Good Afternoon Traders, I hope everyone is enjoying their weekend and preparing for the week ahead. To date, I still haven’t fully moved into my new place, but I am staying there. Instead of dwelling on some of the personal things happening in my life, I began picking up the pace in other areas, resuming the growth that had stalled. I’ve developed an interest in learning Spanish, which I enjoy and feel could benefit me in the future.
Some of the major things occurring in my life remain. However, I’ve developed the strength to deal with them instead of letting them stop me. My dog’s health is about the same. He wanders, but he’s eating and responding, although he’s sleeping more. I understand he’s getting older, and I’m thankful he is still with me.
Regarding the lady, I’ve continued to think about her without making her the focal point of my day. Looking back, I was pushing a lot for connection. It was extremely important to me, which probably weighed on her. I understand now that what I considered persistence may have felt like pressure to her. That’s not to take away from her part, which involved a lot of gray areas, but I believe owning my part helps me more. I do think she will return for the real conversation we never had. However, she has to make that decision herself, which, ironically, may be best for both of us.
What’s more important is that socially, I’m becoming who I’ve always wanted to be, and it doesn’t feel the way I imagined. Before, I thought confidence meant feeling superior, almost like some mythical feeling would appear when interacting with others. Now I understand it’s the feeling of being secure in who you are and what you bring. It’s unfortunate that it took me this long to experience, but sometimes perfect timing feels like you’re too late.
I’ve felt late in life, especially with my career and where I was positioned. A few years later, I had moved well past where I started, surpassed family members and friends in earning power, and bought a home. In my wildest dreams, I never thought I’d be earning six figures, owning a home, and driving a nice car. But here we are.
I still haven’t returned to trading. However, I created a game through ChatGPT to simulate the market, including yields, sector analysis, news events, and their effects on SPY. The only asset I trade is SPY. It’s liquid, and I know its personality.
Now onto the markets.
The markets told a conflicting story this week. The S&P 500 rose about 1.2%, but strength remained concentrated in larger companies while small caps struggled. The index was moving higher without the same strength underneath it. That leaves me watching whether participation improves or whether a smaller group of companies continues carrying the market.
Expectations for AI continued to support technology, although rates remain a concern. Earlier in the week, falling oil prices and Treasury yields helped the rally. That connection matters because earnings optimism is only one part of the picture. Companies also have to operate in an environment where financing costs and energy prices affect margins and demand.
My concern with higher yields is what’s driving them. A rise led by real yields puts a different kind of pressure on equities than one driven mainly by inflation expectations. Investors can earn more after inflation in Treasuries, making the future earnings of growth companies compete against a more attractive alternative.
The longer end also reflects the compensation investors require for holding debt through an uncertain future. However, higher long-term yields alone don’t tell us how much of the move comes from term premium versus expectations for growth and future policy. For SPY, the question is whether earnings can keep offsetting that higher hurdle, especially with leadership concentrated in companies whose valuations depend heavily on future growth.
Credit adds another layer. Widening high-yield spreads would tell me investors are becoming less comfortable taking company risk, particularly if that move continues alongside rising Treasury yields. But spreads around 300 basis points aren’t automatically a level of serious concern. The pace and persistence of the widening matter more than crossing one number.
Businesses can still face more expensive financing without a major deterioration in credit spreads because their borrowing costs include the underlying Treasury yield. That’s where higher rates can begin weighing on companies before the credit market signals broader stress.
Housing shows how those pressures reach consumers. August new-home sales rose an estimated 6.4% from the previous month but remained slightly below last year’s pace. The number of homes for sale was essentially unchanged from July. Months’ supply declined as the sales pace improved, although it remained relatively high at eight and a half months. Buyers haven’t disappeared, but that isn’t the same as a strong housing recovery.
With inventory still elevated, builders have to balance moving existing homes with taking on new projects. I’d want to see starts and permits alongside sales before concluding that construction is slowing further. A lower months’ supply can come from faster sales without a meaningful reduction in the number of homes available.
Meanwhile, mortgage rates continued putting pressure on affordability. The average contract rate for a conforming 30-year fixed mortgage reached 7.12%, its highest level since May 2024, while jumbo rates reached 7.15%. Overall mortgage applications declined in the latest weekly report.
Adjustable-rate mortgages can offer a lower initial payment, making them attractive when fixed rates are high. Some buyers may expect to refinance later, but choosing an adjustable rate can also reflect what they can afford today. Either way, a lower starting payment doesn’t remove the risk of higher payments when the rate resets.
It isn’t just a potential mortgage payment consumers have to consider. Expensive revolving debt and other borrowing costs leave less room in the household budget. For businesses, that matters because money going toward interest is money consumers can’t spend elsewhere.
The University of Michigan’s final September reading showed sentiment falling to its lowest level in four months. Expectations weakened noticeably, while current conditions slipped more modestly. Consumers also expected inflation to rise, with year-ahead expectations increasing from 4% to 4.6%. Concerns about fuel prices and trade disputes were part of that weaker outlook.
For SPY, my read is that strength remains uneven. Larger companies are supporting the index, but I want to see that strength broaden while pressure from rates and oil eases. Continued leadership with improving participation would give the move stronger support. If real yields rise further, credit weakens, and fewer companies participate, I’d become more cautious about how much the index’s gains are telling us about the rest of the market.