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* FIEND'S SUPERBEAR MARKET REPORT *

* September 30, 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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The Averages Are Hiding the Damage

Another day.

Another bond selloff.

And another few hundred stocks quietly making new lows.

The 10-year Treasury yield pushed close to 5.30% Tuesday while the 30-year briefly reached 5.62%, its highest level since 2002.

Only a few weeks ago, 5% seemed like the frightening number.

Now the market barely pauses there.

At some point bonds are going to bounce. The move has become extremely stretched technically, and even the strongest bear markets don't travel in straight lines.

But while everyone waits for that short-term bottom in bond prices, something considerably more troubling continues happening underneath the stock market.

Tuesday produced another 403 new lows.

The NYSE advance-decline line has now fallen to its lowest level since April.

Yet the major averages remain relatively close to their highs.

That divergence may be telling us more about the market than the S&P 500 itself.

The Average Stock Is Already Struggling

We have been watching market breadth deteriorate for weeks.

At first it was easy to dismiss.

Technology was strong.

AI stocks were making records.

The Nasdaq was climbing.

Apple and Nvidia alone represented more than $10 trillion of market capitalization.

Perhaps this was simply what a modern bull market looks like.

But the internal deterioration keeps getting worse.

Hundreds of stocks made new lows last Wednesday.

Even more did on Thursday.

More followed Friday.

Monday produced another wave.

Now Tuesday added 403.

One bad breadth day is noise.

Several weeks begins to look like a trend.

The NYSE advance-decline line is useful because it doesn't care how large a company is.

Nvidia gets one vote.

So does a small industrial company.

When more stocks decline than advance day after day, the cumulative line falls even if a handful of enormous companies keep the capitalization-weighted averages near records.

That is exactly what appears to be happening.

The Index Can Lie Without Lying

There is nothing dishonest about the S&P 500.

It is doing precisely what it was designed to do.

Larger companies carry more weight.

The problem is how investors interpret it.

If Nvidia gains enough market value to offset declines in 100 smaller companies, the S&P can look healthy.

The index isn't wrong.

It simply answers a different question.

What is happening to the largest publicly traded companies?

Breadth asks:

What is happening to stocks generally?

Right now those answers are increasingly different.

The large indexes say conditions remain relatively calm.

The new-low list says a significant portion of the market is already experiencing something considerably worse.

That matters because bull markets eventually need participation.

The generals can lead.

They cannot carry the entire army indefinitely.

The Bond Market Keeps Tightening

The obvious suspect is interest rates.

A 5.3% 10-year Treasury yield creates a very different operating environment from the one businesses enjoyed only a few years ago.

Mortgage rates climb.

Corporate borrowing costs rise.

Commercial real estate refinancing gets harder.

Small businesses pay more for credit.

Highly leveraged companies face increasing pressure.

And investors can collect more than 5% from government securities without assuming equity risk.

The biggest technology companies can tolerate that better than almost anyone.

Many have enormous cash balances.

Their margins are extraordinary.

Some can finance internally rather than depend heavily on capital markets.

The typical smaller company does not have those luxuries.

That may explain why the market is deteriorating from the bottom upward.

The companies most exposed to the cost of money weaken first.

The giants keep going.

Until eventually, perhaps, they don't.

The Bond Market May Finally Be Due for a Rest

There is at least one reason for short-term optimism.

Treasury yields have become extraordinarily extended.

Technical measures followed by Reuters now show the 10-year overbought on weekly, monthly and even annual measures.

That doesn't mean yields have peaked.

It means the move has become ripe for consolidation or reversal.

After the 10-year exploded from below 5% through 5.25% in a matter of weeks, a retreat toward 5% would be completely normal.

Even a move into the upper 4% range wouldn't necessarily break the larger bear trend.

This distinction is important.

A short-term bond rally is not the same thing as the end of the bond bear market.

Markets breathe.

They become overextended.

Traders take profits.

Buyers finally step in.

Then the larger trend either resumes or breaks.

If the 10-year falls to 5% and buyers disappear again, we may discover that yesterday's frightening ceiling really has become tomorrow's floor.

Then the Fed Said Relax

What makes Tuesday especially strange is what happened to rate expectations.

Long-term Treasury yields moved to fresh multi-decade highs.

Yet the probability of another Fed hike in October actually fell below 50%.

New York Fed President John Williams helped trigger the shift when he said there was "no urgency" to raise rates again immediately.

Markets quickly marked down the probability of an October increase from nearly 70% toward the mid-40s.

That is an extraordinary juxtaposition.

The bond market:

We need more yield.

The Fed:

We have time.

Both cannot remain comfortable indefinitely.

There is an explanation.

Tuesday's economic data contained some signs of weakness.

Job openings fell more than expected.

Consumer confidence plunged to 81.9, its lowest level in roughly 12½ years.

Consumers are increasingly worried about jobs, prices and the broader economy.

That gives the Fed a reason to hesitate.

Inflation argues for another hike.

Weakening confidence and softer labor demand argue for patience.

Welcome back, WUCO.

A Perfect Excuse to Wait

This is exactly the environment Kevin Warsh appears to prefer.

Not because the economy is healthy.

Because the signals conflict.

If inflation is obviously accelerating and employment remains strong, Warsh has little choice.

September proved that.

But give him competing evidence and the decision becomes easier.

Wait.

Study the data.

Talk about uncertainty.

Leave rates unchanged.

The market now seems to believe that is where October is headed.

And perhaps that will be correct.

But the bond market is creating its own problem while the Fed waits.

The 30-year at 5.62% is already imposing considerably tighter financial conditions than another quarter-point increase in the overnight rate would.

Warsh may pause.

The market isn't.

Oil Gives Him Some Help

Oil finally retreated Tuesday.

That contributed to the decline in October hike expectations.

Crude fell roughly 2½% as some Middle East supply concerns eased.

Any sustained drop would be welcome.

Oil below $100 would gradually take pressure off gasoline, diesel, transportation costs and inflation expectations.

But there is an important word there.

Gradually.

Consumers do not receive an immediate refund for the energy inflation already experienced.

California gasoline remains around record territory.

Diesel remains extraordinarily expensive.

Transportation contracts reset with delays.

Higher freight costs work through inventories over time.

The inflation pipeline doesn't empty because crude has one down day.

This is why the next several inflation reports matter more than today's oil quote.

Consumer Confidence Finally Notices

Tuesday's consumer-confidence report may also deserve more attention than it received.

The Conference Board index fell to 81.9, the weakest reading since 2014.

That is a remarkable number for an economy that has not officially entered recession.

Part of the explanation is obvious.

Consumers don't experience the economy through GDP statistics.

They experience it through bills.

Gasoline.

Groceries.

Rent.

Insurance.

Mortgage payments.

Credit cards.

The employment situation still looks reasonably strong by traditional measures, yet households increasingly appear unhappy with the direction of things.

This connects back to the argument we made last week.

Inflation does not have to remain at 9% for people to feel financially squeezed.

Several years of accumulated price increases followed by another 3% or 4% inflation can produce enormous affordability problems.

The inflation rate came down.

The price level did not.

This Is Where Markets Become Fragile

A weakening consumer would normally help the bond market.

Less spending eventually reduces demand.

Lower demand reduces inflation pressure.

The Fed can stop hiking.

Treasury yields fall.

That is the traditional sequence.

The trouble today is that several other forces continue pushing yields the opposite direction.

Federal borrowing remains massive.

Treasury supply remains enormous.

The Fed's balance sheet is no longer shrinking.

AI companies are borrowing enormous sums for capital spending.

Inflation remains above target.

Energy remains expensive.

So softer consumer data may lower expectations for Fed hikes without necessarily solving the long-end bond problem.

That appears to be what happened Tuesday.

The two-year Treasury responded to Williams' dovish comments.

The 30-year still reached a 24-year high.

That distinction is important.

The Fed has considerable influence over the front of the curve.

Long-term investors have their own concerns.

The Stock Market Is Caught Between Them

This leaves equities in an increasingly uncomfortable position.

If economic data stay strong, bond yields may keep rising.

Bad for valuations.

If economic data weaken substantially, earnings expectations eventually come under pressure.

Bad for profits.

The ideal scenario is becoming very narrow:

Growth slows just enough to reduce inflation and bond yields...

but not enough to hurt earnings.

Oil falls...

but the economy remains strong.

The Fed stops hiking...

because inflation improves rather than because something breaks.

That is the soft landing Wall Street wants.

It can happen.

But 403 new lows suggest a large part of the market is not waiting confidently for the outcome.

Watch the A/D Line

This may now be the most important stock-market indicator to follow.

Not the Dow.

Not even the Nasdaq.

The advance-decline line.

If the major averages hold near their highs while the A/D line continues making new lows, the divergence becomes increasingly difficult to ignore.

The best outcome would be breadth repairing itself.

Bond yields stabilize.

Small stocks begin participating.

New lows collapse.

Advancers start consistently beating decliners.

Then the internal market begins confirming what the major averages have been saying.

We haven't seen that yet.

Instead, each rally seems to reset the headlines while the underlying deterioration continues.

That is how a market can look healthy right up until it suddenly doesn't.

October Became Less Certain—Not Less Important

The next Fed meeting is still several weeks away.

Markets have time to change their minds many times before then.

They almost certainly will.

One hot inflation report could push hike odds straight back above 70%.

A weak employment report could send them toward 20%.

That is why attaching too much importance to today's probability is dangerous.

The more important point is that the Fed remains data forced rather than forward looking.

September required the bond market and inflation data to corner Warsh.

October may do the same.

If the data gives him an exit, our expectation remains that he takes it.

The question is whether long-term yields will allow him the luxury.

The Warning Is Underneath

There is an easy way to look at Tuesday.

Stocks barely moved.

Oil fell.

Fed hike expectations declined.

Nothing dramatic happened.

Then there is another way.

The 30-year Treasury hit its highest yield since 2002.

The 10-year touched its highest since 2007.

Consumer confidence fell to its lowest level since 2014.

More than 400 stocks made new lows.

And the NYSE advance-decline line fell to its weakest point since April.

The major averages are still hiding much of the damage.

That can continue.

It has already continued much longer than many expected.

But if there is one lesson from previous narrowing markets, it is that eventually one of two things has to happen.

The average stock catches up to the indexes.

Or the indexes catch down to the average stock.

Right now, the second possibility is becoming harder to ignore.

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