Ninety Days From Today

This is the second installment of a series I started on September 3. Same calendar discipline, same premise, new window. Ninety days from this morning is December 17.

The window is unusually well furnished, so let me put the furniture in the room before I say anything else. The Federal Reserve meets twice between here and there: October 27-28, which the market expects it to skip, and December 8-9, which comes with a fresh Summary of Economic Projections and is the meeting that will decide what the year looked like. In between sit a midterm election on November 3, three inflation reports (October 14, November 10, December 10), three employment reports (October 2, November 6, December 4), the minutes of this week’s Fed meeting on October 7, the Treasury’s quarterly refunding on November 4 (Treasury tentative auction schedule), third-quarter earnings season opening on October 13 with JPMorgan and peaking in the last week of October, and a government funding deadline on December 11. Read those last three dates in sequence: the Fed decides on December 9, inflation prints on December 10, and the continuing resolution expires on December 11. That is the whole year’s argument compressed into seventy-two hours, and it lands six days before this window closes.

Three things have changed since the last installment, and all three matter more than the calendar.

The first is that the Fed hiked. On September 16, by a quarter point, to a target range of 3.75% to 4%, on a 12-0 vote. It was the first increase since 2023, and it was unanimous (Federal Reserve). The September 3 piece said a hike was coming and that the market was pricing roughly a two-thirds chance of it; the market was right and so was the piece. The committee’s own words were unflinching: “Inflation remains elevated. Today’s policy action will support a timelier return to the Committee’s 2 percent goal.”

The second is that the war did not improve. This morning is Day 203. Traffic through the Strait of Hormuz is running at about a fifth of the roughly 73 tanker and cargo crossings a day that IMF PortWatch treats as the pre-crisis normal, and the attacks are not slowing: the UK Maritime Trade Operations reported a tanker struck by an unknown projectile on Thursday, and Iran’s Revolutionary Guard claimed a hit on a Togo-flagged vessel attempting what it called an “illegal passage” (Al Jazeera; Political.org Hormuz tracker). Brent traded above $104 on Friday morning after Saudi Arabia and Yemen’s Houthis exchanged cross-border strikes (CNBC). The president says he is nearing a decision on whether to “annihilate” Iran’s leadership.

And the third thing, which is the reason for the subtitle: the index is 2.1% below its record rather than near it, the VIX is still in the teens, and the strategist community spent the first half of September taking targets down. Something is being repriced. This article is about what, and how far it goes by December 17.

Where the Market Stands Today

The numbers as of Thursday’s close:

  • The S&P 500 closed at 7,637.76 on September 17, up 1.1% on the day, 11.6% higher for the year to date, and 2.1% below the record close of 7,798.99 set on August 13 (AP; FRED).
  • The VIX closed at 15.44, down from 17.71 the day before, and still a long way from the 2026 low of 14.2 set on August 14 (FRED).
  • The forward 12-month P/E is 19.1, below the five-year average of 19.8 and barely above the ten-year average of 19.0. The trailing multiple is 25.5 (FactSet).
  • Earnings estimates have been doing the work. Since June 30 the index is up 1.8% while the forward earnings estimate is up 8.8%. That is multiple compression with a rising price, which is a better story than the reverse (FactSet).
  • The 10-year Treasury touched 5.041% on Tuesday, its highest level since July 2007, closed the week’s Fed session at 5.01%, and traded back near 4.95% on Friday morning (CNBC; FRED).
  • The one-month rolling correlation between front-month WTI and the 10-year yield is 0.96, per BMO Capital Markets. Oil and the discount rate have stopped being two variables (CNBC).
  • Strategists have started trimming. Ed Yardeni cut his year-end target to 7,900 from 8,400, moving the old number to mid-2027. Wells Fargo cut to 7,700 from 7,950, citing limited catalysts and rising political risk. Barclays had raised to 7,950 a week earlier (CNBC; Reuters; Reuters).
  • The dispersion is the story: the published 2026 targets run from BofA’s 7,100 to Citi’s, HSBC’s, and UBS’s 8,100, a thousand-point spread under a single year-end label (Reuters factbox).
  • And then there is the bottom-up target: the aggregate of individual analyst price targets for the 500 constituents is 9,260.67, which is 21.2% above Thursday’s close (FactSet).
  • The consumer is deteriorating faster than the index is. The University of Michigan’s preliminary September sentiment index fell to 47.8 against expectations of 51.0, the second consecutive monthly decline. One-year inflation expectations jumped to 4.6% from 4.0% (Trading Economics; Advisor Perspectives).
  • Gasoline averages $4.44 a gallon and diesel set another record at nearly $6.40. The average 30-year mortgage rose to 6.95%, the highest since January 2025 and the biggest one-week jump in over a year (Investopedia).

Put the eighth and ninth bullets side by side. Sell-side analysts think the average stock in the index is worth 21% more than it costs, while index strategists cannot agree within a thousand points on what the index itself will do in three months. Both cannot be right, and the gap between them is the honest measure of how little anyone knows right now.

The Complacency Problem

Last cycle I quoted BTIG’s Jonathan Krinsky on complacency, and the data point was the VIX at 14.2 during a shooting war. That reading has been superseded, and the replacement is, if anything, more interesting.

On Wednesday the Fed hiked, unanimously, into 3.4% inflation, and the S&P fell 0.5%. On Thursday, technology stocks led the index up 1.1% and the fear gauge fell 2.3 points. Read that sequence carefully. The market absorbed a hawkish Fed, a war in its seventh month, oil above $100, and a 10-year yield at a 19-year high, and its response was to buy semiconductors and stop paying for insurance (CNBC; Investopedia).

Brian Levitt of Invesco gave the cleanest articulation of what is actually going on, on CNBC’s “Closing Bell”: “This one, I don’t think it’s going to end with the higher Fed funds rate necessarily anytime soon, or higher oil prices. It’s going to end when something breaks in the AI trade.” That is not a bullish statement. It is a statement that the index has exactly one load-bearing wall, and the market knows it, and the market has decided that as long as the wall holds, nothing else in the building counts.

The breadth data agree with him. Thursday’s rally came from Information Technology, up 2.1%, with nine of eleven sectors green. But the Dow is on track for a third consecutive losing week, and for the year it is up 7.7% against the S&P’s 11.6% and the Nasdaq’s 13.7% (AP). The index is not being carried by an economy. It is being carried by a sector, and by a handful of names inside that sector, and the mechanism by which that becomes a problem is not mysterious. It is arithmetic.

What a Rate Hike Does to an Index Priced for AI

Here is where the argument gets less comfortable for both bulls and bears, because the valuation data cut against the simplest version of the bear case.

At 19.1 times forward earnings, the S&P 500 is not priced at a crazy multiple. It is priced below its five-year average. If you want to say the market is expensive, you have to say it about the trailing number, 25.5, and about a handful of individual stocks, and you have to say it while conceding that the multiple has fallen all year while the index rose. The earnings did the work. That is the healthy version of a bull market.

Which is exactly why the next six weeks are the whole story, and why the risk is concentrated in a way the multiple does not capture.

FactSet’s bottom-up numbers say the S&P 500 is expected to grow third-quarter earnings 28.9% year-over-year on 11.9% revenue growth (FactSet). Look at the composition and the quality drops fast. The Energy sector is expected to grow earnings 109.6%, because the average oil price this quarter is $84.39 against $64.97 a year ago. Information Technology is expected to grow 63.3%, and if you exclude semiconductors that falls to 24.2%. Communication Services is expected to grow 51.0%, and if you exclude Meta and EchoStar it falls to 11.8%. Only five of eleven sectors are expected to reach double-digit growth. And the guidance picture is already bright: 63% of companies that issued third-quarter guidance issued positive guidance, against a five-year average of 41%. Elevated expectations going in are not the same thing as an elevated bar cleared.

Now apply the discount rate. A 19.1 multiple on earnings that arrive mostly in 2027 and beyond is a claim whose value moves with the long bond, and the long bond has moved more than half a point since the end of June, from 4.44% to just over 5%. The 10-year went from 4.77% on September 3 to a 5.041% intraday high on Tuesday, its highest level since July 2007, before falling back under 5% on Thursday and trading near 4.95% on Friday morning (FRED; CNBC). The 2-year closed the Fed session at 4.74% and the 30-year at 5.35% (FRED; FRED). And because oil and yields are now 0.96 correlated, every escalation in the Gulf arrives at the valuation model twice: once through the energy earnings that are inflating the growth rate, and once through the discount rate that is deflating everything else.

The Fed’s own projections say the market should expect more of this. Sixteen of eighteen participants see at least one further increase this year, and the median year-end projection sits in the low 4% range, implying one more quarter-point move (Reuters; Federal Reserve SEP). Kay Haigh of Goldman Sachs Asset Management reads the calendar the way I do: the committee will likely skip October because of its proximity to the midterm election, and December is the live meeting (CNBC). Futures markets have taken the hint, pricing the effective rate near 4.2% by December (StreetStats).

So the December 9 decision is the one that matters, and it is followed the next morning by the November inflation report and the morning after that by the expiration of federal funding. A hike into a market that has just been handed a hot inflation print and a shutdown standoff is the specific configuration this window is built to contain. That is not a prediction. It is a description of where the furniture is.

The Corruption Premium

The standing question in this series is whether the quality of the government writing the rules has started showing up in the cost of capital. Six months ago that was an argument about norms. It is now an argument about money, and the amounts are no longer small.

Start with the refunds. The Supreme Court’s February ruling invalidated the tariffs imposed under the International Emergency Economic Powers Act, and the Court did not decide what happens to the roughly $133.5 billion that had already been collected. That money is now working its way back through CBP’s CAPE process, an estimated $165 billion with statutory interest, on entry-by-entry deadlines that most importers are not equipped to track; as of late August, CBP stopped accepting refund claims through the ordinary post-summary-correction channel entirely (Strix Customs; NPR). A $165 billion transfer resolved by administrative procedure, on a clock, is a corruption risk all by itself, and nobody has claimed otherwise.

Then note how the authority was replaced. Within days of the ruling the administration imposed a 10% global surcharge under Section 122 of the Trade Act of 1974, a provision that authorizes a temporary balance-of-payments surcharge for a maximum of 150 days. The surcharge took effect February 24 and expired July 24. The Court of International Trade struck it down on May 7, and that ruling is stayed on appeal (Strix Customs). Read the statutory clock: emergency power used to accomplish on a deadline what the Supreme Court said could not be done permanently.

Then note how the pressure escalates when the money runs out. On September 8 the president signed five proclamations under Section 338 of the Tariff Act of 1930, a 1930 statute that permits both additional duties on a country found to discriminate against American commerce and, where the discrimination continues, the exclusion of that country’s goods from importation. Two of the proclamations widened the existing 50% duty on Canadian goods on September 15. The other three do something categorically different: effective September 29, they stop being tariffs and become an outright import ban on most Canadian alcoholic beverages, certain dairy products, and motor vehicles (EY; CBP CSMS #69851916 via Strix). There is no rate an importer can elect to pay. The in-transit rule turns on the date of importation, not the date of filing, which means the compliance document that matters most this quarter is a bill of lading.

And then note the enforcement side. Executive Order 14411, signed June 3, directed a hardening of customs enforcement. Its most consequential implementation begins today: CBP may void an importer of record number immediately if the Form 5106 on file is inaccurate or incomplete, with no warning letter and no cure period (CBP; Strix Customs). Importing privileges are now a permission that can be withdrawn administratively, on a determination, without a hearing. Every one of those words does work in a value-of-rule-of-law calculation.

Which brings us to the part the tariff debate keeps stepping around. Senate Democrats documented in February that the exemption process had “lacked transparency and procedural fairness,” that it “appears to favor the politically connected,” and ProPublica found connected firms benefiting from decisions made amid secrecy and confusion (NPR; ProPublica). Since then the Senate has opened specific inquiries: Senators Warren, Blumenthal, and Kim wrote to a Korean conglomerate about a $2 million payment to a Trump company made while the firm was under investigation for possible efforts to avoid tariffs, and questioned Belgian diamond interests about a “huge gold ring” gifted to the president ahead of an exemption decision, demanding answers by August 24 (Warren, Blumenthal & Kim; Warren & Blumenthal). These are allegations in letters, not findings. They are also the exact channel through which tariff policy stops being trade policy and becomes a license-granting regime, and the market has no line item for it.

Finally, the Fed, where the news this month is better than the news elsewhere. Kevin Warsh raised rates unanimously and told reporters that “inflation is too high and has been for too long.” The president responded by blasting the Fed’s board, sparing his own chair, and repeating his demand that rates be 1% or lower (NYT; The Hill; KPMG). The institutional read is genuinely reassuring: the committee voted 12-0 and the pressure did not produce the outcome the pressure wanted. The structural read is less so. The president is still attempting to remove a sitting governor from the Board, an effort the Supreme Court blocked in June and which the administration renewed in August (SCOTUSblog; Brookings). Independence is being tested on a schedule, and the test that matters is the one that happens when the vote is not unanimous.

Emerging markets have always traded at a discount for this. The United States has not, because the assumption underneath every valuation model here is that the rules are stable and the referee is neutral. A market trading at 19 times forward earnings, with a thousand-point spread among strategists and a 21% bottom-up target from the analysts who actually do the work, is a market that has not yet decided what to charge for a referee who keeps getting phone calls. My civic case against corruption on this site is not a separate subject from my investing case (The Price of Silence in a Corrupt Nation). It is the same subject with different arithmetic.

The Ninety-Day Map

Take the premise seriously: no improvement, no breakthrough, no reopening of the strait. Here is the path from September 18 to December 17.

September 29. The Canadian import bans take effect. This is a small share of the economy and a large share of the story, because it is the first time in this cycle that trade policy has stopped being expensive and become prohibitive. Watch whether the October 14 inflation report starts picking up food and beverage prices that the tariffs did not previously reach.

October 2 through October 14. The employment report, the September FOMC minutes, and the September CPI all land inside twelve days. The minutes matter more than usual: sixteen of eighteen participants projected another hike, and the argument inside the committee will be visible. Then earnings season opens on October 13 with JPMorgan, and by the last week of October the AI complex reports. A 7% pullback from the August 13 record takes the index to roughly 7,250. Krinsky’s midterm-year seasonality runs through mid-October, and it has not fired yet (CNBC). There is still time on the calendar for it.

October 27-28. The Fed meets and, if Goldman is right, skips. The skip is not a pivot; it is a deferral, and the market’s record this year is to treat every deferral as a pivot for about six sessions. Expect the usual two-step: a relief rally on the hold, then a slow realization that the December meeting is still live.

November 3 and November 4. The midterm election, then the Treasury’s quarterly refunding announcement the next morning (Treasury). The historical sequel to a midterm-year pullback is one of the strongest twelve-month stretches in the cycle, and strategists will lean on it hard. The sequel assumes the shock passes. A refunding that has to fund a war in its tenth month, into a Treasury market that demanded a 5.041% yield on Tuesday, does not get the standard sequel for free.

November 6 through November 18. The October employment report, the October CPI on November 10, and Nvidia’s quarter on November 18 (Finance Calendar). This is the three-week stretch where the AI earnings story either confirms the year or breaks it. If the quarter is strong and guidance holds, the melt-up case below becomes the base case.

December 4 through December 11. Here is the cluster. November employment on December 4. The Fed on December 8-9, with a fresh dot plot, at a meeting where a hike is the market’s base case. The November CPI on December 10 at 8:30 in the morning. And the continuing resolution, which currently funds the government through December 11, expiring the next day (Congress.net; GovConWire). A rate hike, an inflation print, and a funding cliff inside seventy-two hours, three weeks after an election whose result will determine who has to negotiate the last of the three.

That is the base case, and it lands the index somewhere between 7,200 and 7,650, a market that has spent its 2026 gains on purpose and its composure by accident, with a VIX that no longer lives in the teens. Two branches sit on either side of it.

The escalation branch. A full closure of Hormuz, or strikes that draw Iran’s neighbors in directly, is the 1973 scenario. It is worth stating plainly what that precedent says, because the number is not a rounding error: from its January 11, 1973 peak to its October 3, 1974 trough, the S&P 500 fell 48.2% over 630 days, and the round trip back to the old high took more than nine years (History of Market). The Volcker precedent is the more instructive one this time, because it is not about the oil shock itself but about what the central bank does when the shock will not leave. The tightening began in 1979 and produced its market damage later: from November 28, 1980 to August 12, 1982, with the federal funds rate pushed toward 20% to break inflation, the S&P fell 27.1% (History of Market; Forbes/Marotta). That is the shape of the risk in front of us: not a single crash but a long grind in which the multiple and the earnings meet somewhere in the middle and the Fed is the reason. There is a milder analog if the shock stays contained: in 1990, after Iraq invaded Kuwait, the S&P fell 19.9% between its July peak and October 11 (A Wealth of Common Sense). A 19.9% decline from the August 13 record is roughly 6,250.

The paradox branch. And here is the humility clause. The earnings are real, the multiple is not stretched by the standards of the last five years, and the index has absorbed a hawkish Fed, a 19-year high in the 10-year, and a war without breaking. If the third quarter delivers a genuine beat and the Fed holds in December while inflation finally rolls over on the back of a softer oil price, the twelve-week inflow pattern could roll straight through the seasonality and take the index to a new record before the year ends. UBS’s Mark Haefele argued exactly this on Thursday, and he is not being naive: “rate hikes will not produce more oil or chips… we believe the fundamental supports for the rally remain intact” (CNBC). The point of the map is not that the bear case is certain. It is that the base case now carries a dated, scheduled set of events that could each go wrong, while the upside case requires all of them to go right.

What a Careful Investor Does

The playbook rhymes with the bond article’s, because it is the same storm seen from a different window. Four of these carried over from September unchanged; the fifth has been rewritten, because the calendar changed underneath it.

  • Do not sell the core; shrink the froth. Rebalancing into strength is not market timing. The index is 2.1% below a record that was set five weeks ago, which means the harvest is smaller than it was, and that is an argument for being earlier rather than later. The goal is not to be out of the market. It is to make sure no single drawdown can take you out of the game.
  • Tilt toward quality, not story. When the discount rate rises, the stocks that suffer first are the ones whose value lives entirely in the future. The numbers above make the point better than I can: information technology grows earnings 63.3% with semiconductors and 24.2% without them. Own the ones with current earnings, pricing power, and modest debt, and know which side of that split you are on.
  • Own some energy deliberately. It is the one sector that pays you for the premise of this article, growing earnings 109.6% on oil prices 30% above year-ago levels. A sleeve of energy exposure is not a prediction that the strait closes. It is a hedge against the scenario where it does, and a partial offset to the discount-rate damage if it does not.
  • Automate the buying. Dollar-cost averaging is the house recommendation for a reason, and the 1970s supply the proof: an investor who added $200 a month through the 1973-74 crash reached break-even earlier than the lump-sum investor, because the darkest months bought the most shares (PortfolioCalc). You cannot time the bottom. You can schedule it out of existence.
  • Buy duration in your cash, not just in your stocks. This is the new one, and it follows from the calendar rather than from a view. December 9, 10, and 11 arrive in a row. If you are going to hold dry powder for the paradox branch, put it somewhere that pays you something while it waits, because the alternative is holding it in an account yielding nothing while the policy rate sits at 4%. Cash that earns is a position. Cash that does not is a leak.

The Long Way of Saying It

The S&P 500 is not priced for the world it is in, but it is not priced stupidly either, and the difference matters. The forward multiple is 19.1, below its five-year average, because earnings grew faster than prices all year. What the index is priced for is continuity: that the AI earnings arrive, that the Fed stops at two hikes, that the consumer keeps spending through a 4.6% expected inflation rate and a nearly $6.40 gallon of diesel, and that the rules governing trade and money stay stable enough that nobody has to think about them. Every one of those assumptions has a date on it between here and December 17.

The market has already started to argue with itself about the price of that continuity. You can see it in the strategists who cut their targets in the same week that the bottom-up analysts kept their 21% upside, in a VIX that falls on the day after a hawkish Fed, in a Dow losing three straight weeks while the index it belongs to sits two percent off a record. Something is being repriced. Ninety days from today we will know what.

The storm does not send invitations, but it does keep appointments, and this one has three of them in the second week of December. Build the defenses before the lightning strikes.

PRH | huffmanwrites.org | © Philip Huffman

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