OVERVIEW
Morning Setup

• Monday: SPY gained 0.67% to 774.83 and QQQ rose 0.88% to 756.20. The Nasdaq Composite added 1.05% and closed at a record.

• Breadth: Ten of the 11 S&P sectors finished higher. Materials led with a 1.22% gain, followed by Communication Services at 1.14%. Advancers beat decliners within the S&P 500 by roughly 1.7 to 1.

• Equal weight: RSP gained 0.66%, almost exactly matching SPY. QQQE rose 0.71% against QQQ’s 0.88%, so Monday’s advance was not confined to the largest index weights.

• Mid and small caps: MDY gained 0.39% to 672.27 and IWM rose 0.66% to 283.38. Both have now advanced for three consecutive sessions, although both remain below their 50 day averages.

• Premarket: At 5:50 a.m. ET, Dow futures were +0.55%, S&P 500 futures +0.25% and Nasdaq 100 futures +0.33%. By around 7:55, SPY was trading near 777.80 and QQQ near 760.42.

• Rates: The 10 year Treasury yield has eased to roughly 5.28% after touching another multi-decade high on Monday. The 30 year is around 5.64%, down from Monday’s peak near 5.70%.

• Oil: Brent is back below $100, trading around $98.60. Gulf exports have recovered sharply and the G7 is releasing emergency inventories, although refined fuel supply remains much tighter than crude.

• Fed: Markets now put the probability of no October rate increase at roughly 78%. A December hike is still largely priced in.

• Today: August trade data arrive at 8:30 a.m. ET. John Williams moderates a New York Fed discussion at 9:05, Michelle Bowman speaks at 10:45, and a 3 year Treasury auction follows at 1:00 p.m. ET.

MARKET ANALYSIS
Stocks Pushing Despite Yields Jump

The unusual part of Monday was that technology went up while the bond market was having another difficult session as we see the Nasdaq gained 1.05% to a record close, Nvidia rose 2.1%, Microsoft gained 1.5%, and Meta and Tesla were each up around 2%. The S&P 500 gained 0.66% and finished within roughly 0.3% of its August record close.

At the same time, the 10 year Treasury yield moved through 5.3% and the 30 year touched 5.70%, levels last seen in 2002. Ordinarily that sort of move in long-term rates would make life considerably harder for growth stocks. Instead, investors kept buying the companies most exposed to AI spending and upcoming earnings growth.

Services data did little to resolve the conflict. The September ISM Services index eased to 54.9 from 55.4, slightly below expectations but still consistent with healthy expansion. The prices index rose to 74 from 72.6, its highest reading since July 2022. Orders remained strong and employment improved modestly.

That helps explain why the Fed debate has changed without disappearing. Friday’s weak jobs report made another October increase much less likely, but Monday’s services data gave policymakers little reason to declare the inflation problem finished.

For stocks, company earnings are doing more of the work while the macro backdrop remains awkward.

SPY Is Back at the Top of the Range

SPY closed at 774.83 after reaching 776.61 during Monday’s session. The ETF traded through the late-August level around 775.30 during the day, but finished just beneath it. The broader August high is higher still, around 779.40.

This morning’s premarket quote near 777.80 puts SPY back above Monday’s close and above the late-August resistance area. We still want to see what happens during the cash session before treating an overnight move as a completed breakout.

The chart has improved substantially over the past week. Using the latest 50 completed daily closes, the 50 day average is around 764.40, leaving Monday’s close roughly 1.4% above trend. That is a healthier position than the repeated tests of the moving average we were dealing with last week.

Monday’s low at 769.63 is the first useful reference on a pullback. If SPY can remain above the upper 760s while working through the old highs, there is little wrong with the immediate structure.

A quick failure back through 769 would make the breakout attempt less convincing, particularly if it came with deterioration elsewhere. For now, buyers have been doing enough to keep the benefit of the doubt.

QQQ Is Already Through Its Old Highs

QQQ closed at 756.20, having reached 756.92 during the session. That takes it above Friday’s previous high at 754.54 and leaves the ETF firmly in new-high territory.

Premarket trading near 760.40 extends the move again this morning and the 50 day average is now around 718.30, which puts Monday’s close more than 5% above it. That is a strong trend, but it also means we need to be sensible about entries after several days of gains.

There is no technical need to invent a deep support level while QQQ is trading at records. The first area to watch is simply the breakout itself. Friday’s high around 754.50 and Monday’s low near 749 give us a much more practical range for judging a pullback than the distant moving average.

If QQQ holds above that area and individual leaders begin forming tighter consolidations, we will continue looking for setups. If the index keeps accelerating vertically, we are less interested in chasing it simply because the market is strong.

Equal weight is helping. QQQE gained 0.71% on Monday and has participated throughout the recent recovery. That does not make the Nasdaq perfectly broad, but it removes one of the bigger concerns we had when the cap-weighted index was recovering while its average constituent lagged badly.

The Broader Market Is Recovering, Just More Slowly

RSP gained 0.66% on Monday, essentially the same move as SPY. That is probably the cleanest piece of breadth evidence from the session because it compares the same group of companies under two weighting methods.

The daily breadth numbers agreed. Ten sectors rose and advancing S&P constituents outnumbered decliners by 1.7 to 1.

The new-high data are where the picture is still weaker. Nasdaq produced 243 new lows against just 57 new highs, despite the index itself finishing at a record.

Those two observations can coexist. More stocks rose than fell on Monday, but many of those stocks remain well below where they traded earlier in the year. The market has become healthier over the past few sessions without suddenly repairing every chart that broke during September.

MDY Is Making Progress Toward Its 50 Day

MDY closed at 672.27, up 0.39%, after trading as high as 675.98. Monday was its third consecutive positive session.

The ETF has now recovered almost 3% from last Wednesday’s close and considerably more from Thursday’s intraday low around 653.

Its 50 day average is approximately 686.40, leaving MDY about 2% below trend. The gap is still meaningful, but it no longer looks as remote as it did last week.

The 676 area is the first nearby test because that is where Monday’s advance stalled. Above there, the high 670s and then the 50 day become relevant.

We do not need MDY above its moving average before owning anything outside mega-cap technology. What we want is evidence that rebounds can persist rather than disappear after one session.

IWM Is Recovering From a Weaker Position

IWM gained 0.66% to 283.38 and reached 284.24 intraday. It is also higher for three consecutive sessions after falling as low as 275.45 last Thursday.

Its 50 day average sits around 292.40, so small caps remain roughly 3% below medium-term trend.

That still makes IWM considerably weaker than SPY or QQQ, but the character of the chart has improved. The ETF is no longer returning to a new low every time the market comes under pressure.

The immediate test is around 284 to 285. A move through that area would take IWM back toward the upper 280s, where the September breakdown began to gather pace.

The premarket quote near 284.95 puts that test directly in front of us today. If long-term yields continue settling, we should expect some benefit to reach smaller companies. If yields turn back up aggressively and IWM immediately loses the last few sessions of progress, that would tell us the improvement remains fragile.

The Bond Market Finally Has a Quieter Morning

The 10 year Treasury yield is around 5.28%, down roughly three basis points, while the 30 year has eased toward 5.64%. That follows Monday’s move to new multi-decade highs.

Calling that a bond rally would be generous as yields remain extremely high and the better description is that the selling has stopped accelerating for the moment.

This afternoon’s 3 year Treasury auction begins a week of sizeable issuance. Around $121 billion of 3 year, 10 year and 30 year securities is due to be sold this week, so investor demand at these yields is worth watching.

The distinction between Fed policy and long-term rates remains important. Markets now see a much smaller chance of an October hike following the weak September payroll report, yet the long end of the curve has continued rising because inflation, government borrowing and the term premium are still concerns which is why another Fed pause would not automatically solve the rates problem for equities.

Oil Below $100 Is Helping

Brent is around $98.60 this morning, extending its retreat as physical supply from the Gulf improves.

September exports from Gulf producers excluding Iran recovered to around 81% of their pre-war level. Crude and condensate exports recovered even further, to roughly 91%. Saudi Arabia accounted for much of the improvement.

The situation is less comfortable in refined fuels. Product exports remain around 60% of pre-war levels, which helps explain why diesel and jet fuel markets have stayed tight even as crude itself falls.

The G7 has also agreed to release 100 million barrels of crude and diesel from emergency stocks.

For the equity market, crude below $100 is useful after the September spike. We would not confuse it with a full normalisation of the energy market, especially while the regional conflict and refining disruptions remain unresolved.

AI Still Has the Market’s Attention

Nvidia rose another 2.1% on Monday, taking its market value to roughly $5.76 trillion. It is up again before the open and approaching the $6 trillion mark. Microsoft, Meta and Tesla also contributed to Monday’s Nasdaq advance.

The enthusiasm is being supported by enormous capital commitments across the industry. Broadcom has agreed to provide Anthropic with up to $42 billion of financing tied to AI infrastructure, part of a much larger computing commitment by Anthropic.

This sort of financing is one reason the AI trade keeps surviving higher rates. Investors can see real spending commitments extending several years into the future.

It is also worth watching how intertwined the financing has become with the demand itself. Semiconductor vendors, cloud providers, AI laboratories and lenders increasingly sit on several sides of the same transactions. That does not make the spending unreal, but it does make the quality of eventual returns more important as these commitments grow.

Third-quarter earnings begin properly next week with the large banks. The market will soon have something more concrete than capital-spending announcements to judge.

Bond Market Has Plenty to Watch

The August U.S. trade report is due at 8:30 a.m. ET. The advance goods report already showed the goods deficit widening sharply to $132.6 billion, driven by stronger imports, including capital goods associated with AI infrastructure. Today’s release adds services and the full trade balance.

John Williams is moderating a New York Fed event shortly after the open, although prepared monetary-policy remarks are not expected. Michelle Bowman speaks at 10:45 a.m. ET, followed by the Treasury’s 3 year auction at 1:00.

The calendar becomes more interesting tomorrow with the minutes from September’s FOMC meeting and for today, we are more interested in how stocks behave around the old highs and whether lower oil and slightly lower yields allow the recent improvement outside Nasdaq to continue.