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Oct-26 Outlook

TrendWell Digest: October 2026 ETF Picks

The Federal Reserve raised rates for the first time in more than three years on September 16, lifting its target range a quarter point to 3.75–4.00%, after August CPI held at 3.4% year over year as gasoline climbed nearly 4% in a single month, and 16 of 18 officials now project at least one more hike this year. Markets split along the rate line: with oil above $100 a barrel and the 10-year Treasury yield near 19-year highs, the Dow was down about 3.5% for the month by late September while an AI-driven rally carried the Nasdaq to a record close, and an October 2 jobs report showing just 29,000 jobs added and unemployment at 4.2% cooled expectations for a quick follow-up hike. This month's drivers line up with that split: an orderly front-end repricing rather than a rate shock, a tech regime the models still read as healthy, staples sliding as investors decline to pay for recession insurance, and a Dow pullback of the kind that has historically come before stronger returns. Based on 26 years of historical data (back to October 2000), when all of these predictive drivers have aligned as they do now, this group has delivered an average annualized return of 15%. Fed rate decision September 2026: Rates rise to 3.75%-4% +9

XLK — Technology Select Sector SPDR Fund

XLK tracks the S&P Technology Select Sector Index, which holds major software, hardware, and semiconductor companies.

  • Mid-cap bear odds rising: A Hidden Markov Model, an algorithm that classifies market regimes from price behavior, now puts the probability that mid-sized U.S. stocks (MDY, the S&P MidCap 400) are in a bear market at 10%, up from 2% in July. Mid-caps carry more floating-rate debt and more domestic exposure, so they feel rising yields first. When they wobble, capital has historically consolidated into large-cap tech's cash-rich balance sheets and long-term earnings growth. XLK has averaged 36% annualized when the MDY bear probability was 10% or higher, versus 8% when it read lower. That is the strongest aligned figure in this month's dataset.
  • Front-end repricing stayed orderly: The 6-month Treasury yield (WGS6MO) rose about 17 basis points over the prior month as the Fed delivered a well-telegraphed hike. Tech valuations rest on earnings far in the future, which makes them the most exposed to sudden jumps in discount rates. A measured climb leaves earnings momentum, not a rate shock, in charge. XLK has averaged 15% annualized when the WGS6MO monthly rise was 17 basis points or smaller, versus -8% when short-term yields jumped faster.
  • No crisis-style break in bill rates: The six-month change in the 1-year Treasury bill rate (DTB1YR) is holding above the deep-collapse zone that separates normal policy cycles from emergencies. With the Fed hiking, bill yields are grinding higher, not breaking lower. Genuine collapses in short-term rates happen when the Fed is cutting into a downturn, and long-duration tech has historically absorbed some of the sharpest repricing in those episodes. XLK has averaged 15% annualized when the DTB1YR reading held at this level or higher, versus -28% when it dropped below it.

XLU — Utilities Select Sector SPDR Fund

XLU tracks the S&P 500 Utilities sector, including electric utilities, multi-utilities, and independent power producers.

  • Tech regime intact, so the contagion gate stays open: The HMM regime model puts the probability that technology stocks (XLK) are in a bear market at just 9%, down slightly from 10% last month. Utilities' growth story now runs through AI data-center power demand, which ties the sector to tech's capital spending. And when tech genuinely breaks down, the selling has historically spared little. XLU has averaged 10% annualized when the XLK bear probability was 9% or lower, versus -19% when tech's bear-market odds ran higher.
  • No crowded defensive trade in healthcare: XLV (Health Care Select Sector) is up 16% over twelve months. That is a solid gain, but short of the stretched rallies that signal crowded defensive positioning. Healthcare and utilities draw on the same pool of low-volatility capital. When healthcare's run gets overextended, that money stays concentrated there and utilities lag. XLU has averaged 7% annualized when the XLV twelve-month gain was 16% or lower, versus 0% when healthcare rallied harder.

DGT — SPDR Global Dow ETF

DGT tracks the Global Dow Index, offering exposure to 150 leading large-cap companies across developed and emerging markets.

  • Bill-yield volatility stayed dormant through the hike: Three-month volatility in the 3-month Treasury yield (WGS3MO) registers just 4% of its historical norm. Markets widely expected the September hike, so bill yields climbed in an orderly drift rather than lurching. Predictable short-term dollar funding favors multinationals that borrow, hedge, and operate across currencies. DGT has averaged 13% annualized when WGS3MO volatility was this dormant or calmer, versus 3% otherwise. jpmorgan
  • Labor supply holding steady: The three-month change in the labor force participation rate (LNU01300000) is flat at 0%, and the September jobs report left participation unchanged at 61.8%. Rising participation tends to come when tight labor markets and climbing wages pull workers off the sidelines. Those conditions keep central banks leaning hawkish, a headwind for global equities. With hiring slowing and the workforce steady, that pressure is absent. DGT has averaged 8% annualized when participation held flat or slipped, versus 0% when it was rising. qz
  • No crisis-style break in bill rates: The DTB1YR six-month reading sits outside the collapse zone, and 1-year bill yields are rising alongside Fed hikes rather than plunging. Collapses in short-term rates typically signal synchronized downturns, which hit a globally diversified equity basket on every front at once. DGT has averaged 7% annualized when the DTB1YR reading held at this level or higher, versus -31% when it dropped below it.

DIA — SPDR Dow Jones Industrial Average ETF

DIA tracks the Dow Jones Industrial Average, providing exposure to 30 large U.S. blue-chip companies.

  • Staples sliding toward their lows: XLP (Consumer Staples) sits at just 29% of its 52-week price range, down from 65% a month ago. September's selling was driven by rising oil and bond yields rather than a recession scare, and staples, the classic recession hedge, slid instead of drawing safe-haven demand. When investors aren't paying up for recession insurance, the Dow's cyclical, earnings-driven franchises have historically done better. DIA has averaged 15% annualized when XLP sat this low in its range or lower, versus 6% when staples traded higher. CNBC
  • Money markets priced the follow-up hike: The prior month's change in the spread between 3-month Treasury yields and the Fed funds rate (T3MFF) widened 39%. Bill yields pulled further above the policy rate even as the Fed raised it, pricing in the additional hike the dot plot signaled. Repricing like this has historically come when growth is sturdy enough to absorb tighter policy, and the Dow's pricing-power franchises have tended to hold up in those stretches. DIA has averaged 14% annualized when T3MFF rose this much or more, versus 6% otherwise.
  • Bear odds elevated, historically a contrarian signal: The HMM regime model now assigns an 18% probability that the Dow (DIA) is in a bear market, up from 2% in July after the index's September slide. Counterintuitively, elevated bear odds have historically preceded stronger returns. They tend to follow pullbacks that reset valuations and sentiment, and the recoveries that follow lift the average. DIA has averaged 14% annualized when the model read 18% or higher, versus 6% when it read lower. CNBC

IJT — iShares S&P Small-Cap 600 Growth ETF

IJT tracks the S&P SmallCap 600 Growth Index: smaller U.S. companies with faster growth profiles.

  • No defensive bid in staples: With XLP at 29% of its 52-week range, capital isn't crowding into the market's defensive corner. That leaves risk appetite free to flow toward growth, and small-cap growth has historically been among the biggest beneficiaries of that shift. IJT has averaged 26% annualized when XLP sat this low in its range or lower, versus 8% when staples traded higher.
  • Small-cap value is chopping, not trending: A rough-path signature measure (Lévy area) gauges whether small U.S. value stocks (IJS) move in sustained trends or mean-revert. It reads -1%, which signals choppy, directionless trading. Without a momentum-driven rotation into small-cap value, capital within small caps isn't being pulled away from growth. IJT has averaged 12% annualized at this reading or lower, versus 9% otherwise, a modest edge.

Conclusion

October opens with the Fed in tightening mode and a labor market that faltered in September, leaving investors to weigh how much further the hiking cycle can run. The drivers behind this month's picks look past that debate. The front end repriced in an orderly way rather than through a shock. The regime models still classify tech as healthy. Staples' slide shows investors aren't bracing for recession. And the Dow's September pullback sits in the zone that has historically preceded stronger returns. Across AI-linked leadership in XLK, power-demand growth in XLU, global and domestic blue chips in DGT and DIA, and small-cap growth in IJT, the data points to a favorable alignment heading into the fourth quarter, and we hope your portfolio continues to TrendWell. CNBC

This article is for informational purposes only and does not constitute financial advice.

Sources:

  • CNBC, "Fed approves interest rate hike, signals one more to come this year," September 16, 2026 (cnbc.com)
  • J.P. Morgan Asset Management, "FOMC Statement: September 2026," September 2026 (am.jpmorgan.com)
  • Charles Schwab, "Fed Hikes in 12-0 Vote, Commits to Inflation Fight," September 16, 2026 (schwab.com)
  • Yahoo Finance, "Fed meeting live updates: Fed hikes interest rates by 25 basis points," September 16, 2026 (finance.yahoo.com)
  • CNBC, "Here's the inflation breakdown for August 2026 — in one chart," September 11, 2026 (cnbc.com)
  • CNBC, "Dow posts back-to-back losses as Treasury yields continue their ascent," September 29, 2026 (cnbc.com)
  • CNBC, "Nasdaq jumps 2% to close at a record, buoyed by surge in AI stocks," September 21, 2026 (cnbc.com)
  • CNBC, "Labor market faltered in September as jobs increased by just 29,000," October 2, 2026 (cnbc.com)
  • Quartz, "U.S. economy added 29,000 jobs in September," October 2, 2026 (qz.com)
  • Fox Business, "September jobs report: US economy added jobs at a slower pace amid uncertainty," October 2, 2026 (foxbusiness.com)