Tuesday, 20 October 2026

Market regime

Breadth rose to an even split, with 489 of 978 names closing above their own 50-day exponential moving average (EMA). That moves the call's weakest input away from danger. Breadth now sits clearly above the 40% line that would turn the read risk-off. The SPDR S&P 500 ETF (SPY), a fund that tracks the S&P 500, closed 5.2% above its 200-day EMA, its long-term trend line. Because SPY is more than 5% above that line, risk-on needs breadth of only 55% rather than 60%. The Cboe Volatility Index (VIX), a gauge of expected stock swings, was 18.44 at the 19 October 2026 close. That is well short of the 28 level that would trigger risk-off. Bond and credit moves over the week were small and do not move the call.

Key numbers

Regime assessment

The rally now has company but not a majority. The index trades well above its long-term trend while only half its components sit above their short-term trends. This suggests leadership is wider than a handful of names but not yet broad enough for a confident advance.

Bond investors are still marking down growth rather than inflation. Breakeven inflation, the bond market's inflation expectation, was flat over the week. The whole decline in the 10-year yield therefore came through the real yield, the return after expected inflation. Lower real yields ease valuation pressure on companies whose profits lie far in the future.

Credit is slightly more cautious than the job market. The high-yield (HY) spread, the extra yield investors demand to hold riskier corporate debt, widened over the week while weekly jobless claims barely changed. Moves of a few basis points are too small to carry much weight on their own.

Short-term yields still argue against near-term rate cuts. The 2-year yield at 4.77% sits well above the 3.75% fed funds rate. That fed funds figure dates from 1 September, so a newer reading could change the comparison.

What would change the call

Neutral holds because no risk-off trigger is met. Risk-on needs breadth at 55% or above while SPY stays at least 5% above its 200-day EMA, or above 60% otherwise (now 50.0%). The call turns risk-off if any of these happens:

• SPY closes more than 2% below its 200-day EMA (now +5.2%).
• Breadth falls under 40% (now 50.0%).
• VIX rises above 28 (now 18.44).

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

Each supporting view has its own test:

• Partial participation: fails if breadth slips back toward 40% while SPY holds above its 200-day EMA.
• Growth caution in bonds: fails if the 10-year yield turns back up from 5.15% while breakeven inflation holds near 2.35%.
• Credit ahead of labor: fails if the high-yield spread narrows from 3.29% while claims stay near 199K. It is confirmed if claims rise meaningfully from 199K.
• No near-term cuts priced: fails if the 2-year yield falls toward the 3.75% fed funds rate.

What to watch

• Daily breadth reading: each close tests the read. A reading under 40% turns it risk-off; with SPY at least 5% above its 200-day EMA, a reading of 55% or above turns it risk-on.
• SPY versus its 200-day EMA: a close less than 5% above the line raises the risk-on breadth bar back to 60%.
• VIX close for 20 October: once published, it shows whether volatility is moving toward or away from the 28 trigger.
• High-yield credit spread: the next readings show whether the widening extends or fades.
• Initial jobless claims: the next weekly report shows whether labor data begins to match the caution in credit.

Status

Neutral; eighth consecutive neutral read in the journal, same as the prior level on 19 October 2026.