Wednesday, 14 October 2026

Market regime

Breadth slipped to 40.4% at Wednesday's close, just above the 40% line where the call turns risk-off. In the close-of-day breadth reading, 395 of 978 names closed above their own 50-day exponential moving average (EMA), a short-term trend line. Fewer than half of stocks are holding their short-term trend, so a small further decline in the average stock would change the read.

The other two triggers are distant. The SPDR S&P 500 ETF (SPY) closed 5.6% above its 200-day EMA, a long-term trend line, and the risk-off line sits 2% below it. The VIX, the Cboe measure of expected stock volatility, was 15.27 at the 13 October 2026 close, well under its trigger of 28.

Federal Reserve (FRED) data show the bond market moved most at the short end. The 2-year Treasury yield rose 4 basis points week over week as of 13 October, while the 10-year slipped 1. That flattened the gap between them by 5 basis points. Rates inform the reading but do not change the call.

Key numbers

Regime assessment

The index still looks healthier than the typical stock inside it. Most names sit below their short-term trend while SPY stays above its long-term one. This suggests a narrow group of large companies is holding the index up, and that group is carrying more of the weight as breadth thins.

The bond market offers that group no new help. A rising 2-year yield points to investors pushing back expected rate cuts. With breakeven inflation edging down, the real 10-year yield ticked up rather than down. Higher real yields weigh most on companies valued for profits far in the future.

Credit and labor show no strain. The high-yield spread, the extra yield investors demand to hold riskier corporate bonds, barely moved. Jobless claims near 197K remain low. The weakness is in stock participation, not in the economy's plumbing.

The 2-year yield sits well above the fed funds rate. This suggests bond investors do not expect the Federal Reserve to cut soon. The fed funds figure dates from 1 September, so a newer reading could narrow that gap.

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 40.4%). The call turns risk-off if any of these happens:

• SPY closes more than 2% below its 200-day EMA (now +5.6%).
• Breadth falls under 40% (now 40.4%).
• VIX rises above 28 (now 15.27).

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

Each supporting view has its own test:

• Narrow leadership: fails if breadth climbs toward 55% while SPY holds at least 5% above its 200-day EMA.
• Short-end pushback on rate cuts: fails if the 2-year yield falls back toward the 3.75% fed funds rate.
• No added support from real yields: fails if the real 10-year yield falls well below 2.88% while breakeven inflation holds near 2.33%.
• Credit calm, no labor strain: fails if the high-yield spread widens meaningfully from 3.16% and initial claims rise from 197K.

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 14 October: once published, it updates the 13 October reading.
• 2-year Treasury yield: the next readings show whether the rise in short-term yields continues.
• Real 10-year yield and breakeven inflation: the next readings show whether real yields keep edging up.
• High-yield credit spread: the next reading tests whether credit stays calm.
• Weekly jobless claims: the next print updates the 3 October reading.
• Fed funds, payrolls and unemployment: the next monthly releases update the 1 September readings.
• Housing starts: the next release updates the 1 August reading.

Status

Neutral — fourth consecutive neutral read, matching the prior published entry of 13 October 2026.