Tuesday, 4 August 2026

Market regime

Risk-on is the model's read, the same regime as the prior published entry of 3 August 2026. This is the third consecutive risk-on read in the journal (n=3), since 30 July 2026. The internals firmed rather than merely held. Breadth rose to 69.2% (675/975) above the 50-day EMA, up from 622 names, and holds a healthy score. SPY closed 771.11, +9.8% over its 200-EMA of 702.54, extending the price cushion. VIX at 16.50 ticked up but remains in the calm band. The rates block moved together and small: the 10Y at 4.70% and the 2Y at 4.25% each added 3bps week over week, leaving the 10Y–2Y spread flat at 0.45%. Breakevens rose 1bp to 2.27% and the real 10Y rose 2bps to 2.43%, so the parallel shift is mostly real rate again, at a fraction of the prior week's magnitude. Credit is the notable change: HY tightened to 2.78%, −9bps week over week, reversing the widening that ran against the earlier upgrade. Claims at 197K (+9K week over week, as of 25 July 2026) are unchanged from the last print and still low.

Key numbers

Regime assessment

The standing objection to the prior print has been answered, at least for one observation. Credit had widened into an upgraded regime read, which is a sequence that argues against the upgrade; it has now tightened by 9bps. That is corroboration from the market that prices stress directly, and it arrives alongside a breadth count that stepped up further within the healthy band. On the model's own inputs, the latest print rests on firmer ground than the last.

The character of the configuration changed less than the score did. An index 9.8% above its long trend with volatility at 16.50 is a tape charging very little for protection while price sits well above its own mean. That combination cuts both ways and always has: the participation is broad enough to be real, and the distance from trend is large enough that a normal mean-reversion move would be sizeable in absolute terms without telling anyone anything about the regime.

What is missing is duration. Three prints is not a trend, and the credit reversal is a single weekly observation against a run of widening ones. The rates block gave up its information content this week a parallel 3bp shift with a flat curve is close to no signal at all, which removes the steepening story that partly framed the last entry without replacing it with anything. The read is better supported than it was on 3 August 2026. It is supported by a sample of three.

What would change the call

• HY at 2.78% tightened 9bps week over week. A return to widening would make this week's move a one-print reversal inside a widening series, and would restore credit as the standing dissent against the regime.
• Breadth at 69.2% (675/975) scores healthy. A slip back toward a marginal score would show the participation improvement was not durable.
• SPY at 771.11 is +9.8% above its 200-EMA of 702.54. Compressing that cushion while breadth falls removes the price leg the read is carrying.
• VIX at 16.50 is in the calm band. Re-expansion out of it would strip the volatility input the risk-on read has been leaning on.
• The 10Y at 4.70% and 2Y at 4.25% both rose 3bps with the spread flat at 0.45%. Renewed flattening from a 2Y-led backup would remove the neutral-to-benign rates picture.
• The real 10Y at 2.43% rose 2bps against a 2.27% breakeven. A larger move in the real component with breakevens still near flat applies duration pressure without an inflation explanation.
• Claims at 197K (as of 25 July 2026) rose 9K in the last observation. A sustained climb over subsequent prints would give any breadth deterioration a labor-market cause instead of an internals-only one.

What to watch

• Credit: whether HY holds the 2.78% level or resumes widening. It is the input that just changed direction, and the one most capable of falsifying the current print.
• Breadth: whether the 675/975 count holds the healthy score across coming reads. The model has now printed healthy in consecutive sessions; whether that holds is unresolved.
• Volatility: whether VIX stays below the calm-band threshold from 16.50 or re-expands. The risk-on read has leaned on this input.
• Rates: whether the 10Y–2Y spread stays flat at 0.45% or resumes moving, and whether any move comes from the real 10Y at 2.43% or from breakevens at 2.27%.
• Labor: the next claims print against 197K, and the next monthly reads on unemployment (4.2%, as of 1 June 2026) and payrolls (159.0M, as of 1 June 2026), both of which are now two months stale relative to the weekly market inputs.

Status

Risk-on as of 4 August 2026; third consecutive risk-on read in the journal (n=3), following the flip published 30 July 2026.