2026 Market Behavior Is Tracking the Forecast Made in September 2025

In September 2025, we developed a forecast of investor sentiment for 2026. This update compares current 2026 market behavior with that forecast. The forecast identified three Anxiety-Free Periods, or AFPs, with specific dates. The forecast is based on physics-based drivers of investment sentiment that are described in this paper:

      https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5482086

AFP clusters are rare events. The last one occurred in 2017/8. 

We use the term AFP to describe periods when investor anxiety is expected to be unusually low, making markets more susceptible to euphoria-driven advances and later reversals. The three AFPs of the 2026 cluster are shown in Figure 1.The height of each AFP column reflects the expected relative intensity of the sentiment effect.

Figure 1

 As described in the paper linked above, there have been over a dozen AFP clusters since the 1930s. In prior AFP clusters, the stock market has typically reached a major price peak between the beginning of the first AFP and the end of the last AFP. The projected peak of naturally occurring investor optimism is at the highest point of the cluster. Historically, the peak in prices is after that point with a high level of variably of actual price peaks around the peak of naturally occurring optimism. For the 2026 AFP cluster, the peak of naturally occurring investor optimism was projected to occur in late May.

We track actual investor sentiment using our Market Resilience Indexes, or MRI, which track stock index price acceleration. We use these indexes as indicators of investor behavior because they are a good reflection of investor emotion and whether investors are becoming more optimistic or more pessimistic in responding to economic and market news.

Figure 2 shows short-term price acceleration, as indicated by the Micro MRI, for ETFs tracking major US stock market indexes from the beginning of 2026 through July 3, 2026.

Figure 2

The Micro MRI readings in Figure 2 are normalized on a 0.0 to 1.0 scale using history from 2000 to date. The vertical red line marks the beginning of the Iran conflict, on February 27, 2026. Falling Micro MRI readings indicate weakening short-term price acceleration. Rising readings indicate strengthening short-term price acceleration. Many MRI readings were already moving lower before the start of the Iran conflict, indicating that investors were becoming more likely to react aggressively to negative news. All the major index MRI readings reached extremely low levels in March.

Consistent with the September 2025 forecast, the market entered a period of strong optimism in April. The most visible driver was the AI theme, best represented by QQQ, which tracks the Nasdaq 100. However, Micro MRI readings rose across all major index ETFs, suggesting the rapid shift to optimism was broader than AI alone.

The strongest AI-related momentum appears to have ended shortly after the first AFP peaked, as shown in Figure 2 by the decline in the QQQ's Micro MRI and the subsequent weakening in QQQ price performance. That pattern is consistent with the forecast made in September 2025.

The period between the first two AFPs that just ended was a period in which the market was more vulnerable to declines when confronted with negative economic, earnings, or geopolitical news. This period saw Micro MRI readings trending lower. That pattern is consistent with our forecast.

Figure 3 shows ETF performance over the same period. QQQ moved lower after the peak of the first AFP, while the DJIA continued to move higher.

Figure 3

The next periods of naturally occurring vulnerability are a) early October between the second and third AFP, and b) early December at the end of the third AFP. The period beginning in December is likely to be more vulnerable.

In short, 2026 market behavior has so far been broadly consistent with the September AFP forecast: a sharp rebound in optimism into the first AFP, followed by weakening Micro MRI readings and a more vulnerable period between AFPs. 

This framework is not intended to forecast specific price levels. Its purpose is to identify periods when investor sentiment may amplify or mute the market’s response to economic, earnings, and geopolitical conditions.