/ September 28 / Weekly Preview
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Monday:
N/A
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Tuesday:
JOLTs Job Openings (7.24M exp.)
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Wednesday:
Core PCE Price Index MoM (0.3% exp.)
GDP Growth Rate QoQ Final (1.5% exp.)
Personal Income MoM (0.4% exp.)
Personal Spending MoM (0.8% exp.)
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Thursday:
ISM Manufacturing PMI (54.9 exp.)
Initial Jobless Claims (200K exp.)
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Friday:
Non Farm Payrolls (84K exp.)
Unemployment Rate (4.1% exp.)
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Monday:
Jefferies Financial Group Inc.
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Tuesday:
Carnival Corporation Ltd.
CarMax Inc
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Wednesday:
Micron Technology, Inc.
FactSet Research Systems Inc.
Cal-Maine Foods, Inc.
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Thursday:
Accenture plc
Nike, Inc.
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Friday:
N/A
Stocks Ignore A 5% Treasury Yield
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The S&P 500 gained +1.2% on the week, leaving the index up +13.1% for the year as we prepare to wrap up the third quarter. Q3 itself was rather disappointing in terms of performance, as the +2.47% gain recorded since June is one of the weakest track records of the last decade.
However, the real story was the bond market. The 10-year Treasury yield rose from 5.01% last Friday to 5.18% on Thursday, and briefly reached 5.225% intraday on Friday, its highest level since 2007. This is a gain of over 20 basis points in one week. At the same time, the 30-year yield climbed to 5.50%, its highest since 2004. Bond market volatility also increased, with the MOVE index moving from 80 on Tuesday to 104 on Thursday.
The 10-Year yield has seen larger 3-Month percentage changes throughout its history, but the rate of change is now closing in on the +1STD band which triggers a SELL signal. Put plainly, the market cannot easily absorb a +20% change in interest rates over a single quarter, and that’s where things tend to historically break.
Yields rose because the economy is perceived to be overheating. S&P Global’s flash composite PMI climbed to 58.4 in September from 56.0, with output expanding at the fastest rate in over five years. Initial jobless claims fell to 197,000, a level not seen since the late 1960s. Markets now put roughly a 70% probability on a Fed hike in October, up from about 50% a week earlier.
In short, the same economic strength that boosts earnings is driving the discount rate upward.
On the consumer side, the situation is completely different.
The University of Michigan’s final September sentiment index dropped to 48.1, marking a four-month low. One-year inflation expectations climbed to 4.6%, up from 3.4% before the Iran conflict, with gasoline prices near $4.50 a gallon contributing to the rise. The short-run outlook for business conditions plunged amid renewed worries that elevated fuel prices and re-escalating trade disputes could pass through to the economy as a whole.
On that note, crude eased on Friday: WTI fell to $91.96 as U.S. and Iranian officials discussed reopening the Strait of Hormuz, while Brent remained close to $100. This caused a relative surge in risk assets, as oil remains the main driver of the market for now.
Beneath the headline index advance, the week was narrow: Technology (XLK) rose +3.6% and Communication Services (XLC) added +1.9%. On the losers side, Utilities (XLU) declined -4.3% and Energy (XLE) fell -3.8%.
7 of 12 sectors ended the week lower, but SPY climbed because Technology provided enough lift. The equal-weight S&P 500 (RSP) dropped -1.1% versus a +1.2% rise for the cap-weighted index. Small caps (IWM) slipped -0.8%, and Real Estate (XLRE) fell -2.2% in a clear example of how a 5% “risk-free” rate pressures rate-sensitive parts of the market.
We did warn that September is a weak seasonal month and the weakness did indeed show up, as the 2026 track record is nearly the worst of the past decade. The selling showed up earlier than the calendar suggested, with SPY falling -2.5% between September 03’rd and 16’th.
Since then, we’ve had a nice rally, +2.6% off the $752 low. It was the back half of the month which has outperformed expectations, contrary to historical seasonality.
Going into this week, the thread to watch is pretty straightforward. For the past two weeks stocks have largely disregarded the bond market. Wednesday’s PCE and Friday’s payrolls reports will determine if that can continue.
From a technical perspective, things are looking healthy at the index level. SPY is trading above all key moving averages, which are also trending up. All primary trends are bullish, save for the weekly MACD signal.
Since early August SPY has been confined to a range of about $750 to $770. Friday’s close put it back in the upper end of that band, just 1% shy of the August 13 record. Maintaining those highs while the 10‑year climbed above 5.2% is constructive price action, as support was comfortably maintained.
The structure of the advance left something to be desired. Most of the weekly gains happened on Monday, after a sizable +1.5% post OPEX rally. Buyers then bought into every pullback, and that’s a bullish development. A market that holds in the face of negative headlines and selling pressure typically still has upside.
Momentum improved, especially in the near term, as the MACD signal produced a positive crossover (the first since August 03). This now argues for a push to all-time highs and to $800 into year-end. Support stands at $761 (M-Trend) and it will also be critical to hold into week end. If support fails, downside is relatively large, to $708.
The problem is that price momentum has improved, while participation has not. Market Breadth remains horrendous, in line with a typical correction. To be sure, that correction is certainly happening, just not in SPY, where most investors are looking.
The equal-weight index (RSP) fell -1.1% on the week, with the current drawdown now at nearly -5% (higher than the 2Y median drawdown). Small caps (IWM) are experiencing a drawdown of -7.3%, about half their realized 2Y median drawdown.
As such, many individual issues are already in correction territory. All that’s needed for the headline index to crack is for Tech to start slipping.
Conversely, it’s the laggards that are the likely source of any broadening advance. Since Utilities and Real Estate were the weakest sectors of the past week (because they’re the most rate-sensitive) a drop in yields would probably trigger a swift rotation into both and lift the broader market.
Bond bears argue that equities can’t continue to disregard a 10-year yield at 5.2%. They could be proven correct in time, but the market hasn’t collaborated yet. At the moment, the prevailing trend in equities is fragile but resilient at the same time.
This week’s data will go a long way in answering whether the Fed hikes again in October.
Markets imply roughly a 70% chance of a 25-basis-point move at the October 27–28 meeting, putting two data releases in focus: Wednesday’s PCE inflation report and Friday’s September payrolls.
Wednesday features August PCE (the Fed’s preferred inflation gauge), personal spending, and the final Q2 GDP revision. Consensus forecasts are for core PCE to rise +0.2% month-over-month and Q2 GDP to remain at 2.1%. ADP’s private payrolls estimate is also due that morning, with a consensus of about 38,000.
Friday’s jobs report is the main event. The market expects 162,000 payroll gains, unemployment steady at 4.1%, and hourly earnings up +0.3%. Tuesday’s JOLTS and Thursday’s ISM Manufacturing (consensus 54.6) complete the week’s labor and activity picture. A hotter-than-expected core PCE coupled with a strong payrolls print would all but cement an October hike. With the 10-year Treasury already above 5%, that scenario would be challenging for equities.
This is part of the reason our studies are not showing a buying regime just yet, and the Enterprise strategy is positioned long, but hedged (yellow area in the chart below).
Our Trading Strategy (Sigma Portfolio)
U.S. and Iranian talks on the Strait of Hormuz may as well dominate the headlines once more. If the strait reopens, crude would fall and the inflation expectations highlighted by the Michigan survey would ease. If diplomacy breaks down, the opposite would occur: brent could climb further above $100 and yields would rise with it.
Relevant earning reports are few and far between until mid-October. We’ll get a read from Micron on Wednesday, with Accenture rounding out the AI-driven demand for consulting on Thursday. Nike will also provide some clarity on the state of the consumer.
Q3 ends on Wednesday and pension funds will likely be a buyer of bonds rather than stocks, given the selloff in treasuries. However, a bond rally may also be in the books on Friday, if the number is weak. CTAs are currently holding the largest duration shorts since April, so there is ample fuel for a short squeeze if either oil or the jobs market lights the fuse.
However, our systems are not sounding the “all clear” just yet. Generally speaking, the 50-DMA on SPY would make for a better entry point for investors that have cash on the sidelines. The risk to the downside is real. Upside appears limited, but more probable into year end, as many analysts have upgraded their price targets. For FY 2027, FactSet has published a price target of 9,261 for the S&P 500. That’s an extra +19% gain forecasted over the next 15 months.
As such, the setup calls for disciplined dip buying rather than rally chasing.
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