Wednesday, 28 October 2026

Market regime

The high-yield credit spread narrowed 22 basis points week over week to 3.18%, the largest move in today's readings. The spread is the extra yield investors demand to lend to riskier companies, so a drop this size means credit markets are pricing less default risk. Federal Reserve data date that reading to 27 October 2026. Treasuries moved the other way at the short end. The 2-year yield rose 5 basis points against a 3-basis-point rise in the 10-year, which suggests markets trimmed some expected Federal Reserve easing. The real 10-year rate, the yield left after expected inflation, was almost flat, down 1 basis point. Rates and credit are context for the call and do not decide it.

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 5.3% above its 200-day exponential moving average (EMA), its long-term trend line. That clears the 5% mark that lowers the risk-on breadth requirement to 55%. Breadth, the share of stocks above their own 50-day EMA, holds the call back: 516 of 978 names clear that line, short of 55%. The Cboe Volatility Index (VIX), a gauge of expected stock swings, was 17.52 at the 27 October 2026 close, far from its 28 trigger. The 28 October 2026 VIX close is not yet published.

Key numbers

Regime assessment

Risk appetite is improving in credit faster than it is spreading across stocks. Lenders are comfortable with weaker borrowers, and the index sits comfortably above trend. Yet only a bare majority of stocks are in their own short-term uptrends. This suggests gains remain concentrated in a narrower group of large names.

The rate picture is less supportive than the credit picture. Short-term yields rose more than long-term ones, and inflation expectations edged up while the real rate barely moved. That leaves no fresh relief in borrowing costs for stock valuations this week.

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

What would change the call

Neutral: 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 52.8%). The call turns risk-off if any of these happens:

• SPY closes more than 2% below its 200-day EMA (now +5.3%).
• Breadth falls under 40% (now 52.8%).
• VIX rises above 28 (now 17.52).

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

Each supporting view has its own test:

• Narrow participation: fails if breadth reaches 55% with SPY at least 5% above its 200-day EMA, or above 60% otherwise. That would show the advance has broadened beyond the leaders.
• Improving credit appetite: fails if the high-yield spread widens week over week in the next Federal Reserve update.
• No fresh rate relief: fails if the real 10-year rate falls meaningfully week over week in the next Federal Reserve update.

What to watch

• VIX close for 28 October: once published, it shows whether volatility stayed calm. A close above 28 turns the read risk-off.
• Daily breadth reading: with SPY at least 5% above its 200-day EMA, a reading of 55% or above turns the read risk-on. A reading under 40% turns it risk-off.
• SPY versus its 200-day EMA: a close below 5% above the line raises the risk-on breadth bar to above 60%. A close more than 2% below it turns the read risk-off.
• Federal Reserve data updates: new credit-spread and yield readings will show whether the tightening in credit holds. The next jobless claims print adds labor context. None of these move the call.

Status

Neutral; 14th consecutive neutral read in the journal, same as the prior level on 27 October 2026.