….

All Along the Watchtower

Song by The Jimi Hendrix Experience (1968)

 “There must be some kind of way out of here”

Said the joker to the thief

“There’s too much confusion

I can’t get no relief

Businessmen, they drink my wine

Plowmen dig my earth

None will level on the line

Nobody offered his word”

…

Introduction

“There’s too much confusion, I can’t get no relief.” Hendrix wasn’t writing about global markets, but he might as well have been. War in Iran, political turmoil, an AI reckoning, and a private credit crisis are dominating headlines all at once and investors are searching for a way out. But through the noise, American business keeps doing what it does best: innovating and producing higher earnings.

In my year-end 2025 letter, we discussed stock market volatility versus bear markets, with the expectation that 2026 would bring heightened turbulence. That expectation has arrived in force. Although the Iran conflict is front and center, the broader thesis from that letter remains intact. As the chart below shows, 100% of midterm election years since 1950 have produced significant corrections, averaging more than –17%. Add the well-documented pattern of –10%+ pullbacks surrounding the appointment of a new Fed chair, and 2026 is delivering both events in a single year.

The good news: one-year returns following midterm correction troughs have been positive every single time.

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