Hedge fund manager Dan Niles sees rough water ahead for the stock market, but he also has his eye on a couple of ports to seek shelter from the coming storm. Seasonality, political uncertainty and higher interest rates are likely to loom over stocks in coming months, Niles said Tuesday on CNBC’s “Squawk on the Street.” Until skies clear, he’s happy to wait on the sidelines while making some targeted downside bets. “I’m concerned about a 10% drawdown between now and when you get to the midterms, so I’ve got a lot of shorts on,” he said. “[For] seasonality going into midterms, the median drawdown is about 10% from end of July through November 9th, and that’s double what it normally is in non-midterm years.” September is traditionally the worst performing month for all major U.S. stock indexes, going back decades, according to the 2026 Stock Trader’s Almanac. The Dow Jones Industrial Average has fallen by an average of 0.8% in the month of September going back to 1950; the S & P 500 by 0.7%; and the technology-heavy Nasdaq Composite by 0.9%, going back to 1971. This year could be especially choppy due to the midterm elections in November. Analysts on Wall Street are keeping an eye on data center construction, a big part of the boom in private computation capacity, as an issue that could be affected by the outcome of the midterms. Niles likes Meta Platforms as a long position, after it settled its social media addiction case in August, because it’s making progress building Muse Spark, its own large language model. META 1M mountain Meta Platforms over the past month “Meta Muse Spark 1.3, it ranks really well. It’s low cost. They introduced an API two weeks ago. Then last week, they introduced an AI agent. If that takes off with 3.6 billion daily active users, that could do well. And the valuation is below where the S & P is trading and certainly below a lot of their peers,” Niles said. Niles added that there are “names that I like in there, but you don’t want to fight a tape that can potentially get hit hard.” He declined to name any of the stocks he’s betting against. Niles also said he thought long-term interest rates could move substantially higher over the medium term after the 10-year Treasury reached 5% this week. “Six percent? Yeah, you could definitely see that, in my opinion, especially because you don’t have the same capability as you used to when you had much lower debt-to-GDP.”
Dan Niles warns of market drawdown ahead. Tech investor holds ‘lots of shorts’
Sep 15, 2026
