Is There An Ambush Coming?

*Analyzing the markets with Richie Naso, a Wall Street veteran of over 40 years and former member of the NYSE.

DJIA 52-wk: +9.30% | YTD: +8.70% | Wkly: -0.15%

S&P 500 52-wk: +15.78% | YTD: +12.96% | Wkly: -0.31%

NASDAQ 52-wk: +24.09% | YTD: +16.43% | Wkly: -0.65%

iShares Expanded Tech-Software Sector ETF 52-wk: +28.83% | YTD: +14.83% | Wkly: -1.89%

Market Performance & Index Moves

On Friday, September 26, the major U.S. indexes rebounded: S&P 500 up +0.6%, Dow +0.7%, Nasdaq +0.4%. AP News

Despite that bounce, for the full week:

• S&P 500 posted a slight loss, down ~0.3% AP News

• Nasdaq declined ~0.7% AP News

• Dow was nearly flat, off ~0.1% AP News

Smaller stocks (Russell 2000) declined ~0.6% for the week, despite a 1% gain on Friday. AP News

🔑 Key Drivers & Themes

Inflation / PCE Data & Fed Expectations

Encouraging inflation data (PCE) helped lift sentiment, reinforcing hope for continued interest rate cuts. AP News+1

Tariff / Policy Noise

Some new tariff announcements by the administration drew attention, but markets largely shrugged them off on Friday. AP News+1

Breadth & Leadership Divergence

While major indices held up, a narrowing in participation was evident. Many stocks lagged behind the tech/large-cap leaders. The Wall Street Journal+1

Upgraded Targets / Optimism

BMO Capital Markets raised its year-end S&P 500 target to 7,000, citing strong fundamentals and a favorable rate environment. Reuters

⚠️ Risks & What to Watch

Any upset inflation surprises could challenge hopes for future rate cuts.

Continued policy or tariff headlines may spark volatility.

If narrow leadership falters (i.e. tech or a few big names), broader indices might struggle.

Upcoming economic data—PMI, consumer spending, durable goods—and Fed commentary will influence direction.

The stock market looks like it’s suffering from one of its periodic run-of-the-mill pullbacks. The S&P 500 index fell only 0.2% and 0.3% respectively, this past week, while the Nasdaq Composite dropped 0.7%--and all three remain near record highs.

Zoom in, however, and the damage is worse than the headline numbers suggest. The Roundhill Mag Seven exchange-traded fund was off about 1%, with Amazon, GOOG and Meta, in particular, taking it on the chin.

The pullback is a sign that investors might want to consider broadening theif portfolios beyond the frothiest AI plays. “It’s a tricky time for stocks,” says Katy Kaminski, chief research strategist at AlphaSimplex. “There is definitely a concern about hype.”

Shareholder Yields Are Better Than Dividend Yields. 10 Stocks That Fit the Bill.

Picking stocks with high dividend yields is a time-tested strategy. Yet picking stocks with high shareholder yields can be a better bet.

Exchange-traded funds like Schwab US Dividend Equity and Vanguard High Dividend Yield, and strategies like the Dogs of the Dow—which calls for buying the 10 highest-yielding stocks in the Dow Jones Industrial Average—offer contrarian value-oriented strategies that could pay, well, dividends over the long run.

There’s just one problem: Focusing on dividends includes only one form of capital returns. Companies have other ways to put cash in shareholders’ hands, including debt paydowns and stock buybacks —and the latter, in particular, is too important to ignore. Total shareholder yield, a metric that combines dividends and share repurchases, provides a better picture of a management team’s overall capital-return strategy.

Take General Motors. While its stock yields just 1%, the company has bought back almost $8 billion worth of its stock over the past 12 months, 14% of the current market value. Add them together, and GM’s total shareholder yield is 15%. But focusing on yield isn’t enough—the buybacks should be coming out of net income. That isn’t the case with GM, which has returned about $8.4 billion to shareholders over the past 12 months but produced only $7 billion in net income. While GM’s balance sheet appears fine, borrowing money to buy back stock can be a risky idea.

We prefer the 10 stocks in the S&P 500 with the highest shareholder yield but also the net income to cover the payouts: Comcast, Molson Coors Beverage, General Mills, Kraft Heinz, printer maker HP, U.S. oil-and-gas producers Devon Energy and EOG Resources, home builder Lennar, oil-services company Halliburton, and resin and synthetic fiber maker Eastman Chemical.

It’s a solid group of stocks. Their average dividend yield is about 4%, more than three times the S&P 500’s 1.2%, while total shareholder yield is north of 9%, three times the S&P 500’s 2.8%. The stocks also look cheap—they trade for about 10 times estimated 2026 earnings, less than half the S&P 500’s 22 times. Their problem is capital gains: Through last week, shares of the group were down an average of 14% year to date, while the S&P 500 has gained 13%.

That shouldn’t surprise anyone who has been watching the stock market this year. Investors want artificial intelligence—and only artificial intelligence. The Magnificent Seven stocks now account for roughly one-third of the market value of the S&P 500, and that group’s dividend yield is 0.2% and its shareholder yield is 1.5%, helped by some $155 billion spent on share repurchases over the past 12 months by Apple and Alphabet. Nor is this a recent phenomenon: The MSCI USA Total Shareholder Yield Index has trailed the broader MSCI USA Index by almost two percentage points a year for the past 10 years.

But the more AI stocks run, the better the 10 shareholder-yielding dogs look, with their low valuations and management teams dedicated to returning capital to owners. Eventually, things normalize, and it pays to remember that the MSCI USA Total Shareholder Index has beaten the total MSCI U.S. index by a nose since 1999. Falling interest rates could serve as a catalyst, making higher yields look relatively attractive, as could the popping of the AI bubble.

“We’ve been beaten up every time we try to pivot to value, so when the heck is the market going to let value investors have their day in the sun?” says Research Affiliates founder Rob Arnott. “The short answer to that is, I don’t know, nobody knows, but if it’s cheap enough and you’re patient, the long-term inevitable outcome is superior performance.”

Investors don’t have to pick stocks to get shareholder yield. The WisdomTree U.S. Value ETF has a shareholder yield of close to 7%, higher than the roughly 4% shareholder yield of the Russell 1000 Value index. The Cambria Shareholder Yield ETF selects stocks based on dividends, share repurchases, and debt reduction, and has a shareholder yield of about 3.5%.

As for generating income, stock buybacks should result in higher share prices. The value of the company is unchanged, but total shares outstanding are reduced. Income-seeking investors can sell when they need cash, which shouldn’t be a problem given that both qualifying dividends and long-term capital gains are currently taxed at a top 20% rate.

For long-term investors interested in income, there is rarely a bad time to buy quality stocks returning cash to shareholders at reasonable prices.

of the historical returns occur overnight:

On days when ES spends most or all day selling and downside momentum is strong, the short squeeze often occurs after 3:30PM around the close and continues into the evening. This is due to a well-known tendency in ES where 100% of the historical returns occur overnight:

What I’m focusing on this week

Key Focus Areas

Jobs / Labor Data

The upcoming U.S. nonfarm payrolls and unemployment rate reports will likely be a major market mover. Markets are watching closely for signs of labor cooling to validate further Fed cuts. Reuters

If job growth remains strong, it could reduce expectations for aggressive rate cuts later in the year.

Inflation / Price Measures

Core inflation metrics (CPI, PCE) are critical. Sticky or rising inflation could complicate the Fed’s ability to cut further. Reuters+2Reuters+2

Watch for “surprise” inflation components in services, energy, or tariffs.

Federal Reserve Commentary / Forward Guidance

Speeches from Fed officials and any incremental guidance about future rate cuts will be parsed heavily.

Markets are watching whether cuts are paced gradually or more aggressively. Financial Times+1

Tariff / Trade Developments

New tariffs and trade policy announcements (e.g. import controls, sector tariffs) may shake sectors sensitive to global supply chains and cost pressures. The Washington Post+1

How companies manage rising input costs or pass them on to consumers will be under scrutiny.

Earnings Surprises & Sector Rotation

Earnings from key sectors (tech, industrials, consumer discretionary) remain important. A miss or beat may drive rotation.

In past weeks, tech / AI names have been strong drivers; next week may test whether strength broadens beyond that.

Valuation Pressure & Consolidation Risk

With many indexes near all-time highs, markets may pause or consolidate. Stretch valuations leave less margin for error. Barron's+1

Confirmation of support levels and breadth metrics will be useful to watch.

Volatility Could Return

Goldman Sachs recently warned about a possible return of volatility in October. The Economic Times

Given tight valuations and macro uncertainty, transitions may be sharp if surprises emerge.

The stock market looks very stretched to me.

— Richie

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