Slip-and-slide - mixed equity defensiveness has traders pondering October in a bearish way. I suspect it doesn't necessarily resolve the question instantly but in retrospect will prove to have offered low or attractive entries for many.

Freepik

It is a question as to what level S&P will be at to effect that process, but this is not as confusing as it seems... as some steepening is happening between the sell-off in the long Treasuries and firmness in shorter duration's. Near-term it's not particularly positive, and reflects continues 'risk aversion' that's going on.

A lot of things are moving in directions that are seemingly not well-correlated. For instance, if foreign buyers of Treasuries are demanding higher rates due to lack of confidence in the United States fiscal policies, then why is the Dollar continuing stronger. I ask it rhetorically because this pattern usually diverges.

The latest economic report infers the economy is improving, but I think not so much yet, and that's why the 'second phase recession' 2024 talk is still alive. I think the larger concern is a 'passive tightening' (no more rate hikes for in that sense the 'real' interest rate remains high), and it's an indirect way to snug-up.

If long-term rates remain bumpy it's still because the Fed kept rates too long, for too long, and it becomes even trickier as Government keeps on spending (and I realize there's not much they can do, their profligate approaches are in a sense institutionalized.. but there many programs could be adjusted). That's got the long-end almost 'unhinged' and the postponement of the shutdown at this point just contributes to uncertainty.

I've been disappointed about how Treasury has handled things. Janet Yellen used to argue about addressing the 'unsustainable Debt', and did nothing and so that why I'll concur with old CNBC Rick Santelli or others bemoaning that (I think it's incredibly 50 years ago that I mentioned to Rick on the old WCIU-TV in Chicago .. financial programming in 'black & white'..hah.. that were going to not only destroy jobs but debase our currency with policies.. not just China).

Market 'X'-ray: 

Bond investors are running for the hills, that might symbolize an exhaustion of higher rates, but that's going to take time to affirm or deny.

In many areas you are banging on the Fed's lower inflation 'pace' target now, but they won't acknowledge that. Yup, pressure the other way also too long, a scenario I suspect they'll pick up on and embrace 'more passive' tightening.

For stocks there's still no uniform all-encompassing view, nor should there be. Risks are greatest where capital expenses or need for funding are greatest. It will take customers that are benefiting sooner than later to perk things up a bit as we move further into the year's final Quarter.

I do think the Fed is pretending to talk tougher than they actually intend, that is usually their approach. People are trying to maintain living costs with lower discretionary spending and higher credit card utilization, and that's a negative. It also will create a bond opportunity for those focused on the sector, I'm not.

Below the superficial level of S&P, the market is by no means expensive. It's generally cheap, and that's the bifurcation we've talked of. Little likelihood for now of money managers chasing stock prices higher 'for now', so while sure, the calendar dominates seasonality for now, nibbling will be the plan 'if' stock indexes get slammed later this month (below S&P 4200 with no particular nor necessary confidence of approaching 3800, as that might take a 'black swan' event).

And yes, 'if' that kind of slam can be avoided, and earnings deliver, well, that's the basis of those who expect a record S&P high 'still' this month. I doubt that. And yes I'm aware one of my old peers (Yardeni) sees higher productivity and no recession. My view is shy of that much optimism. No offense to Ed, but we would need a quick settlement of the Auto Strike to have any chance at all for a positive Q4.

Bottom-line: 

We may or may not have to through any kind of October 'flush' many worry about. However this is 'not' the 'Epic Debacle' set-up such as I'd forewarned was a risk back in 2007 for 2007 and 2008. That's because the majority of the stock market is pre-crashed (and bifurcated) which was not the case in 2007. So yes erratic vulnerability, even brisk stumble, but not fiasco.

More By This Author:

Market Briefing For Monday, October 2
Market Briefing For Tuesday, Sep. 26
Market Briefing For Monday, Sep. 25