The Index Says Calm. The Average Stock Says Otherwise.

By Tim Travis, Founder & CEO, T&T Capital Management. September 30, 2026.

This letter was sent to newsletter subscribers on September 30, 2026.

If you only watch the S&P 500, September looked like a shrug. A few bad days, a few good ones, and the index finished the month close to where it started.

Underneath, something very different is happening. The equal-weight S&P 500 — the same 500 companies, but with each one counted the same — is on track for its seventh straight weekly decline. That has happened only twice before: in 2002 and in 2022. Both were bear markets.

So the index is calm and the average stock is not. I want to walk through why those two things can be true at the same time, what it has meant in the past, and what we’re doing about it.

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Why the index and the average stock tell different stories

The S&P 500 is weighted by size. The bigger the company, the more it counts. Today, Nvidia and Apple alone make up more than 15% of the index — a record for two stocks. Add a handful of other technology giants and a small group of companies decides most of what “the market” did on any given day.

That’s why the headline number can hold steady while most stocks fall. If Nvidia rises 2% and 300 smaller companies each drop 1%, the index can still finish flat. The equal-weight version doesn’t let that happen. Every company gets one vote, so it tells you what happened to the typical stock you might own.

Right now it’s telling you the typical stock has been falling for almost two months.

There’s a second sign of the same thing. The gap between how calm the index is and how volatile individual stocks are is now the widest since 2000, when the dot-com bubble burst. In plain English: individual stocks are moving violently, but in different directions. Those moves cancel out at the index level, and the index looks quiet.

That’s what a narrow market looks like. A few stocks are carrying the index. Most aren’t.

What’s pressing on the average stock

Two things stand out.

Interest rates. The 30-year Treasury yield hit 5.62% this week, the highest since 2002. The 10-year sits near 5.3%. When a government bond pays more than 5%, every other investment has to compete with it. That hits hardest the companies that borrow to grow and the ones bought mainly for their dividends — banks, real estate, utilities, smaller companies. Those are exactly the stocks the equal-weight index is full of.

The economy. Consumer confidence just fell to its lowest level since 2014. Job openings came in below expectations. Financial stocks were the worst sector in September, down more than 6%, and bank stocks as a group have fallen into a correction since peaking in August.

Meanwhile, the few companies tied to artificial intelligence keep rising. Through August, Nvidia, Micron and Apple alone accounted for roughly a quarter of the S&P 500’s gain for the year. When one theme carries that much of the load, the index’s health depends on that one theme continuing to work.

What the history does and doesn’t tell us

Two prior cases is not a pattern you can trade on. I’m not going to tell you a bear market starts Monday, because nobody knows that.

But it’s worth noticing where the other two streaks showed up. Neither came during a healthy market. Both came in years when stocks were already in a bear market — and 2022, like today, was a year when rising interest rates were doing the damage. A seven-week slide in the average stock is not what a comfortable market looks like.

This summer I compared today’s market to 1999 — a narrow group of expensive stocks doing almost all the work while everything else was ignored. This week’s breadth numbers are the same story from a different angle. The crowd is packed into a few names. What happens next depends on whether those few names keep delivering.

Why “just buy the index” isn’t the whole answer

Many investors think an S&P 500 index fund is the safe, diversified choice. It holds 500 companies, after all. And over long stretches, it has worked.

But there’s one thing an index fund never does: it never asks what it’s paying. An index is weighted by size, so it automatically owns the most of whatever has gone up the most. In a normal market that’s fine. In a bubble, it means you own the biggest share of the most expensive stocks at exactly the moment they’re most expensive.

That isn’t a theory. It has happened three times in the last 40 years.

Japan, 1989. At the end of 1989, Japan was the envy of the world. Its economy was growing faster than ours, its companies were winning in autos and electronics, and Japanese stocks made up about 40% of the value of every stock market in the world — more than the United States. Investors paid around 60 times earnings for the Nikkei 225, and the land under the Imperial Palace in Tokyo was said to be worth more than all the real estate in California. The story was real. The price wasn’t.

The Nikkei peaked on December 29, 1989. It then fell 82%. It did not get back to that level until February 2024 — 34 years later. Someone who bought the index at the top at age 35 was 69 before they broke even.

The dot-com bubble, 2000. The internet was real, too. It changed everything the bulls said it would. Investors still lost fortunes, because they paid prices that assumed decades of perfect growth. Technology had grown to about a third of the S&P 500. Cisco was briefly the most valuable company in the world, then fell nearly 90%. Amazon fell more than 90% — and it turned out to be one of the great businesses of all time. Being right about the technology and being right about the investment are two different things.

The Nasdaq fell 78% and took 15 years to get back to its 2000 high. The S&P 500 fell 49%. Someone who bought the S&P 500 on the first day of 2000 and reinvested every dividend had less money ten years later than they started with. That decade has a name now: the lost decade.

The financial crisis, 2008. This time the bubble was in housing and the banks that financed it. Financial stocks had become the largest sector in the S&P 500, so the index owned them at full size right up to the end. Citigroup fell more than 95%. Bear Stearns and Lehman Brothers disappeared. The S&P 500 fell 57% from its 2007 peak and took five and a half years to get back.

Put side by side:

• Japan’s Nikkei 225, peak December 1989: fell 82%. Took 34 years to get back.
• Nasdaq, peak March 2000: fell 78%. Took 15 years to get back.
• S&P 500, peak March 2000: fell 49%. Took 7 years to get back — then fell again.
• S&P 500, peak October 2007: fell 57%. Took 5½ years to get back.

Price only, not including dividends.

What every bubble has in common

Each one started with a true story. Japan’s economy really was a miracle. The internet really did change the world. Houses really had gone up for decades. Bubbles don’t form around bad ideas. They form around good ideas at bad prices.

And each one ended with the same few features: a small group of stocks carrying the market, prices that only made sense if everything went right, and a widely held belief that this time was different.

Look at today. Artificial intelligence is real, and it will change a lot of industries. But the ten largest companies now make up close to 40% of the S&P 500. At the peak of the dot-com bubble, the top ten were about 27%. So the “diversified” index fund is more concentrated today than it was in 2000.

None of that tells you the top is in. Japan’s market kept rising for years after it looked expensive, and so did the Nasdaq. Buffett was mocked in late 1999 for refusing to buy technology stocks — and he was right, but it took time to show.

Here’s the part that matters most if you’re retired or close to it. A 30-year-old who keeps adding to an index fund every month can wait out a 15-year recovery. A 65-year-old who is withdrawing from that fund every month can’t. Every share sold near the bottom is a share that’s not there for the recovery. That’s why the price you pay matters more the closer you are to needing the money.

So when someone tells you to “just buy the index,” the right question is: at what price, and when do you need the money?

What we’re doing about it

First, September was a hard month for us. The same forces pushing down the average stock — rising interest rates and weak financial stocks — hit the kinds of income investments we own. You’ll see it on your statement, and I’m not going to dress it up.

But a price drop in one month is not the same thing as a business getting worse. So we’re going through what we own holding by holding and asking one question: did the business change, or just the price? When it’s just the price, that’s when patient owners get paid. When it’s the business, we act.

Our approach doesn’t depend on a few stocks holding up the market. We own a diversified set of businesses that pay us while we wait — dividends, business-development companies, real estate and energy infrastructure — bought at prices we think already build in a margin of safety.

A market like this one also creates opportunity for us, in two ways.

Weak stocks get cheap. When the average stock falls for seven weeks, good businesses get marked down along with the bad ones. That’s the environment where buying good companies on sale is possible. We’re adding to our watch list, not running from it.

Volatility pays option sellers. When individual stocks swing harder, the premium paid for the options on those stocks rises. When we sell puts, that higher premium is paid to us up front. Each put is an agreement to buy shares at a price we chose, and we size them to what the account can support.

Where we’re careful: rising rates are a real headwind for some of the income stocks we own, and we’re watching balance sheets closely, especially anything that has to refinance debt at today’s rates.

Three questions to ask about your own portfolio

1. How much of your portfolio depends on a handful of technology stocks? If you own the S&P 500, the answer is more than you probably think.
2. If the stocks that are carrying the market stopped, would your income stop too? Income from dividends and option premium doesn’t depend on the index going up.
3. Would you have to sell something in a down market to pay your bills? If yes, fix that now, while prices are still high. In our last letter we showed what forced selling in a bad year does to a retirement.

If you’d like a second set of eyes on how concentrated your portfolio really is, call us at 805-886-8140. If you look and you’re comfortable with what you own, that’s a fine answer too.

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