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* FIEND'S SUPERBEAR MARKET REPORT *

* October 2, 2026 *

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* e-mail: fiendbear@fiendbear.com *

* web address: http://www.fiendbear.com *

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Fiend Commentary
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October at the Fault Line

October began almost exactly where September left off—with nearly every part of the market telling a different story.

Treasury yields surged again Thursday morning, with the 10-year briefly reaching 5.34%, its highest level since 2002, and the 30-year moving above 5.65%. Buyers finally appeared and yields backed away from their highs later in the session, but there was little about the move that suggested the great bond selloff has been resolved. The 10-year just completed its worst quarter since 1994. Reuters

Stocks somehow survived. The Dow, S&P 500 and Nasdaq all finished slightly higher after recovering from early losses.

Underneath them, the picture remained considerably less comforting.

The S&P gained about 0.2%, yet the NYSE produced only 16 new highs against 394 new lows. InvesTech's A/D Divergence indicator remained near its worst level of the decline. Nasdaq breadth was similarly poor, with hundreds of stocks making new lows even while the major technology averages remained close to their records. InvesTech Research

That is becoming less of a divergence and more of a warning.

The averages are still standing.

A growing portion of the market underneath them isn't.

Then Something Odd Happened at the Fed

Only a week ago, markets were placing roughly a 70% probability on another quarter-point rate increase in October.

By Thursday afternoon, that probability had collapsed to around 28%.

That is an extraordinary reversal considering what happened simultaneously in the bond market.

The 10-year reaches a 24-year high.

The 30-year goes through 5.6%.

Oil remains above $100.

Inflation remains above the Fed's target.

Yet traders suddenly decide another hike is much less likely. Reuters

There are legitimate reasons.

August PCE inflation came in softer than expected. New York Fed President John Williams said there was no urgency to move again, and Vice Chair Philip Jefferson added Thursday that the Fed could take time to assess the economy before tightening further. Goldman Sachs has already pushed its next expected hike from October to December. Reuters

Then there is Friday's employment report.

Whenever market expectations shift this dramatically immediately before an important government report, somebody inevitably wonders whether word got out early.

Perhaps.

There is no evidence of that.

The simpler explanation is that investors increasingly expect Friday's number to give the Fed exactly what it needs to pause.

We'll know shortly.

Ninety Thousand Is the Number

Economists expect September payrolls to rise by approximately 90,000, substantially below August's reported 162,000 increase. Unemployment is expected to remain at 4.1%.

There is reason to question the strength of the August number. Economists cited by Reuters believe seasonal-adjustment distortions may have exaggerated the increase, which makes September particularly important. Reuters

A payroll number considerably below 90,000 would probably bury the October hike.

That sounds bullish for stocks, particularly technology.

Lower expected Fed rates reduce the discount rate on future earnings. Treasury yields might fall. The dollar could weaken. The same mega-cap technology stocks that carried September could receive another reason to climb.

There is just one complication.

What if the long end doesn't cooperate?

That may be Friday's most important test.

A weak employment report should normally push Treasury yields lower because slower economic growth reduces inflation pressure and makes additional Fed tightening less likely.

If the two-year falls sharply but the 10- and 30-year yields remain stubbornly elevated, the message would be considerably more troubling.

It would suggest the bond market's problem is no longer primarily Kevin Warsh or the next quarter-point rate decision.

Investors may instead be demanding compensation for persistent inflation, enormous government borrowing, heavy corporate issuance, energy uncertainty and the possibility that the era of 2% inflation and cheap long-term money is simply over.

In that case, a weak jobs report could solve one problem for the Fed while exposing another.

Good News Could Be Bad Again

The opposite outcome is easier to understand.

Suppose payrolls come in at 150,000 or more and unemployment stays at 4.1%.

The argument for waiting becomes harder.

October hike expectations could quickly return above 50% or 60%, especially if wages are also firm.

That would probably put renewed upward pressure on short-term yields and could send the 10-year back toward Thursday's high.

Stocks would then face the same problem they spent September trying to ignore.

At what yield does a Treasury bond become more attractive than an expensive stock?

Five percent didn't do it.

Apparently 5.25% hasn't either.

What about 5.5%?

Six?

Nobody knows because the market hasn't had to answer that question for decades.

The 10-year came close to 5.35% Thursday. Reuters technical analysis has identified the area around 5.65%—roughly its 50-year moving average—as another significant historical reference point, with levels above 6% no longer technically unimaginable. Reuters

This doesn't mean yields move straight there.

Thursday itself demonstrated how quickly an overextended bond market can reverse once buyers appear.

But six percent has moved from an absurd conversation to one that serious investors are beginning to have.

The Stock Market Has Less Margin for Error

That would matter much less if stocks were cheap and broadly healthy.

Neither description fits today's market particularly well.

The Nasdaq remains near record territory because AI and mega-cap technology stocks continue producing extraordinary gains. Yet the NYSE new-low list has been running in the hundreds almost every day.

Thursday marked the 23rd consecutive session in which NYSE new lows outnumbered new highs, according to market data tracked by MarketWatch. MarketWatch

That is not what normally comes to mind when looking at an index near a record.

The weakness has been gradual enough that it hasn't generated panic.

Small companies weaken.

Financial stocks weaken.

Industrials weaken.

Another few hundred issues make new lows.

Then Nvidia or some other technology leader gains enough to keep the index looking fine.

This can continue longer than seems reasonable.

What it cannot do is continue forever.

Eventually breadth repairs itself and confirms the major averages, or the leaders begin following the rest of the market lower.

October may tell us which one happens.

The October Reputation

October has an infamous market reputation because some of the largest crashes in history occurred during the month.

1929.

1930.

The worst stages of the 2008 financial crisis.

That doesn't make October inherently bearish. Historically, it has produced plenty of strong rallies as well.

Its reputation is more accurately one of volatility.

That matters this year because markets enter the month already stretched in several directions.

Bonds have suffered an enormous decline.

Equity valuations remain elevated.

Breadth is weak.

Oil remains high.

The Fed has resumed tightening but suddenly appears inclined to pause.

And the stock market is increasingly dependent on a small collection of very large companies.

It doesn't require a 1987-style catalyst for that combination to become unstable.

It merely requires something investors haven't priced correctly.

Friday's jobs report gets the first opportunity.

Weak Jobs May Not Mean Easy Money

Wall Street's simplest interpretation of a weak employment report would be:

Weak jobs.

No October hike.

Lower yields.

Higher stocks.

That trade may work.

But there is a longer-term problem with cheering economic weakness simply because it restrains the Fed.

The Fed isn't considering higher rates because the economy is too wonderful.

It is considering them because inflation remains too high.

If employment weakens while inflation remains above 3%, Warsh doesn't suddenly regain the easy policy choices of the 2010s.

He gets something closer to stagflation.

Weak growth argues for lower rates.

Inflation argues against them.

The Fed then has to decide which problem is more dangerous.

The long bond market gets to make its own decision.

That is why Friday could produce a very strange reaction.

Stocks might initially celebrate a weak number while long-term Treasury investors remain unconvinced.

If that happens, pay attention to bonds rather than the Dow.

A Crossroads

September ended with an extraordinary split.

Technology near records.

Hundreds of stocks near lows.

Bond yields at multi-decade highs.

Softer inflation.

Oil above $100.

The Fed raising rates once but markets rapidly discounting another increase.

Thursday didn't resolve anything.

It concentrated the contradictions.

The 10-year briefly reached 5.34% before finally attracting enough buyers to retreat. Stocks recovered, but the market underneath remained weak. October hike odds collapsed even as long-term borrowing costs reached levels unseen for nearly a quarter century.

Now comes employment.

A strong report could force rate hikes back onto the table and put 5.5% Treasury yields into view.

A weak report could give the Fed permission to pause and send technology stocks higher again.

But the most revealing outcome may be a weak jobs report that fails to produce a meaningful long-bond rally.

That would tell us the Treasury problem has moved beyond the next Fed meeting.

And if the bond market is no longer waiting for the Fed to solve it, October could become considerably more interesting than September.

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