by Jason Bodner
September 22, 2026
When the light is low, our eyes shift from cones to rods. While our cones handle all colors in brightly lit conditions, our rods take over in the dark. Known as the Purkinje Effect, vivid reds nearly disappear, and blues and greens become more visible. Your eyes are working fine, but the light conditions change.
What you see depends on how your eyes reflect the same reality – not just what is (objectively) “there.”
Many investors look at the major indexes – now within 3% of all-time highs – and assume everything looks fine. But if you scan 5,000+ individual stocks, as I do each week, a very different picture emerges.
Our “cones” see indications of a stealth bear market threat, as 49% of the publicly traded companies in my universe are down 20% or more from their 52-week highs. That is a bear market (for those stocks), by definition. Thursday’s relief rally barely moved the needle, shaving the number by roughly one and a half percentage points. A quiet bear is coming awake, but you need night vision to see it. The average stock is 19% off its high. A cap-weighted index is up nearly 20%, year-to-date, but the median stock is up just 5%.
The damage resembles a staircase (charted below). Bigger companies have fallen less. Smaller companies are hit harder. Mega-caps are down a median 13% from their highs, with 28% in bear market territory. Large-caps are down 15%, with 38% down 20% or more. Mid-caps are down 18%, with near half in bear markets. Small-caps are down 20%, half below the threshold. Micro-caps are down 31%, with 58% in bear territory. Technology is worse: 70% of technology names are in bear markets, with the median technology stock -34%.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Two fundamentals indicate some market damage ahead. Profitability matters most: profitable micro-caps are down by an average 11% from their highs, while unprofitable micro-caps are down 52%, a 40-point spread driven mostly by whether the business makes money. Debt compounds the loss: Small and micro-cap companies with high leverage are down a median 36%, with nearly three-quarters in bear territory.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Financials are down less, by a median 5%, with only 19% in bear market territory. Financials, energy, and healthcare are where institutional money has been hiding. Most other sectors have been quietly suffering.
September’s Internal Market Moves
Since August 31st, eight of 14-sessions produced 100+ outflows, the biggest cluster of extreme selling since the March capitulation. In March, a similar bout ran 12-sessions before the March 20 low, which produced 337 outflows and marked the exact bottom. But…the S&P 500 was 9% higher one-month later.
The Big Money Index (BMI) differs somewhat from the decline before March 20th. Then, the BMI fell from 65% to 42%. Now, it has dropped less, from 69% to 51%. That’s still painful, but above the typical bear-market threshold. This might be why the major indexes haven’t cracked yet.
Since 1990, there were 765-sessions with 100 or more institutional outflows. That’s just once each 12-days, or 8.3% of all trading days in 36-years. Forward returns are positive at every horizon: one-week later, one-month, three-months, six-months, one-year and two-years. The two-year average return is 21%.
This historical record says any pain has usually been temporary; and recovery has usually followed.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
History also shows what index (and sector) comes back the fastest. Across nine midterm election cycles since 1990, the NASDAQ 100 averaged +37.4% in the year following Election Day – more than double the Dow’s 12.4% and well ahead of the S&P 500’s 14.5%. Growth leads the recovery. Every time.
The stocks most beaten up today are rate-sensitive, but fundamentally sound stocks provide the profile that has snapped back the hardest when midterm uncertainty clears. Growth leads. It is not even close.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Our 36-years of daily data show which weeks carry most weight in midterm years. Late September (weeks #3 and #4) are the weakest, with negative average daily returns, with less than 47% of days positive. We are in that bottom-fishing window right now. Then, things could get worse, short-term:
October’s first week is historically the worst week of October, with a negative 0.49% average, positive only 36% of the time. That is typically when midterm year lows are made, but October’s third-week is the strongest, with a +0.62% average move. The turn happens fast. November in midterm years has been positive across all four-weeks, with week #4 averaging a 69% win rate. That is when the rally locks in.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The prediction markets now price the chances of a Democratic Senate at 60% on Polymarket and 55% on Kalshi. This is the first time Democrats have led the polls on either platform. A year ago, Republicans had an 80% chance to hold the Senate. (Take these numbers with a grain of salt. Polymarket gave the next Pope a 0.3% probability just before he was announced – so a 60% reading seven-weeks from Election Day is a forecast, not a verdict). What matters for markets is not who wins, but that nobody knows yet. Uncertainty is what Wall Street prices (and hates). Resolution is what historically unlocks the Q4 rally.
Major Money Flows Last Week
Energy was the only positive S&P sector last week, its second-straight week as the sole net buyer. Eight of 14 sessions since August 31 had 100-plus outflows. Sellers are everywhere, but they are getting tired.
Over 120-fixed income ETFs saw outflows, and 60+ equity ETFs were sold. Only energy, cybersecurity, crypto, and mega-cap technology attracted buyers last week. The market is not rotating. It is sheltering.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
When will the market bottom before the election? I’ll forecast October 6th, when three independent signals converge: (1) The BMI is dropping roughly 1.5 points per session. At that pace it hits the 42-48% range, where prior mid-bull corrections have bottomed (including March 20th) in the first week of October; (2) 36-years of seasonality says October Week 1 is the worst week of a midterm year, and (3) the current cluster of 100+ outflow days is now at eight sessions. The March cluster ran 12 before the bottom.
All three indicators point to the same window. October 6th is a Tuesday. The market opens. Sellers have all sold. The historical data hints that two-weeks from today is where this mini-correction ends.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Sorry, wife (October 6 is our anniversary), but this is our Purkinje moment. Our eyes are adjusting in the dark, but that condition is temporary. When light normalizes, normal vision returns and colors come back.
The hidden bear is real. The breadth damage is real. The oil shock, rate pressure and political uncertainty are real. We’re in the historically most volatile stretch of the four-year presidential cycle, but history says early October is the capitulation window. Week #3 is where it flips. November is when we make money.
“We cannot choose our external circumstances, but we can always choose how we respond to them.”
– Epictetus
Examining the data is our rational response now. The data knows where this market goes next.
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
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A Look Ahead by Louis Navellier
Is Canada Splitting Up – or Joining the European Union?
Income Mail by Bryan Perry
What’s Working and What’s Not in the Current Market Landscape
Growth Mail by Gary Alexander
Fed Chair Warsh Delivers a Fresh, Clear Perspective
Global Mail by Ivan Martchev
Most Markets Expect More Rate Hikes
Sector Spotlight by Jason Bodner
When Lights are Low, Our Vision Must Adjust
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Jason Bodner
MARKETMAIL EDITOR FOR SECTOR SPOTLIGHT
Jason Bodner writes Sector Spotlight in the weekly Marketmail publication and has authored several white papers for the company. He is also Co-Founder of Macro Analytics for Professionals which produces proprietary equity accumulation and distribution research for its clients. Previously, Mr. Bodner served as Director of European Equity Derivatives for Cantor Fitzgerald Europe in London, then moved to the role of Head of Equity Derivatives North America for the same company in New York. He also served as S.V.P. Equity Derivatives for Jefferies, LLC. He received a B.S. in business administration in 1996, with honors, from Skidmore College as a member of the Periclean Honors Society. All content of “Sector Spotlight” represents the opinion of Jason Bodner
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