CWS Market Review – October 20, 2026

The S&P 500 went 53 days in a row without a daily drop of more than 1%. Then it happened twice in three days. Last week was the worst week for the Nasdaq Composite since June.

Many AI stocks got shaken up over the last few days. Anthropic’s Q3 revenue was “allegedly” $16.8 billion. While that may sound like a lot to us mortals, some folks are getting worried about the pace of the growth of AI.

Over in the bond market, investors are starting to question CoreWeave’s sustainability. The research firm Gartner also poured cold water on the AI trade by saying that AI may not be as profitable as investors think.

Another concern about the AI buildout is that (some folks fear) it’s a one-time event. Once it’s done, AI will only need upgrades. We’ve also seen AI valuations decline in recent days. For example, the valuation of Nvidia (NVDA) has been headed downward. NVDA’s forward P/E Ratio has fallen from 23 to 15. Indeed, the stock has done very well, just not as well as its expected earnings.

Monday and Tuesday appear to have been relief rallies for AI, but there’s still a lot of nervousness out there. The S&P 500 Tech ETF (XLK) recently underperformed the S&P 500 ETF (SPY) for 10 days in a row.

There’s going to be a slew of Q3 earnings reports coming soon. Some of the biggies will be stocks like Meta (META) and Tesla (TSLA) which report this week.

This morning, we got some key earnings reports. RTX Corp. (RTX), for example, reported very good earnings. The company made $2.26 compared with expectations for $1.78. GE (GE) made $2.25 per share versus the Street’s view of $2.01 per share. GM (GM) made $3.70 per share which was a seven-cent beat, but the stock took a hit. 3M (MMM) made $2.50 per share versus $2.38. The stock rose more than 5% today. Several of our Buy List stocks will report soon as well.

I like to track how well High Beta stocks have been doing relative to Low Vol stocks. That’s a quick and easy way to see how receptive the market gods are to riskier, more speculative stocks. Since October 5, the Low Vol ETF (SPLV) has beaten up on the High Beta (SPHB) side of the market.

I’m careful not to say this is the start of a long-term sector rotation. The High Beta ETF had a nice run this summer, but that, too, was another head fake. Soon, the High Beta names re-grabbed the spotlight. The AI stocks have dominated the market for so long that it’s hard to imagine that another sector can lead the market.

More Problems for Housing

More data is coming out that’s showing serious problems for the housing market. On Tuesday, the National Association of Realtors said that pending home sales for September fell 7.3% from August. Over the last year, pending home sales are down by 11.3%.

It’s no secret as to what’s causing the problems for housing. At the start of September, mortgage rates were at 6.8%. By the end of the month, mortgage rates reached 7.6%. In the South, sales fell by 8.2% and in the West, sales were off by 9.2%.

Home construction also took a hit in September. Both single-family housing starts and building permits fell much more sharply than analysts had predicted. Starts were down 4.56% to 859,000 annualized, according to the U.S. Census. That is the lowest level since September 2025. Building permits, which are a measure of future construction, fell 4% for the month.

The National Association of Home Builders said that homebuilder confidence fell to a 14-year low. The index for housing market conditions fell 3 points to 29. That’s the lowest since June 2012. The median estimate of economists was 31. Any reading below 50 means that homebuilders see conditions as not good. Housing starts fell 4.56% to 859,000 annualized.

A measure of current sales dropped to 33 which was also a 14-year low. Sales over the next six months fell to its lowest figure since November 2022. Buying a home has simply become too expensive for many Americans and we’re now seeing prices come down. Of the homebuilders, 43% have said they’ve cut prices.

Housing is crucial to the health of the overall economy. So many different sectors are closely tied to the fate of the housing sector.

This week, Goldman Sachs said the housing market’s problems may last for a long time. The financial firm says that affordability will still be an issue in 2027. Goldman pointed out an interesting stat: “More than 95% of mortgage borrowers have interest rates below current market rates, and 65% have rates 2 percentage points below market rates.”

For next year, Goldman expects existing home sales to be 26% below the level from 2019.

The latest data also shows that homebuyers are canceling sales at a near-record pace. In September, 14.5% of homes fell out of contract. That’s the highest since the early onset of the pandemic.

There are a lot of reasons why a home can fall out of contract. Sometimes the buyers just get nervous at the high price. Even popular markets like Jacksonville, Tampa and Las Vegas have cancellation rates near 20%.

The iShares U.S. Home Construction ETF (ITB) has badly lagged the market. Over the last two years, the S&P 500 ETF (SPY) is up by 34.64% while the ITB is down by 30.19%.

Trex (TREX), a stock we used to love and which was on our Buy List, has fallen on hard times. The stock is down 60% from its 2021 high. To be fair, the stock has improved this year. Deutsche Bank recently upgraded Trex to Buy from Hold. They said that demand “appears to be turning the corner.” Trex could be a good buy once the broader sector starts getting better.

This is actually a great time to buy a home, if you’re paying all cash. That’s because the price drops are being driven by higher mortgage rates. If you don’t need to borrow, then buying now is a good deal.

According to the WSJ, “in 33 of the top 50 metro areas, luxury home prices are rising faster or falling slower than starter home prices.” In San Francisco, much of that AI wealth is going into new homes. The luxury market is up by 4.6% while the starter home market is down by 1.7%. Toll Brothers said that 25% of the company’s buyers are paying in cash.

For now, I would encourage investors to forego trying to find bargains in housing stocks. The problems in that sector are getting worse, and the Fed will most likely raised rates again before the end of the year. Don’t be fooled by low prices.

That’s all for now. This will be a big week for earnings reports. On Thursday, we’ll also get the regular jobless claims report. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

Posted by on October 20th, 2026 at 6:09 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.