Monday, 26 October 2026

Market regime

The 10-year Treasury yield fell 9 basis points week over week while the extra yield on junk bonds rose 7. Lower safe-asset yields alongside wider risk premiums suggest bond investors are growing more cautious even as stocks hold their long-term trend. Federal Reserve data date both readings to 23 October 2026. Neither is an input to the call.

The inputs that decide the call stay inside neutral. The SPDR S&P 500 ETF (SPY), a fund that tracks the S&P 500, closed 4.4% above its 200-day exponential moving average (EMA), its long-term trend line. That is short of the 5% mark in the fixed rules, so breadth must clear 60% for risk-on. Breadth, the share of stocks above their own 50-day EMA, stands at 517 of 978 names, which is 52.9% and well below that bar. The Cboe Volatility Index (VIX), a gauge of expected stock swings, was 19.45 at the 23 October 2026 close. That is elevated but far from the 28 trigger. The 26 October 2026 VIX close is not yet published.

Key numbers

Regime assessment

The index trend is healthy, but the rally rests on a bare majority of stocks. This suggests gains are concentrated rather than broad. With SPY still inside the 5% mark, only a clear widening of participation can move the read toward risk-on.

Bonds are signalling more caution than stocks. Most of the 10-year decline came from the real rate, down 6 basis points, while inflation expectations fell 3. This suggests investors are pricing slower growth or seeking safety, not a sharp drop in inflation. Wider junk-bond spreads point the same way.

The labor market does not share that caution. Initial jobless claims of 194K for the week to 17 October 2026 remain low.

Rates, credit, labor and housing readings are context only and do not bear on the call.

What would change the call

Neutral: no risk-off trigger is met, and risk-on needs breadth above 60% (now 52.9%). The call turns risk-off if any of these happens:

• SPY closes more than 2% below its 200-day EMA (now +4.4%).
• Breadth falls under 40% (now 52.9%).
• VIX rises above 28 (now 19.45).

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

Each supporting view has its own test:

• Narrow participation: fails if breadth closes above 60%. That would show the advance has broadened.
• Intact uptrend: fails if SPY closes below its 200-day EMA.
• Bond-market caution: fails if, week over week, the 10-year yield rises and the high-yield spread narrows. That would show investors taking risk back on in bonds.

What to watch

• VIX close for 26 October: once published, it will show whether volatility kept climbing from the 23 October 2026 level or eased. A close above 28 turns the read risk-off.
• Daily breadth reading: each close tests the read. A reading above 60% turns it risk-on. A reading under 40% turns it risk-off.
• SPY versus its 200-day EMA: under the fixed rules, a close at least 5% above the line lets breadth of 55% to 60% count toward risk-on. A close more than 2% below it turns the read risk-off.
• Federal Reserve data updates: new yield and credit-spread readings will show whether the week's shift toward safety continues. The next jobless claims print adds labor context. None of these move the call.

Status

Neutral; 12th consecutive neutral read in the journal, same as the prior level on 23 October 2026.