Stock Market Analysis (Oct 12–16): CPI, Earnings and Corporate Buybacks
This week is rather heavy on economic data, with September CPI coming on Wednesday, followed by PPI and retail sales on Thursday. Another important event to have on your calendar is Fed Chair Kevin Warsh’s conversation with IMF Managing Director Kristalina Georgieva late Thursday US time, where we could get some additional comments on monetary policy and the broader economy.
However, I think the bigger story this week is the start of Q3 earnings season and, more importantly, the corporate buyback window beginning to reopen around October 15. From there, we should gradually see the corporate bid return as more companies exit their blackout periods, with buying activity potentially accelerating into November.
In terms of stock market seasonality, we could see some choppiness this week and potentially further weakness later in the month, particularly as investors reduce risk ahead of the busiest part of earnings season.
With that said, the broader seasonal outlook into November remains constructive, especially in midterm election years, so I would view any weakness as an opportunity. Unless we get a significant surprise from the macro data, my bias remains choppy-bullish.
Financial Stocks and Utilities: Opportunities Following the Selloff
Speaking of opportunities, last week I mentioned that XLU and utility names could start attracting buyers as bond volatility subsides and yields begin to normalise. Since then, XLU has gained roughly 4.5%, which is exactly the kind of rotation I have been looking for.
Another area worth watching is financials, which have been under quite a bit of pressure since the Fed’s September rate hike. With earnings season kicking off, there is an opportunity for some of these names to recover. In addition to this, we saw some fairly high-conviction bullish options flow last week, with expirations positioned after earnings.
JPMorgan (JPM), Goldman Sachs (GS), Wells Fargo (WFC) and Citigroup (C) report on Tuesday, October 13, followed by Bank of America (BAC) and Morgan Stanley (MS) on Wednesday.
These names are trading more than 10% below their highs, so a decent set of results and, more importantly, good guidance could help reverse some of the weakness and start a rally.
S&P 500 Market Breadth and Treasury Yields
Moving to the broader stock market, the improvement in breadth that we have been discussing is gradually starting to materialise.
If you look at the S&P 500 New Highs–New Lows indicator, which measures the difference between stocks making new 52-week highs and those making new 52-week lows, there are early signs that breadth may have bottomed and is starting to improve.
Another thing I wanted to bring to your attention is that US economic data has increasingly been disappointing analyst expectations, with the Bloomberg US Economic Surprise Index moving into negative territory over the past few weeks.
This supports my view that we are unlikely to see another sustained leg higher in Treasury yields without an upside surprise in inflation or growth.
To add to the yield thesis, if we compare the move in Treasury yields with previous Fed hiking cycles, the magnitude is still broadly within the historical range.
In other words, while the move has certainly been uncomfortable, it is not unusual following the start of a tightening cycle. Bond volatility should gradually subside, which would also help support rate-sensitive areas of the equity market.
And since we are looking at historical hiking cycles, I also wanted to share how the S&P 500 has performed following the first rate hike. It is worth remembering that the start of a hiking cycle does not automatically mean equities have to move lower.
Could the US Treasury Reduce Long-Term Bond Issuance?
On a related note, back on September 29, I mentioned that I expected some form of Treasury intervention to help stabilise the bond market.
Late Friday, Citi published a note suggesting that the US Treasury could reduce issuance of longer-dated bonds, particularly the 20-year and 30-year maturities, and shift more funding towards Treasury bills beginning next month.
othing has been officially announced, but it is interesting to see this idea gaining traction across the analyst community.
The next quarterly refunding announcement on November 4 will be very important in that regard. By the way, keep in mind that the US Treasury market is closed today for Columbus Day, while equities trade as usual.
US Economic Growth: Is Recession Risk Increasing?
Now, you might be wondering whether weaker economic surprises and elevated bond yields are pointing towards an increasing risk of recession.
One of the GDP trackers I follow, the Dallas Fed’s Weekly Economic Index, eased to 2.71% from 2.97% in the week ending October 3, bringing an end to its strongest stretch above 3% since 2022. The 13-week average also moderated slightly to 2.88%.
However, the broader picture continues to point towards above-trend economic growth and not an economy heading into recession.
The reason I follow this indicator is its historically strong correlation with actual GDP. It certainly has its forecasting misses, but it continues to suggest that the US economy is holding up reasonably well despite tighter monetary policy.
Slower growth is not the same as a recession, and some moderation in economic activity, provided it does not turn into a sharp contraction, could be exactly what is needed to reduce pressure on yields and allow equities to move higher.
SPY and QQQ Market Positioning: Key Levels for October 2026
Finally, moving to options positioning, SPY is starting to look more constructive, with bullish positioning improving and options volumes picking up.
Market maker exposure is also becoming more supportive, which could help stabilise price action and limit some of the volatility we have seen recently.
The implied move is around 10 points, giving us a working range of approximately 768–790, with 770 remaining an important support level and 785 my first upside target. A sustained move above that would open the door towards 790, particularly if earnings and inflation data cooperate.
What is perhaps more interesting is that QQQ positioning has moderated quite a bit, with the ETF now trading around the important 750 support area.
Unless we see a meaningful improvement in tech positioning, I would not be surprised to see SPY outperform QQQ this week, particularly if the rotation into financials and other rate-sensitive sectors continues.
Market Outlook: Key Takeaways
A busy week ahead with CPI, PPI, retail sales and the start of Q3 earnings season. The corporate buyback window begins reopening around October 15, providing a potential tailwind into November.
Market breadth is gradually improving, while softer economic data and stabilising Treasury yields support my view that bond volatility should ease. Financials could offer an opportunity following the selloff, particularly with major banks reporting this week.
SPY positioning is turning more constructive, with 770 as key support and 785 the first upside target. QQQ remains weaker around 750, so SPY could outperform tech.
Overall, my bias remains choppy-bullish, with any weakness potentially offering opportunities unless macro data delivers a significant surprise.