Stay Invested, Prepare for Surprises
A Calm Index Can Conceal a Less Comfortable Market
We believe the past month illustrates why investors should look beyond headline index returns. Based on one-month price-change data ending October 5, 2026, the Technology Select Sector SPDR Exchange-Traded Fund (ETF) gained 7.3%, while the other ten Select Sector SPDR ETFs declined. The S&P 500 advanced approximately 0.7%. The Nasdaq 100 rose 5.2%, while the Dow, Russell 2000 and NYSE Composite fell approximately 3.5%-4.3%.1
We believe that divergence can help explain subdued index volatility: technology’s gains offset losses elsewhere. An index can appear relatively calm even as individual sectors experience substantial movement.
Supportive Growth, Difficult-to-Measure Risks
We believe investors have reasons to remain constructive. Softer labor and recent inflation readings have moderated expectations for an imminent Fed hike, although additional tightening remains possible. Substantial AI capital spending also supports investment activity and expectations for earnings growth.2
Yet several visible risks remain difficult to handicap. We believe French sovereign debt stress could affect European financing conditions. Japanese monetary tightening could unsettle leveraged carry trades. Geopolitical conflicts could disrupt energy supplies and revive inflation pressure.3 Their timing, scale and interaction are the uncertain part of the investment calculus.
In our view, the midterm elections alone may not materially unsettle markets. But investors should not overlook the possibility of several surprises arriving together-political uncertainty, persistent inflation, tighter financing conditions or disappointing earnings. Individually, manageable developments can become more consequential when they coincide and prompt investors to reduce risk simultaneously.
Earnings and Rates: Watch the Interaction
Earnings season should provide an important test. Bank results and management commentary can help establish the strength of capital-markets activity and whether issuance and dealmaking momentum can continue. Technology results can also help investors assess whether AI-related revenue growth, spending and margins justify current expectations.
We believe the recent rise in yields creates two possible paths. Higher financing costs could temper issuance, dealmaking and investment. Alternatively, companies may accelerate transactions to secure funding before borrowing becomes more expensive. Strong near-term activity could therefore reflect both underlying confidence and business pulled forward.
One risk scenario we are monitoring is the potential of two additional Fed hikes over the next three to four months. The key question is if financing conditions tighten further, would earnings and investment sustain momentum?
How Should Investors Think About This?
If technology joins the decline elsewhere, we believe today’s offsetting moves could become a synchronized selloff. Correlations could rise and potentially increase index volatility and portfolio losses.
Diversification remains valuable, but its effectiveness can weaken when holdings move together. We believe carefully implemented long/short strategies at the stock or asset-class level may provide complementary diversification and help manage market exposure. Their resilience during abrupt shifts depends on disciplined positioning, liquidity management and attention to changing correlations.
These considerations support evaluating an explicit options-based defense alongside traditional diversification and complementary active strategies. The Easterly Hedged Equity Fund, Class I (JDIEX), combines equity exposure with actively managed put spreads and call writing. Its put-spread notional typically exceeds its long equity exposure. This describes the size of the contracts’ underlying exposure, rather than a guarantee that hedge gains will offset equity losses. The investment strategy seeks to manage downside risk while retaining the opportunity for participation in equity gains.4
In our view, pairing short-duration, high-quality fixed-income holdings with a measured JDIEX allocation offers a framework worth evaluating. The fixed-income allocation may offer liquidity and flexibility, while hedged equity can add equity participation and an options-based defense.5
JDIEX seeks to help clients remain invested through periods of market uncertainty while positioning portfolios to navigate risks that can be difficult to anticipate and forecast.
SOURCES & FOOTNOTES
1 Bigdata.com. Performance data reflects one-month price changes as of October 5, 2026. Sector returns represent Select Sector SPDR ETF price performance rather than direct sector index returns. Refer to the underlying data export for the specific measurement period, tickers, and return methodology.
2 https://www.reuters.com/business/us-services-sector-activity-slows-september-price-pressures-mount-2026-10-05; see also: https://www.reuters.com/commentary/reuters-open-interest/global-markets-view-usa-2026-10-06.
3 https://www.reuters.com/business/euro-faces-political-fiscal-reckoning-it-hovers-near-17-month-low-2026-10-06; see also: https://www.banque-france.fr/en/publications-and-statistics/publications/carry-trades-and-volatility-risk.
4 Derivatives may be more volatile than other investments and may magnify or reduce the Fund’s gains or losses.
5 This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities and sectors listed.
RISKS & DISCLOSURES
Investors should carefully consider the investment objectives, risks, charges and expenses of the Fund. This and other important information about the Fund is contained in the prospectus which should be read carefully before investing. To obtain a prospectus or summary prospectus which contains this and other information, visit funds.easterlyam.com or call Easterly Securities LLC at 888-814-8180. Performance data quoted represents past performance. Past performance is not indicative of future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. All results are historical and assume the reinvestment of dividends and capital gains. Performance shown reflects contractual fee waivers. Without such waivers, total returns would be reduced. Please click here to view standardized performance for the Fund.
The Easterly funds are distributed by Easterly Securities LLC, member FINRA/SIPC. Easterly Investment Partners LLC is an affiliate of Easterly Securities LLC. Orange Investment Advisers, LLC and EAB Investment Group, LLC are not affiliated with Easterly Securities LLC.
Easterly Investment Partners LLC is the investment adviser to the Easterly mutual funds. Easterly Snow and Easterly Ranger are investment teams of Easterly Investment Partners LLC, an SEC-registered investment adviser. EAB Investment Group LLC (d/b/a Easterly EAB), Orange Investment Advisors LLC (d/b/a Easterly Orange), and Lateral Investment Management are separate SEC-registered investment advisers that are strategic partners of Easterly. Each investment adviser’s Form ADV is available at www.sec.gov. Registration does not imply and should not be interpreted to imply any particular level of skill or expertise.
Not FDIC Insured–No Bank Guarantee–May Lose Value.
This commentary represents the views of the author as of the date published and is subject to change without notice. The information provided is for informational purposes only and should not be construed as investment advice or a recommendation to buy or sell any security.
Diversification does not guarantee a profit nor protect against loss in any market.
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