Tuesday, 27 October 2026

Market regime

The real 10-year Treasury yield, the return left after expected inflation, fell 16 basis points week over week to 2.65%. That drove the 13-basis-point drop in the 10-year yield, while inflation expectations rose 3 basis points. Long-term borrowing got cheaper in real terms, and that matters for stock valuations because real yields are the rate future earnings are discounted against. The 2-year yield also fell 13 basis points, which suggests markets now expect an easier Federal Reserve path. Federal Reserve data date the 10-year, 2-year and real-rate readings to 26 October 2026. None of these figures 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 5.0% above its 200-day exponential moving average (EMA), its long-term trend line. A risk-off trigger needs a close more than 2% below that line. Breadth is the measure that holds the call back. Breadth is the share of stocks above their own 50-day EMA, and 519 of 978 names clear it, short of the 60% needed for risk-on. The Cboe Volatility Index (VIX), a gauge of expected stock swings, closed on 26 October 2026 well under its 28 trigger. The 27 October 2026 VIX close is not yet published.

Key numbers

Regime assessment

The index is strong, but the typical stock is not keeping pace. A benchmark well above its long-term trend, with only a bare majority of stocks above their short-term trend, suggests a small group of large names is carrying the gains. The call cannot move toward risk-on until more stocks join in.

Bond markets are easing financial conditions. Real yields fell while inflation expectations edged up. This suggests investors are pricing lower policy rates ahead and are not reacting to a drop in inflation. That backdrop helps equity valuations. It does not repair thin participation on its own.

The labor market shows no strain. Initial jobless claims were 194K for the week to 17 October 2026, a low level.

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 53.1%). The call turns risk-off if any of these happens:

• SPY closes more than 2% below its 200-day EMA (now +5.0%).
• Breadth falls under 40% (now 53.1%).
• VIX rises above 28 (now 18.39).

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 beyond the leaders.
• Easing real yields: fails if the real 10-year rate rises week over week in the next Federal Reserve update. That would show the relief in borrowing costs reversing.
• Intact uptrend: fails if SPY closes below its 200-day EMA.

What to watch

• VIX close for 27 October: once published, it shows whether volatility kept easing. 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 real-rate readings will show whether the drop in real borrowing costs holds. The next jobless claims print adds labor context. None of these move the call.

Status

Neutral; 13th consecutive neutral read in the journal, same as the prior level on 26 October 2026.