Weekly Trader's Outlook

If you read last week's blog, you might recall that I had a "moderately bearish" outlook for stocks this week, citing bearish seasonality, mixed technicals and uncertainty around the trajectory of oil prices and yields. At the time of this writing, the S&P 500 (market-cap weighted) Index and Nasdaq Composite are on track to be up roughly 1% on the week, while the S&P 500 Equal-Weight, Dow Jones Industrial Average, and Russell 2000 Indices are all on track to be modestly lower. Once again, oil prices and bond yields were important factors for stocks this week. On Monday, oil prices were down roughly 5%, and Treasury yields were also lower, which helped provide a lift to all of the major indices. Also on Monday, reports that AMD will increase prices by 10% in Q4 helped light a fire in chip stocks, which pushed the Philadelphia (PHLX) Semiconductor index (SOX) back above its 50-day Simple Moving Average (SMA) for the first time in over a month (more on the SOX in the "Technical Take" section below). The lift in sentiment around tech and the artificial intelligence (AI) complex also sent the Nasdaq Composite to a fresh record high that day. However, stocks were hit with a mid-week surge in Treasury yields following a set of exceptionally strong Purchasing Managers' Index (PMI) reports on Wednesday, which showed both an acceleration in economic activity, coupled with higher input costs. Yields on 10-year U.S. Treasuries moved higher by 14 basis points, eclipsing the key 5.0% level and closing at fresh cycle highs (5.114%). U.S. Treasury yields have continued to march higher since then, as have global bond yields. Higher interest rates are negative to the equity risk premium (the excess return on stocks over a risk-free rate, such as Treasuries), offer a more attractive alternative to stocks, and (generally) raise borrowing costs for corporations, which can negatively impact profitability and margins. As a result, stock have mostly been under pressure over the past 48 hours but are finding some "bid support" today on lower oil prices (WTI crude down ~2.5% to $92.23/barrel at the time of this writing). And oil prices dropped today following reports that Iran's foreign minister proposed a seven-day plan to reopen the Strait of Hormuz. This isn't the first time Wall Street has reacted positively to news of a potential deal between the U.S. and Iran, but if the two countries are able to come to terms on a peaceful resolution to the war, perhaps this will help being oil prices down and cool the recent surge in global bond yields.

At the time of this writing (2:10 p.m. ET) stocks are higher across the board and near the highs of the session (DJI + 411, SPX + 36, $COMP + 142, RUT + 2), driven by lower oil prices and investor optimism around a potential deal between the U.S. and Iran. To be clear, yields on 10-year and 30-year Treasuries are still higher, and hit fresh cycle-highs today, but perhaps Wall Street is hoping that the velocity of the rate rise will slow or potentially even reverse if progress is made in the Middle East. Technically, the breakout above the 50-day in the SOX, along with this week's fresh all-time high in the Nasdaq are bullish signs. Given how important the AI infrastructure buildout is to the global economy, it's likely a good sign for the bulls if the technology space regains leadership. The significant contraction in market breadth isn't necessarily a healthy sign for stocks, but stocks have seen multiple periods of narrow leadership over the past five years, and it has yet to thwart the march to fresh all-time highs in the major indices. Next week we'll get quarterly earnings from memory darling Micron Technology, along with the monthly jobs reports next Friday. Nonfarm Payrolls for the prior month came in well above estimates, and if that happens again, or if there is a meaningful pick-up in wage growth (the S&P PMI reports suggested bottlenecks in labor), then this could generate additional upside pressure in Treasury yields. Outside of next Friday's employment report, the near-term technicals are relatively bullish, and if Treasury yields pull back (or at least stop moving higher from here), this could help provide a lift to stocks. Additionally, seasonality shifts in the bulls favor as we exit September, and Q3 earnings season is essentially a couple weeks away. Therefore, I am providing a "moderately bullish" outlook for next week. What could challenge my forecast? If Treasury yields continue to push higher at the same rate (five -15 basis points/day) they have over the past three days, or if Friday's Nonfarm Payrolls comes in well above estimates, this could lead to a down week for stocks.

• Monday (Sept. 28): no reports
• Tuesday (Sept. 29): Consumer Confidence, FHFA Housing Price Index, JOLTs- Job Openings, S&P Case-Shiller Home-Price Index
• Wednesday (Sept. 30): ADP Employment Change, Advanced International Trade in Goods, Advanced Retail Inventories, Advanced Wholesale Inventories, Chicago PMI, EIA Crude Oil Inventories, Q2 GDP – Third Estimate, MBA Mortgage Applications Index, Personal Consumption Expenditures (PCE) Prices, Personal Income, Personal Spending
• Thursday (Oct. 1): Construction Spending, Continuing Claims, EIA Natural Gas Inventories, Initial Claims, ISM Manufacturing Index, S&P Global U.S. Manufacturing PMI, S&P Global U.S. Services PMI
• Friday (Oct. 2): Nonfarm Payrolls, Average Hourly Earnings, Average Workweek, Business Inventories, Factory Orders, Unemployment Rate

• Monday (Sept. 28): IDT Corporation (IDT), Jefferies Financial Group Inc. (JEF), NioCorp Developments Ltd. (NB), Vail Resorts Inc. (MTN)
• Tuesday (Sept. 29): AAR Corp. (AIR), Carmax Inc. (KMX), Carnival Corporation Ltd. (CCL)
• Wednesday (Sept. 30): Cal-Maine Foods Inc. (CALM), Conagra Brands Inc. (CAG), FactSet Research Systems Inc. (FDS), Jabil Inc. (JBL), Levi Strauss & Co. (LEVI), Micron Technology Inc. (MU), Progress Software Corp. (PRGS)
• Thursday (Oct. 1): Accenture PLC (ACN), Acuity Inc. (AYI), AngioDynamics Inc. (ANGO), McCormick & Company (MKC), Nike Inc. (NKE)
• Friday (Oct. 2): Trilogy Metals Inc. (TMQ)

There was a relatively light dose of economic data this week, which was highlighted by the monthly S&P Global PMI reports. From the September PMI reports, both manufacturing and services were exceptionally strong, both registering the highest output in roughly five years. However, price pressures also intensified with the overall rate of inflation hitting the highest level since October 2022. There was also an uptick in consumer inflation expectations from the Michigan Consumer Sentiment report, which was primarily driven by the push higher in energy prices. Here's a breakdown of the reports:

• S&P Global U.S. Manufacturing PMI: The manufacturing index jumped to 57.0 in September from 53.9 in August, which was well above the 53.6 economists were expecting and the highest reading since May of 2022. Within the report, production growth hit the fastest pace since April 2022, new orders growth accelerated to the fastest pace in nearly four-and-a-half years and jobs growth hit the highest reading since February 2021.
• S&P Global U.S. Services PMI: The services index rose to a five-year high of 58.7 in September from 56.8 in the August. Within the report, output in the services sector exhibited the steepest rise in over five years, with new orders hitting the highest levels since March 2022 and employment growth at the strongest levels since June 2022. However, the growth was accompanied by input cost inflation, which hit the highest levels since November 2022.
• Durable Orders: New orders for manufactured durable goods were unchanged month-over-month to $338.6B, which was better than the -0.3% economists were expecting. Core durable orders, which excludes transportation, increased 0.3%, which was below the +0.7% Briefing forecast.
• University of Michigan Consumer Sentiment: U.S. consumer sentiment dropped 7% to 48.1 in September, which is a four-month low but slightly above the 47.8 expected. One-year inflation expectations rose 4.6% from 4.0% in the prior month (highest since June) while five- to 10-year inflation expectations rose from 3.3% to 3.4% (highest since May).
• New Home Sales: 684K vs. 600K est.
• EIA Crude Oil Inventories: +3.00M barrels.
• EIA Natural Gas Inventories: +53 bcf.
• Initial Jobless Claims: Initial applications for U.S. jobless benefits edged down 1K from last week to 197K, which was 4K below the 201K economists were expecting. Continuing Claims inched higher by 2K from the prior week to a seasonally adjusted 1.719M, which was below the 1.745M economists were expecting.
• The Atlanta Fed's GDPNow initial "nowcast" for Q3 GDP was revised down slightly to 5.0% today from 5.1% last week, primarily driven by a tick down in private inventories.

U.S. Treasury yields registered fresh cycle highs across the curve this week which was driven by the strong S&P Global manufacturing and services PMI reports. Compared to last Friday, two-year Treasury yields jumped ~16 basis points (4.903% vs. 4.743%), 10-year yields increased ~27 basis points (5.221% vs. 4.947%) while 30-year yields rose ~22 basis points (5.52% vs. 5.30%).

Market expectations around potential rate hikes from the Federal Reserve moved hawkishly this week, which appeared to be driven by the strong PMI reports (i.e. a stronger economy may give the Fed more confidence in combatting inflationary pressures), and inflationary signals from both the PMI input costs and inflation expectations from the consumer sentiment report. Per Bloomberg, market participants are putting a 66% probability of a Fed rate hike at the October Federal Open Market Committee (FOMC), up from 53% last Friday. Longer-term, the expectation is for 3.61 25-basis-point cuts between now and the end of 2027, up from 3.42 last Friday.

Last Friday the PHLX Semiconductor index (SOX) closed above the 50-day Simple Moving Average (SMA) for the first time in over a month and exhibited some follow-through upside momentum this week. On Monday, there was a report that AMD will raise chip prices by 10% in Q4, which sent that stock to fresh all-time highs that day. This follows reports of planned price increases from several AI infrastructure names, including Nvidia and Nebius, which is a signal of robust demand for compute. Strong chip fundamentals are being confirmed by the technicals as the SOX is on track to close at the highest levels since June today. This week's price action, coupled with the index clearing prior resistance at the 50-day SMA, and a bullish crossover in the MACD indicator, is technically bullish.

Near-term technical translation: bullish

While the S&P 500 (market-cap weighted) index appears to be holding its technical ground above the key 7,600 support level, the S&P 500 Equal Weight Index (SPXEW) closed at a three-month low yesterday. The divergence between the two indices reflects the relative strength in large and mega-cap tech, coupled with relative underperformance by other non-tech sectors, likely driven by the push higher in interest rates (see "Market Breadth" section below). There have been some bearish technical signals over the past five weeks, including a bearish crossover in the MACD mid-August (meaning the faster moving line crossed below the slower moving line) and then a firm close below the 50-day SMA back on September 8th. This means the index remains in the near-term bearish category, until signs of a trend reversal manifest on the chart.

Near-term technical translation: moderately bearish

The Bitwise 10 Large Crypto Index is up 4% since last Friday, with bitcoin up 4% and ether up 3% at the time of writing. Amid bitcoin's recent rise, investors may be wondering what could come next in the broader crypto market. Historically, the fourth quarter has been the strongest seasonal period for cryptocurrencies, while September has generally been among the weaker months, according to Glassnode data from January 1, 2011, through August 31, 2026. Given the recent rally, market internals may provide additional context regarding current market conditions.

While bitcoin rallied over the past month, leverage also increased, but remains below levels observed during some prior market cycles. On its own, this level of leverage suggests positioning is not extended. However, when considered alongside measures of altcoin participation, the combination may indicate that the pace of recent gains could moderate.

Over 90% of the largest 25 altcoins have outperformed bitcoin over the past twelve weeks. However, the rate of change in relative performance, as measured by RS-Momentum, has moderated toward more neutral levels. RS-Momentum has historically led relative strength, though past performance is no guarantee of future results.

In past cycles, altcoin outperformance occurred during later stages of the crypto bull market. Total blockchain transaction fees briefly increased following the launch of Robinhood Chain, but subsequently moderated, suggesting that blockchain activity has not increased to the same extent as cryptocurrency prices. While historical patterns may not persist, the recent data suggests bitcoin's relative performance could become more prominent in the near term.

Historically, the early stages of crypto bull markets were led by bitcoin before leadership broadened to altcoins. While altcoin participation remains strong, slowing relative momentum and moderating blockchain activity are consistent with patterns that have historically preceded periods of renewed bitcoin leadership. Taken together, these indicators suggest the recent advance may be entering a more balanced phase, with bitcoin's relative strength historically tending to reassert itself at this stage of prior cycles.

Jim Ferraioli, Director of Digital Currencies Research and Strategy, authored this report.

The Bloomberg chart below shows the current percentage of members within the S&P 500 (SPX), Nasdaq Composite (CCMP), and Russell 2000 (RTY) that are trading above their respective 200-day Simple Moving Averages (SMA). In short, market breadth continued to deteriorate this week, which is generally not a healthy sign for the major indices. This suggests less participation among index members and relative outperformance by large and mega-cap stocks. Compared to last week, the SPX (white line) breadth is down to 47.80% from 53.60%, the CCMP (blue line) ticked down to 42.04% from 42.54%, and the RUT (red line) dropped to 51.61% from 54.07%.

Market breadth attempts to capture individual stock participation within an overall index, which can help convey underlying strength or weakness of a move or trend. Typically, broader participation suggests healthy investor sentiment and supportive technicals. There are many data points to help convey market breadth, such as advancing vs. declining issues, percentage of stocks within an index that are above or below a longer-term moving average, or new highs vs. new lows.

This Week's Notable 52-week Highs (31 today): Apple Inc. (AAPL - $0.25 to $335.67), Biogen Inc. (BIIB - $1.24 to $225.12), Cloudflare Inc. (NET + $2.78 to $361.60)
Moderna Inc. (MRNA + $1.17 to $195.99), Okta Inc. (OKTA - $2.01 to $204.63), Twilio Inc. (TWLO- $9.66 to $290.00)

This Week's Notable 52-week Lows (173 today): AON PLC (AON + $0.57 to $276.66), Atmos Energy Corp. (ATO + $0.58 to $157.00), BWX Technologies Inc. (BWXT + $1.14 to $139.82), Cal-Maine Foods Inc. (CALM + $0.02 to $68.50), Fiserv Inc. (FISV + $0.02 to $46.00), McDonald's Corp. (MCD - $0.14 to $236.88)