, 56% haven’t made a new 52-week high since July 1. More than half (51%) are down by 20% or more, the definition of a bear market in a stock or a market index.
Even the leaders cracked. Big chip and AI hardware names peaked in late June and have since fallen 23% to 42%. Fully 90% of chip equipment stocks are in a bear market, even though the group is up this year.
Money flows add a twist. Big money kept buying all summer. In June, July and August, inflows made up 65% to 70% of our unusual-activity signals. Then September hit. In September, big money pulled on the handbrake. Inflows fell to just 22% of signals, the worst month of the year, worse even than March.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Two things are controlling that handbrake. The first is rates. Wednesday’s CPI report came in hot. Thursday’s producer prices rose 6.3% from a year ago. The 10-year Treasury yield hit about 5.19% before easing to 5.085%. Traders now see a Fed rate hike in two weeks as close to a coin flip.
Higher rates squeeze borrowers. FINRA margin debt hit a record $1.50 trillion in June, then fell $84.8 billion in July, the biggest monthly dollar drop on record, as hedge fund Situational Awareness faced margin calls. August bounced 2.6% to $1.45 trillion. Borrowed money sells early to avoid margin calls.
Among stocks with over $2 billion in market cap, the most indebted fifth fell a median 2.9% last month while the least indebted rose 0.5%. Companies expected to post negative adjusted earnings (EBITDA) fell 12.3%. On Wednesday, high-yield, preferred and convertible bond ETFs were dumped.
Thursday showed what deleveraging looks like. AI hardware and memory stocks slid while the Dow rose 1.1% and the Russell 2000 jumped 1.4%. This year’s worst stocks rose a median 2.8%. The year’s best stocks were flat. The most shorted stocks gained 2.3%. Funds were selling their winners to cut risk, and short sellers were covering their losses.
Sectors fill in the rest. From October 12 to 15, consumer staples were the biggest net buy, with 32 inflows and one outflow, led by big-box retailers. Health care split down the middle. Providers and services drew 19 inflows and no outflows, while drug developers took 47 outflows. Financials took the worst of it, 107 outflows against 11 inflows, as brokers, asset managers and banks sold off on mixed bank earnings.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Technology made the most interesting move. Last winter, the fear was AI would replace software, the “software apocalypse.” IGV, the software ETF, fell 36%, with big money selling all the way down. The last outflow signals came on April 9 and 10, the final two-days of the drop. Then the buying started. Today IGV is up 47% from that low and sits within 7% of its all-time high. Last week, big money kept buying. Software drew 25 inflows and 9 outflows, while hardware and chip stocks took 33 outflows against 3 inflows.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The second force holding the handbrake is the midterm election, coming soon, on November 3. Prediction markets give the Democrats a 63% chance of sweeping both chambers of Congress, with chances of a Republican Senate and Democratic House much lower, 29%. A Republican sweep has an 8%-9% chance.
History says getting the election behind us matters more than who wins. I looked at every midterm result since 1990. The S&P 500 was higher six months, nine months and one year later every time, in nine cycles. The average one-year gain was +14.8%. That includes 2006, when Democrats took both chambers from a Republican president (up 6.9%), and 2018, when Democrats took the House (+12.4%).
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The War in Iran is another “brake” on the market. President Trump has said he expects a deal with Iran after the midterms. With Brent crude near $106, November 3 could lift two weights at once.
Now for the thaw… evident in three concurrent signals:
- On October 9, the Big Money Index (BMI) fell below 25% and went oversold. This is one of our strongest signals. Since 2010, the S&P 500 was higher six months, nine months, one year and two years after all 12 previous oversold readings. The average one-year gain was +21.6%.
- Outflows have been extreme, too. The 20-day average of daily outflows hit -149. Since 2002, leaving out the 2008 financial crisis, the S&P was higher two years later all 13 times, with an average gain of 42.4%.
- The calendar agrees. In seven of the last nine midterm years, the fall low came between October 2 and October 15. One year after October 16, the S&P was higher in all nine midterm years, with an average gain of 16.7%.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Thursday may have been the first heartbeat of the thawing process. Big money logged 99 inflows, the most since August 21. Inflows were 61% of signals, the first time above 50% since September 4. The BMI ticked higher for the first time in weeks, but it still remains under 25, at 24.7.
Like our frozen frog, the market had to go through its sleep cycles first. The summer fade, the September flush and this week’s deleveraging look like damage, but they’re also like antifreeze. The time for a major rally is close. We sweated through the summer. Now we are shivering… but the thaw is coming.
“Winter brings on cold weather; and we must shiver. Summer returns, with its heat; and we must sweat.”
–Seneca
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Earnings Highlights from Week #1 of Third-Quarter Results
Income Mail by Bryan Perry
It’s “Show Time” for The AI Trade
Growth Mail by Gary Alexander
Anatomy of a Scary (but Meaningless) Market Collapse 39-Years Ago Today
Global Mail by Ivan Martchev
When Junk Bonds Get Junkier
Sector Spotlight by Jason Bodner
This Market is Frozen, Not Dead
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Jason Bodner is a co-founder and co-owner of Mapsignals. Mr. Bodner is an independent contractor who is occasionally hired by Navellier & Associates to write an article and or provide opinions for possible use in articles that appear in Navellier & Associates weekly Market Mail. Mr. Bodner is not employed or affiliated with Louis Navellier, Navellier & Associates, Inc., or any other Navellier owned entity. The opinions and statements made here are those of Mr. Bodner and not necessarily those of any other persons or entities. This is not an endorsement, or solicitation or testimonial or investment advice regarding the BMI Index or any statements or recommendations or analysis in the article or the BMI Index or Mapsignals or its products or strategies.
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