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* FIEND'S SUPERBEAR MARKET REPORT *

* September 25, 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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September's Two Markets

September has produced one of the stranger combinations we have seen in years.

The Nasdaq and S&P 500 spent part of the month making records.

At exactly the same time, the bond market has been getting demolished.

Thursday brought another chapter.

The 10-year Treasury yield surged as high as 5.20%.

The 30-year reached 5.48%, its highest level since 2004.

That isn't a normal little adjustment in interest rates.

Since the June Fed meeting, the 10-year yield has risen roughly 70 basis points. Since early March, it is up about 125 basis points.

The Federal Reserve finally responded last week with a 25-basis-point rate increase.

The bond market's response appears to be:

That's nice. What else do you have?

Another Bad Day Underneath

Stocks looked almost boring Thursday.

The S&P 500 finished essentially flat.

The Nasdaq managed a tiny gain.

The Dow slipped about 0.3%.

Anyone checking only the closing numbers could reasonably conclude that Wall Street simply shrugged off another ugly day in bonds.

Then look underneath.

On the NYSE, just 949 stocks advanced while 1,810 declined.

Only 29 stocks made new highs.

437 made new lows.

The Nasdaq was worse.

There were 481 new lows against only 84 new highs.

That continues the pattern we have been discussing all week.

The averages remain relatively close to records because a small collection of enormous technology stocks still carries tremendous weight.

Beneath them, the market continues to rot.

This is no longer one ugly breadth day that can be dismissed as noise.

InvesTech's Advance-Decline Divergence Index has fallen to its weakest reading in six years, while its Negative Leadership Composite has reached a level the firm describes as a critical warning.

That doesn't guarantee a bear market.

Nothing does.

But it certainly doesn't resemble the broad participation one normally associates with a healthy bull market.

The Bond Market Keeps Voting

The larger problem remains Treasuries.

Wednesday's surge in yields was initially blamed on unexpectedly strong business activity and rising input costs.

Thursday the selling simply continued.

That is more troubling.

Markets can overreact to one economic report.

When the selling carries into the next session and spreads globally, it begins looking less like a reaction and more like a repricing.

German yields are near levels last seen around the financial crisis.

Japanese yields have reached their highest levels in decades.

The U.S. 30-year is at a 22-year high.

This isn't merely investors wondering whether Warsh will raise rates another quarter point in October.

The price of long-term money is changing.

And buyers of long-term government debt increasingly want substantially more compensation.

Five Percent Wasn't the Ceiling

A few weeks ago, everyone watched the 10-year approach 5% as though that level would automatically attract enormous buying.

Then it crossed 5%.

Nothing magical happened.

Thursday it reached 5.20%.

Now Wall Street is beginning to discuss 6%.

There is no reason the 10-year must reach 6%.

But there was also no economic law preventing it from reaching 5%.

Round numbers matter mostly because investors believe other investors care about them.

Eventually fundamentals take over.

The federal government needs enormous amounts of financing.

Inflation remains above target.

Energy costs have surged.

Economic activity remains surprisingly resilient.

And the world's largest bond buyer for much of the post-financial-crisis era is no longer suppressing long-term rates through massive quantitative easing.

Under those circumstances, the market gets to determine how much yield is enough.

So far, the answer keeps moving higher.

October Is Still Not Certain

Perhaps the strangest development Thursday was that expectations for an October rate hike did not rise dramatically with bond yields.

Depending on when the measurement was taken, Fed futures remained around the high-60% to low-70% range.

Still likely.

Not certain.

That may tell us something important about how markets view Kevin Warsh.

Investors increasingly believe another hike is necessary.

They are less certain Warsh will actually deliver it.

WUCO remains alive.

Warsh Usually Chickens Out.

Last week's hike came only after inflation remained elevated, oil surged, the 10-year crossed 5% and futures priced action at almost 95%.

The decision had become practically unavoidable.

October is different.

The Fed has six weeks to find reasons to wait.

Oil could decline.

Employment could weaken.

One inflation report could come in slightly better than expected.

Stocks could fall sharply.

Any of those would provide an argument for patience.

That seems to fit Warsh's preference for reactive rather than preventative tightening.

The trouble is that inflation doesn't wait for Fed meetings.

December Could Become Ugly

Suppose Warsh pauses in October.

Then suppose September and October inflation show the energy shock spreading through the economy.

Gasoline.

Diesel.

Freight.

Airfares.

Food distribution.

Plastics.

Chemicals.

Manufacturing.

Suppose headline CPI moves toward 4%.

Now the Fed reaches December having raised rates only once while inflation has accelerated.

A quarter-point hike might no longer look sufficient.

Suddenly markets begin discussing 50 basis points.

That would be a classic example of why preventative tightening and reactive tightening produce very different outcomes.

Raise 25 basis points early enough and perhaps the inflation psychology never gets established.

Wait for overwhelming evidence and eventually 25 isn't enough.

Then 50 becomes necessary.

Wait longer still and something larger follows.

This is how central banks end up chasing inflation instead of leading it.

Monetary Policy Works With a Delay

There is another reason waiting carries risk.

Rate hikes do not work immediately.

Warsh raised rates last week.

Nobody canceled a restaurant reservation Wednesday because the federal funds target increased 25 basis points.

A company doesn't abandon a factory expansion the next morning.

A consumer doesn't instantly change a home purchase.

Monetary tightening works through the economy over months.

Loans reset.

New borrowing becomes more expensive.

Capital investment slows.

Housing transactions decline.

Consumers gradually reduce purchases.

Eventually demand cools.

That delay means a central bank trying to stop inflation using today's data is already looking backward.

By the time the effect of September's hike is fully felt, we could be well into 2027.

Meanwhile today's energy costs are entering the economy now.

The Fed is driving using the rearview mirror while oil prices are coming through the windshield.

Oil Isn't Cooperating

Thursday certainly didn't help.

Brent crude jumped another 3.4% to $106.60 after a Houthi missile attack on Saudi Arabia revived supply concerns.

Oil has spent much of September above $100.

Every brief diplomatic headline produces a selloff.

Every new attack sends it higher again.

Consumers don't need an economics degree to understand what this means.

They see it on the gasoline sign.

Businesses see it in diesel and freight bills.

Airlines see it in jet fuel.

Farmers see it in equipment costs.

The inflation effect will not all appear in the same month's CPI report.

That is precisely why waiting for the official statistics to fully confirm the damage can be dangerous.

By the time economists can measure every downstream effect, consumers have already paid for it.

Where Is the Tight Money?

Then we come to the most interesting contradiction.

The Federal Reserve is raising interest rates.

But is overall monetary policy actually tight?

Quantitative tightening ended last December.

During QT, the Fed removed more than $2.2 trillion of securities from its balance sheet.

That was genuine monetary restraint.

Then the runoff stopped.

The Fed began buying Treasury bills to maintain what it calls an "ample" level of reserves.

The Fed is very clear that these reserve-management purchases are not quantitative easing.

Technically, that is correct.

QE is intended to push down longer-term rates and stimulate financial conditions.

Reserve-management purchases are intended to keep the plumbing of the banking system operating smoothly.

Different purpose.

Different maturities.

Different policy.

But money doesn't care much about terminology.

The Fed's balance sheet now stands around $6.75 trillion, roughly $139 billion larger than a year ago.

Its Treasury holdings are up approximately $357 billion from last year, largely because of Treasury bill purchases, even while mortgage-backed securities continue running off.

That isn't QT.

Call it reserve management.

Call it liquidity maintenance.

Call it QE Lite if you want.

Whatever the name, the Fed is no longer draining liquidity from the financial system while simultaneously attempting to convince everyone that monetary policy is becoming tighter.

That is a very different backdrop from 2022.

And M2 Is Growing Again

The money supply tells a similar story.

The Fed's latest report puts M2 at approximately $23.34 trillion in August.

A year earlier it was about $22.09 trillion.

That is growth of roughly 5.7% in one year.

Since December alone, M2 has increased nearly $1 trillion.

Money-supply growth does not translate mechanically into an identical amount of inflation.

Velocity matters.

Credit matters.

Production matters.

The relationship is much more complicated than M2 up 5%, CPI up 5%.

But it is difficult to describe a rapidly expanding money supply as aggressively restrictive monetary conditions.

This may help explain the bond market's skepticism.

The Fed raises its overnight rate by 25 basis points.

At the same time, money supply expands, the balance sheet is no longer shrinking, government deficits remain enormous and energy costs surge.

Perhaps long-term bondholders are doing some simple arithmetic.

The Government Is Competing for the Money

The bond market has another problem the Fed cannot easily solve.

Supply.

Treasury has an enormous amount of debt to finance.

Wall Street estimates the government could issue roughly $1 trillion of additional short-term bills over the next year alone.

Then add notes.

Bonds.

Maturing debt that needs refinancing.

The government is competing for capital at the same time corporations are borrowing heavily to finance an extraordinary AI infrastructure boom.

Somebody has to supply all that money.

The way markets attract additional lenders is simple.

Raise the price.

In the bond market, that means higher yields.

The 30-year at 5.48% may therefore reflect more than inflation expectations or forecasts for the next Fed meeting.

It may be telling us that there is simply an enormous amount of demand for capital chasing a finite pool of savings.

That problem cannot be fixed with a press conference.

September's Great Disconnect

And that brings us to perhaps the strangest part of all.

This bond rout has occurred during the same month that the Nasdaq and S&P 500 reached record highs.

Think about that.

The 30-year Treasury reaches its highest yield since 2004.

The 10-year reaches its highest since 2007.

Mortgage rates move back above 7%.

Oil spends weeks around $100.

Gasoline and diesel surge.

The Fed raises rates.

Yet technology stocks make records.

That is the Great Disconnect in its purest form.

There is an argument that both markets can be right.

The AI boom is producing extraordinary earnings growth and enormous capital spending.

The economy remains surprisingly strong.

Higher nominal growth naturally produces somewhat higher nominal interest rates.

Perhaps technology companies can keep growing fast enough to justify their valuations even with Treasuries above 5%.

Possible.

But there is a limit somewhere.

A 5% Treasury yield competes with stocks.

A 6% yield competes considerably harder.

Higher financing costs eventually reach even the strongest businesses.

And the hundreds of companies already making new lows suggest that many have reached their limit sooner than Nvidia or Apple.

The Bottom Is Already in a Bear Market

This is why the breadth numbers matter.

The Nasdaq can remain near a record while 481 Nasdaq stocks make new 52-week lows.

Both statements can be true simultaneously.

They simply describe different markets.

One is capitalization weighted.

The other counts companies.

The first tells us what the biggest stocks are doing.

The second tells us what the typical stock is experiencing.

Right now they are telling dramatically different stories.

The giants remain remarkably resilient.

The bottom of the market increasingly looks like it is already experiencing its own bear market.

That condition can continue for quite a while.

It often does.

The danger comes when the stocks supporting the indexes finally begin responding to the conditions that have already damaged everything underneath them.

Then there is considerably less support left.

Friday's Question

Warsh bought himself some credibility with September's rate hike.

The bond market gave him about a week.

Now the 10-year is at 5.2%.

The 30-year is approaching 5.5%.

Oil is back above $106.

Money supply is expanding.

QT is over.

Hundreds of stocks are hitting new lows every day.

And another rate hike next month still isn't considered certain.

That is a remarkable setup.

Perhaps bonds finally stabilize here.

Perhaps oil falls.

Perhaps inflation behaves.

Perhaps Warsh can wait until December and everything gradually works itself out.

But if another bad inflation report arrives before October 28, the decision may once again be made for him.

And if he waits anyway, December could require considerably more than the token quarter-point hike that would have been easier to deliver earlier.

September has demonstrated something important.

The Federal Reserve can talk about patience.

The stock market can celebrate AI.

The government can continue borrowing.

But the bond market eventually sends its own bill.

Right now, that bill keeps getting more expensive.

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