Monday, 2 November 2026

Market regime

The 2-year Treasury yield fell 13 basis points week over week, the largest move in the latest Federal Reserve data. This suggests bond markets now expect lower short-term interest rates ahead. The 2-year yield tracks expected Federal Reserve policy more closely than any other maturity. A drop that size signals a shift in rate expectations. The 10-year yield fell by less, so the gap between the two widened by 7 basis points. Cheaper expected borrowing is a tailwind for companies and households.

Credit markets did not share the relief. The high-yield spread is the extra yield investors demand to lend to weaker companies. It widened 6 basis points week over week, which means lenders asked for a little more protection even as rates fell. The Cboe Volatility Index (VIX), a gauge of expected stock swings, sits in elevated territory at its 30 October 2026 close. The 2 November 2026 close is not yet published.

Breadth still sets the call. Breadth counts the share of stocks trading above their own 50-day exponential moving average (EMA), a measure of short-term trend. Today 573 of 978 names are above their own 50-day EMA. That is a clear majority but still below the 60% the regime rules require for risk-on. The SPDR S&P 500 ETF Trust (SPY), a fund that tracks the S&P 500, closed above its 200-day EMA, its long-term trend line. That leaves it well clear of the risk-off trigger.

Key numbers

Regime assessment

The uptrend is intact, but participation is not yet broad enough to confirm it. Most stocks hold their short-term trends, and the index stays above its long-term line. That describes a market that is advancing, not one that is breaking down. Still, a sizeable minority of names is lagging, and the advance has not spread to most of the market.

Falling rates help the case for stocks. The real 10-year rate is the yield left after expected inflation. It dropped by the same amount as the nominal 10-year yield, while inflation expectations held flat. This suggests the decline reflects lower expected policy rates, not rising inflation fears. A lower real rate reduces the return that stock valuations must beat.

Credit is the soft spot. Wider high-yield spreads alongside falling Treasury yields suggest bond investors are slightly more cautious about weaker borrowers. The move is small. One week of widening does not establish a trend.

Labor shows no strain. Jobless claims stayed low and edged down in the week to 24 October 2026.

What would change the call

Neutral: no risk-off trigger is met and risk-on needs breadth above 60% (now 58.6%). The call turns risk-off if any of these happens:

• SPY closes more than 2% below its 200-day EMA (now +2.5%).
• Breadth falls under 40% (now 58.6%).
• VIX rises above 28 (now 19.42).

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

Each supporting view has its own test:

• An intact but narrow uptrend: this view fails if fewer than half of the 978 names hold above their own 50-day EMA.
• Easing rate expectations: this view fails if the 2-year yield rises week over week in the next Federal Reserve update.
• Contained credit caution: this view fails if the high-yield spread widens week over week again in the next Federal Reserve update.

What to watch

• VIX close for 2 November: once published, it will show whether volatility eased or kept rising. A close above 28 turns the read risk-off.
• Daily breadth reading: a reading above 60% turns the read risk-on. A reading under 40% turns it risk-off.
• SPY versus its 200-day EMA: a close more than 2% below the line turns the read risk-off.
• Federal Reserve data updates: new yield and credit-spread readings will show whether short-term yields keep falling and whether credit widening continues. The next jobless claims report adds labor context. None of these move the call.

Status

Neutral; 17th consecutive neutral read in the journal, same as the prior read on 30 October 2026.