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* FIEND'S SUPERBEAR MARKET REPORT *

* October 6, 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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What If the Next Move Isn’t Up?

The Nasdaq made another record Monday.

The 10-year Treasury made another multi-decade high.

The dollar strengthened.

And the probability of a Federal Reserve rate hike later this month fell to roughly 20%.

Apparently all of these things now belong in the same market.

Technology investors see weaker employment and celebrate the likelihood that Kevin Warsh will sit on his hands in October. Bond investors look at inflation, deficits and enormous borrowing requirements and continue demanding higher yields. Currency traders see those elevated U.S. yields—and fiscal trouble elsewhere in the world—and keep buying dollars.

There isn't much agreement other than the fact that money continues flowing toward the largest technology companies.

The Nasdaq gained another 1.1% Monday and closed at a record. Nvidia reached a market capitalization around $5.76 trillion.

Meanwhile, the 10-year Treasury touched roughly 5.35%, its highest yield in about 24 years. Reuters

That is an extraordinary combination.

Another Record, More Bad Breadth

Monday looked healthy enough from the television screen.

The S&P 500 gained 0.7%. The Dow rose modestly. The Russell 2000 even participated with a 0.75% gain.

But NYSE breadth was negative.

There were 1,324 advancing stocks against 1,420 decliners even with the S&P strongly positive. New lows outnumbered new highs by nearly five to one, 238 to 49.

The Nasdaq itself had positive breadth, but even there 350 stocks made new lows compared with 173 new highs while the index was setting a record.

That continues the same pattern we have been watching for weeks.

The indexes climb.

The leadership stays concentrated.

The weak stocks remain weak.

InvesTech's A/D Divergence indicator deteriorated again Monday to -5.57, its worst reading of this decline. InvesTech Research

This does not tell us when the major averages will finally react.

It tells us that their records continue to represent a much narrower slice of the market than the headlines suggest.

The Fed Odds Have Become a Moving Target

Then there is the Fed.

Only a little over a week ago, markets were assigning roughly a 70% probability to another rate increase in October.

Monday that probability was down near 20% after September payrolls rose by only 29,000.

Now traders have simply moved the expected hike down the calendar.

CME pricing Tuesday morning shows roughly an 87% probability of a rate increase by December. Reuters

Maybe.

But anyone treating that number as a forecast should remember what just happened.

September's hike went from a coin toss to near certainty in a matter of days.

October went from roughly 70% to 20% almost as quickly.

December can do the same thing.

Fed futures are useful for telling us what traders believe today.

They are considerably less useful for telling us what Warsh will do two months from now after several additional employment and inflation reports.

WUCO has plenty of time to find another reason to wait.

Perhaps September Was the Last Hike

There is even another possibility receiving relatively little attention.

What if September's quarter-point increase was not the beginning of another tightening cycle?

What if it was the last hike?

That seems unlikely based on today's pricing. Inflation remains above target and several Fed officials still expect additional tightening.

But imagine the next few months.

Employment growth continues weakening.

Unemployment moves higher.

Energy prices begin damaging consumer spending.

Small companies continue struggling under high financing costs.

Housing weakens further.

Meanwhile oil gradually retreats as Middle East exports recover.

Under that scenario, December becomes another hold.

Then sometime in 2027 the conversation could turn completely around.

Not another hike.

A cut.

We have already watched the monetary narrative reverse once this year. January began with markets expecting rate cuts. By September the Fed was raising rates.

There is no law preventing another reversal.

Twenty Percent Recession Odds

Prediction markets aren't particularly worried.

Kalshi currently puts the probability of a U.S. recession in 2027 at only about 20%, reportedly an all-time low for that contract. CryptoBriefing

That sounds reassuring.

It also requires an unusually pleasant outcome.

The economy slows enough to prevent inflation from accelerating.

But not enough to cause recession.

Employment weakens enough that the Fed can pause.

But not enough to seriously damage consumer spending.

Bond yields stop rising.

Oil remains under control.

Corporate earnings continue growing.

And AI spending remains strong enough to justify some of the highest technology valuations ever recorded.

Possible?

Certainly.

But markets currently seem to be pricing something close to that ideal outcome.

When the Nasdaq is making records while Treasury yields are reaching levels last seen in 2002, there isn't much margin for disappointment.

The Dollar Is Sending Its Own Message

The dollar has also rallied more than 3% since early September, despite the collapse in expectations for an October hike. Reuters

Ordinarily, fewer expected rate increases should make a currency less attractive.

But currencies are relative.

Europe has its own problems.

French fiscal concerns have pushed its risk premium over German debt to the highest level since the eurozone crisis era. Political uncertainty has also risen in Spain.

Against that backdrop, the United States can look relatively attractive even while its own bond market struggles.

High Treasury yields help too.

Foreign investors receiving more than 5% from U.S. government bonds have a reason to hold dollars even if Warsh skips October.

A stronger dollar provides the Fed with one small benefit.

It reduces some imported inflation.

But it also creates tighter global financial conditions and becomes another headwind for U.S. exporters.

Again, almost every part of the market is pulling in a different direction.

Bonds Still Refuse to Listen

The strangest part remains the Treasury market.

Normally the collapse in near-term Fed hike expectations should provide significant relief to bonds.

Instead, the 10-year reached another new high around 5.35%.

The 30-year remains near 5.67%.

That reinforces the argument we have been making for several weeks.

The long-end problem is becoming less about the next FOMC meeting.

Bond investors are looking at persistent inflation, $40 trillion of federal debt, enormous Treasury issuance and a government showing little appetite for fiscal restraint.

Whether Warsh raises the overnight rate 25 basis points on October 28 may be becoming almost irrelevant to someone lending Washington money until 2056.

The lender wants to know what those dollars will be worth decades from now.

Apparently 5.5% still does not provide a universally convincing answer.

The Next Move Could Go Either Way

This is why the December probability should be treated cautiously.

If inflation accelerates and employment stabilizes, another hike becomes obvious.

If employment continues deteriorating and energy-driven inflation begins fading, December could disappear from the tightening calendar just as October did.

Then 2027 becomes interesting.

The Fed could find itself facing the worst possible choice: inflation still somewhat above target but an economy increasingly damaged by the very high long-term rates the bond market imposed on its own.

At that point cutting rates would begin to look attractive even without inflation returning to 2%.

That would fit the WUCO pattern perfectly.

Raise rates only when there is no reasonable alternative.

Stop at the first convincing excuse.

Cut once economic pain becomes difficult to ignore.

Perhaps that approach produces a soft landing.

Perhaps it produces the stop-and-go monetary cycle we have worried about, where inflation never gets completely wrung out before policy reverses direction again.

We won't know for some time.

Two Markets, Two Futures

For now, investors seem comfortable owning two completely different futures.

The Nasdaq is pricing extraordinary earnings growth, AI investment and enough Fed restraint to keep the economy going without crushing technology valuations.

The Treasury market is pricing a world of expensive capital, persistent inflation risk and heavy borrowing.

The prediction markets see only a 20% chance of recession.

The stock market seems to agree.

The small-stock universe and deteriorating breadth are considerably less enthusiastic.

One of these groups may simply be early.

But the contradictions continue getting larger.

Nasdaq at a record.

Ten-year yields at a 24-year high.

October hike odds near 20%.

December hike odds near 90%.

And perhaps, somewhere beyond that, the next actual move by the Fed is not another hike at all.

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