Monday, 12 October 2026

Market regime

No reading at Monday's close came close enough to a trigger to test the call. The nearest is breadth. In the close-of-day breadth reading, 405 of 978 names closed above their own 50-day exponential moving average (EMA), a short-term trend line. That is 41.4%, just above the 40% line below which the market is classed as risk-off.

A modest pullback in the average stock would cross that line. No other trigger is near.

The other two triggers are far away. The SPDR S&P 500 ETF (SPY) closed 6.9% above its 200-day EMA, a long-term trend line. The risk-off line sits 2% below it. The VIX, the Cboe measure of expected stock volatility, was 14.84 at the 9 October 2026 close, well under its trigger of 28. The 12 October VIX close is not yet published.

The largest weekly moves came in interest rates, which inform the reading but do not change the call. Federal Reserve (FRED) data as of 8 October show the 2-year Treasury yield down 8 basis points week over week, a larger drop than the 10-year's.

Key numbers

Regime assessment

The read describes an index that is stronger than the stocks inside it. Most names still trade below their short-term trend, while the index holds well above its long-term one. This suggests a small group of large stocks continues to carry the market.

Falling yields give that group some support. The 10-year yield's weekly decline came equally from lower inflation expectations and a lower real rate, which is the yield left after expected inflation. Cheaper long-term money helps most the companies whose value rests on profits far in the future. Those tend to be the large names doing the lifting.

Credit moved against the rate signal, though only slightly. The high-yield spread widened while Treasury yields fell, a small move from a low level. Jobless claims show no labor strain to explain it.

The 2-year yield remains well above the fed funds rate. This suggests bond investors expect the Federal Reserve to ease gradually rather than quickly.

What would change the call

Neutral holds because no risk-off trigger is met, and risk-on needs breadth at 55% or above while SPY stays at least 5% above its 200-day EMA, or above 60% otherwise (now 41.4%). The call turns risk-off if any of these happens:

• SPY closes more than 2% below its 200-day EMA (now +6.9%).
• Breadth falls under 40% (now 41.4%).
• VIX rises above 28 (now 14.84).

Rates, credit, labor and housing data do not move the call.

Each supporting view has its own test:

• Concentrated leadership: fails if breadth climbs toward 55% while SPY holds at least 5% above its 200-day EMA.
• Lower yields as support for large growth stocks: fails if breadth slips and SPY weakens while the real 10-year yield keeps falling from 2.89%.
• Credit widening is noise rather than stress: fails if the high-yield spread keeps widening from 3.15% and initial claims rise from 197K.
• Gradual easing priced at the short end: 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 under 40% turns the read risk-off.
• VIX close for 12 October: once published, it updates the 9 October reading.
• Real 10-year yield: the next weekly reading shows whether the decline extends or reverses.
• High-yield credit spread: the next reading shows whether the widening continues while Treasury yields fall.
• Weekly jobless claims: the next print tests whether claims 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

Neutral — second consecutive neutral read, matching the prior published entry of 9 October 2026.