Is the US stock market pricing in a recession? Small-cap stocks have dropped below the white line and continue to slide downward.

地平线全球策略2026/10/21 16:39

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Is the US stock market pricing in a recession? Small-cap stocks have dropped below the white line and continue to slide downward. image 0

After an unhealthy new high, SPX has now entered a bearish structure and closed on the upward trend line. A break below this trend line will point to the T1 target price.

Is the US stock market pricing in a recession? Small-cap stocks have dropped below the white line and continue to slide downward. image 1

SPX (daily chart, up to 2026-10-18)

Meanwhile, small-cap stocks, a core proxy for recession risk, have fallen below the white line and continue their downward slide. Currently, momentum is at a stalling point; if the stalling status turns negative, this will be a key confirmation for market pricing of economic growth and credit risk.

Is the US stock market pricing in a recession? Small-cap stocks have dropped below the white line and continue to slide downward. image 2

IWM (daily chart, up to 2026-10-18)

Is the US stock market pricing in a recession? Small-cap stocks have dropped below the white line and continue to slide downward. image 3

Is the US stock market pricing in a recession? Small-cap stocks have dropped below the white line and continue to slide downward. image 4

MEME has fallen about 25% since taking profit from long positions and turning bearish on 10.08. The wider drop happened after the price broke below 8.2 at the Ariston Channel's lower boundary on Monday. This is a rationale for making decisions based on structural strength:

Is the US stock market pricing in a recession? Small-cap stocks have dropped below the white line and continue to slide downward. image 5

MEME (daily chart, up to 2026-10-18)

Currently, it has reached T1, so partial profit-taking has been carried out. If a rebound occurs here, a relatively higher low with a volatility compression structure compared to late July could form, after which a breakout in the direction of the next volatility compression would expand the range.

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MAGS: After triggering the T1 target price mentioned in last week's report, the Ariston Top has been validated. Following the signal from my top prediction, price made a fake high with momentum divergence, then dropped and entered a downward channel. The bearish PT is set at Friday’s high; a bullish reversal would require a breakout here.

Is the US stock market pricing in a recession? Small-cap stocks have dropped below the white line and continue to slide downward. image 6

MAGS (daily chart, up to 2026-10-18)

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Is the US stock market pricing in a recession? Small-cap stocks have dropped below the white line and continue to slide downward. image 7

KWEB is approaching the channel’s upper boundary; pay attention to whether it can break through.

Is the US stock market pricing in a recession? Small-cap stocks have dropped below the white line and continue to slide downward. image 8

KWEB (daily chart, up to 2026-10-18)

Is the US stock market pricing in a recession? Small-cap stocks have dropped below the white line and continue to slide downward. image 9

XLU (daily chart, up to 2026-10-18)

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Is the US stock market pricing in a recession? Small-cap stocks have dropped below the white line and continue to slide downward. image 10

Is the US stock market pricing in a recession? Small-cap stocks have dropped below the white line and continue to slide downward. image 11

XLU, our September 29 buy point and the October 1 Ariston Bottom signal issued Ariston Bottom bottom prediction signal have now become XLU's pivot point. Unrealized gains continue to expand through the week, the upward move is smooth, and stop-loss levels continue to be trailed upwards.

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Is the US stock market pricing in a recession? Small-cap stocks have dropped below the white line and continue to slide downward. image 12

Red = unanimous bearish, Green = unanimous bullish, Gray = mixed. Gold-edged dots moving to upper right (as of 2026-10-18)

Rotation relay is reflected in the outperformance of equal-weighted indexes.

Is the US stock market pricing in a recession? Small-cap stocks have dropped below the white line and continue to slide downward. image 13

Is the US stock market pricing in a recession? Small-cap stocks have dropped below the white line and continue to slide downward. image 14

SPXEW/SPX YTD (daily chart, up to 2026-10-18)

Equal-weighted S&P 500 has performed very well since October, and has outperformed market-cap-weighted S&Psince the start of the year, while earlier the relative strength between the two was reversed. When AI was favored, market-cap weighted outperformed; when AI fell out of favor, equal-weighted outperformed. Due to concentration issues in market-cap indexes, equal-weighted indexes give a better sense of the overall market.

In fact, since the June high, the position of the market-cap-weighted S&P has barely changed, while equal-weighted S&P has continued to move higher. As long as the economy remains resilient and dynamic—and that momentum isn't solely driven by AI—stock market pullbacks will remain relatively limited. This is the most important message this week.

JPM reports that credit card and debit card transactions grew about 10% year-over-year, with Citi and WF also giving similar positive guidance. This shows strong nominal spending, but much of the increase came from higher gasoline prices, meaning a significant part of nominal growth comes from price increases. The entire banking system is still lending at a healthy pace, credit continues to flow, the economy isn't as strong as nominal figures suggest, but overall it remains solid.

Large tech companies will soon release their earnings, marking the next truly important inflection point. The key is how major AI and cloud business players describe growth.

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Is the US stock market pricing in a recession? Small-cap stocks have dropped below the white line and continue to slide downward. image 15

Is the US stock market pricing in a recession? Small-cap stocks have dropped below the white line and continue to slide downward. image 16

Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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