Tuesday, 6 October 2026

Market regime

Nothing moved enough to change the call, but breadth is now close to the line that holds it. Breadth here means 387 of 979 names above their own 50-day exponential moving average (EMA), a short-term trend line. That is 39.5%, just under the 40% threshold that keeps the read at risk-off. Breadth is still flagged deteriorating, so no recovery is confirmed.

The largest weekly change in the rate readings came from the short end. The 2-year Treasury yield fell 4 basis points week over week while the 10-year rose 2, according to Federal Reserve (FRED) data as of 5 October. That widened the gap between them by 6 basis points. The high-yield credit spread and 10-year inflation expectations were both flat over the same week. Last week's credit widening did not extend into this one.

The rest of the market stays well clear of the other risk-off triggers. The VIX, the Cboe measure of expected stock volatility, closed at 15.52 on 5 October, far below the 28 trigger. The 6 October close is not yet published. SPY, the S&P 500 exchange-traded fund, sits 7.4% above its 200-day EMA. The rules would need it more than 2% below that line to trigger risk-off on price.

Key numbers

Regime assessment

The read points to an index carried by a minority of its members. With most stocks below their own short-term trend, the index's distance above its long-term trend reflects a narrow group of leaders, not the typical stock. This suggests index-level calm understates how unevenly gains are spread.

The cost of long-term money is still high. A real 10-year yield near 3% weighs most on companies whose value rests on earnings far in the future. The 10-year's rise this week came entirely through the real rate, with inflation expectations flat.

Credit and labour do not show stress building this week. The high-yield spread held flat, and initial claims of 197K in the week to 26 September remain low. This suggests the pressure on the average stock comes from the price of capital and narrow leadership, not from weakening business conditions.

The bond market is still not pricing near-term rate cuts. The 2-year yield of 4.84% sits well above the 3.75% fed funds rate. Its 4-basis-point weekly decline is too small to read as a shift toward easing.

What would change the call

Risk-off is held by breadth under 40% (now 39.5%). It leaves risk-off only when breadth is back at 40% or above. The call then reads neutral unless the risk-on conditions are also met: breadth at 55% or above while SPY stays at least 5% above its 200-day EMA, or above 60% otherwise (now 39.5%). Rates, credit, labour and housing data do not move the call.

The supporting views each have their own test:

• Narrow leadership: fails if the deteriorating flag on breadth clears and the share of stocks above their 50-day EMA keeps climbing while SPY holds above its 200-day EMA.
• High real cost of capital: fails if later weekly readings show the real 10-year falling from 2.95%.
• No fresh credit or labour stress: fails if initial claims rise while the high-yield spread widens from 3.12%.
• No near-term cuts priced: fails if the 2-year yield falls toward the 3.75% fed funds rate.

What to watch

• Breadth against the 40% line: each close-of-day breadth reading decides whether the call moves. A close at 40% or above ends the risk-off read.
• VIX close for 6 October: once published, it updates the calm reading from the 5 October close.
• 2-year yield: a continued weekly decline would test the view that the bond market is not pricing cuts.
• High-yield spread: another flat or narrower week would confirm that last week's credit widening has paused.
• Weekly jobless claims: the next print tests whether labour data stay low.
• Payrolls and unemployment: the next monthly release updates the 1 September readings.

Status

Risk-off — 16th consecutive read in the journal; prior level 5 October 2026, also risk-off.