Momentum Check: The Record That Keeps Slipping Away

A week ago this column described a market setting records on a narrow bridge. On Friday the bridge nearly reached the other side: the S&P 500 closed about 0.7% below its August record with a week of gains behind it. Then the bond market leaned on it again. Over Monday and Tuesday the index gave back 0.9%, the 10-year Treasury pushed to fresh 19-year highs above 5.2%, and the record that looked a session away is now nearly 2% off.

The pattern is the momentum story of September in miniature. Every approach to the high has been met by selling, and every pullback has come with the same internal warning: far more stocks breaking down than breaking out. This morning brought the first data point in weeks that cuts the other way. Whether momentum can use it is the question for quarter-end.

Two days, one culprit

Monday did the damage. The 10-year rose about 6 basis points to roughly 5.24%, its highest since 2007, and the Nasdaq fell 0.9% as the weekend’s headlines — OpenAI’s second sandbox escape and training pause, and reports that President Trump had rejected Iran’s ceasefire offer — hit the AI leaders that had carried last week. Gold dropped about 3.5%, another sign that rising real yields, not inflation fear, are driving the bond selloff.

Tuesday was quieter but just as telling. Oil fell about 3.5% — normally a gift to stocks this year — and still the S&P slipped 0.2%. The Conference Board’s consumer confidence index dropped to 81.9, far below the roughly 89 expected, and job openings slid to 7.08 million. Soft consumer data and falling crude should have pulled yields down. They didn’t. When good news for bonds can’t lower yields, the selling pressure is structural, and momentum traders notice.

Breadth: the fourth week of warnings

This is the signal that has not let up. Net new lows on NYSE-listed stocks — 52-week lows minus 52-week highs — ran to about −280 on Monday and −223 on Tuesday, readings that would be unremarkable in a correction and are extreme for an index this close to a record. The divergence began on Sept. 9. By one count it is the ninth such episode since 2010, and in only three of the previous eight was the S&P higher three months later. That is not a sell signal on its own; it is a reminder that rallies on this little participation have historically struggled to extend.

Investors are voting with their cash, too. Roughly $32.8 billion has flowed into T-bill and ultra-short bond ETFs over the past 13 weeks — money that is being paid around 4% to wait. And the VIX, which hit a nine-month low of 14.21 just a week ago, has drifted back above 16. None of these is alarming alone. Together they describe a market that is near its high in price but not in conviction.

This morning: the first crack in the bond case

At 8:30 a.m. the Commerce Department delivered what bulls have been waiting for. Core PCE prices — the Fed’s preferred inflation gauge — rose 0.2% in August, and the annual rate came in at 3.0%, well under the roughly 3.3%–3.4% forecasters expected. Headline PCE ran 3.4% against expectations near 3.7%. The economy isn’t cracking to deliver it, either: second-quarter GDP was revised up to a 2.2% annual pace from 1.5%, and ADP counted 90,000 private jobs in September, above the 70,000 forecast.

Cooler inflation with solid growth is the combination most likely to take some steam out of October hike odds and give the long end room to breathe. But the last two sessions showed that this bond market does not reverse on a single good print. The momentum test today is whether stocks can rally and hold it into the close — with small caps and the equal-weight S&P participating — or whether a morning pop fades as yields refuse to follow. Then, after the bell, Micron reports: analysts expect roughly $51 billion in quarterly revenue, and its guidance is the verdict on the AI leadership that has carried this market.