Thursday, 8 October 2026

Market regime

The 2-year Treasury yield fell 6 basis points week over week, the largest weekly move among the rate and credit readings, while the 10-year yield did not move. This suggests bond investors lowered their expected path for policy rates over the next two years. That shift did not reach long-term borrowing costs, which weigh most on stock valuations. Federal Reserve (FRED) data as of 7 October show the real 10-year rate, the yield after expected inflation, flat week over week.

The average stock stayed weak. The close-of-day breadth reading counts 367 of 979 names above their own 50-day exponential moving average (EMA), a short-term trend line. That is still under the 40% line that holds the call, and breadth remains flagged as deteriorating.

The index is far from any price trigger. The VIX, the Cboe measure of expected stock volatility, stood at 15.08 at the 7 October 2026 close, well under the 28 trigger. The 8 October VIX close is not yet published.

Key numbers

Regime assessment

The read describes an index carried by a minority of stocks. Most names sit below their short-term trend while the index holds well above its long-term one. This suggests a narrow group of leaders is doing the lifting.

The drag on the typical stock looks like expensive long-term money. Credit and jobs show no strain. The high-yield spread barely moved this week, and initial jobless claims of 197K in the week to 3 October remain low. A real 10-year yield of 2.92% weighs hardest on companies whose value rests on profits far in the future.

The fall in the 2-year yield is a modest step toward easier policy, not a bet on imminent cuts. Even after the decline, the 2-year sits well above the 3.75% fed funds rate. The steeper curve came entirely from the short end, so long-term financing costs gave stocks no new relief.

What would change the call

Risk-off is held by breadth under 40% (now 37.5%). 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 37.5%). Rates, credit, labor 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 names above their 50-day EMA climbs while SPY holds above its 200-day EMA.
• Cost of capital as the main drag: fails if later weekly readings show the real 10-year yield falling from 2.92%.
• No credit or labor stress: fails if initial claims rise from 197K while the high-yield spread widens from 3.09%.
• Easing expectations confined to the short end: fails if the 10-year yield falls from 5.28% alongside the 2-year, or if the 2-year 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 8 October: once published, it updates the calm reading from the 7 October close.
• 2-year Treasury yield: the next weekly reading shows whether the move toward easier policy extends or reverses.
• Real 10-year yield: a decline would ease the main drag on long-duration stocks; a rise would deepen it.
• Weekly jobless claims: the next print tests whether labor data stay low.
• Payrolls and unemployment: the next monthly release updates the 1 September readings.
• Housing starts: the next release updates the 1 August reading.

Status

Risk-off — 18th consecutive read in the journal; prior read 7 October 2026, also risk-off.