S&P 500 and Nasdaq 100 futures are lower this morning after the US benchmark index closed with its first record high since August. The S&P 500 never ended a day 3% below its prior peak during this span:
The reconfirmation of the bull market on Tuesday came without any help from the S&P 500’s two best-performing stocks in 2026 (Sandisk and Moderna), or high beta momentum long stocks, or the positive sentiment shining through to small caps.
Robinhood traders bought the dips in memory and storage in size. Most saw volumes and buy/sell ratios way above their prior one-month average, especially Western Digital and Seagate Technology Holdings.
As a subsidiary of Robinhood, Sherwood Media is restricted from writing about any company in which Robinhood is or was a selling group member of the IPO during the regulatory "quiet period" for that company.
GenomICKs
Investors had been saying gene-yes, but on Tuesday they said ge-NO-me, as one of the hottest pockets of the market suffered an abrupt about-face.
The ARK Genomic Revolution ETF, which had been up about 50% since late July and 25% in the past month — was higher in early trading but proceeded to finish down nearly 9% on heavy volume. More money changed hands trading the ETF than any day since Q1 2021 (when its price was about double what it is now).
The ETF’s two best performers this year (Twist Bioscience and 10x Genomics) saw daily call option volumes at their highest and second-highest levels on record, respectively. And there was a similar phenomenon across short dated call options that expire on October 16 that looks to have contributed to their swoons.
For Twist, the most active contracts on Tuesday were the C$200s and the C$210s, with open interest rising materially in each. Most of the activity for the C200s took place on the bid side (indicating a motivated seller), while the C210s saw action on the mid.
It was a similar story in 10X Genomics, where the C$90s look to have been sold with C$100s bought.
These bear call spreads could have been from stock owners looking to mitigate some losses while still participating if the genomics stocks rally went into hyperdrive, or just traders looking to collect premium in a risk-defined bet against the ETF’s top stocks. In any event, these seeming multi-leg trades entailed a net sale of deltas.
The August 19 announcement from Merck and Moderna on encouraging results for their cancer therapy — even though these were achieved without the help of what we colloquially refer to as AI — helped spur interest in this more speculative subset of biotechnology.
A tip of the cap to Tribeca Trade Group CEO Christian Fromhertz, who’d been flagging the attractive technical strength in ARKG for weeks before saying he took profits on Tuesday.
Interestingly, August 19 marked a 52 week high for the State Street SPDR S&P Biotech ETF, and the recent divergence between its performance and ARKG went on to reach never before seen levels.
In fact, October marked the first time since inception that the genomics ETF was up double digits over the trailing month while the broad biotech ETF was down at least 5%.
(This kind of reminds me of last year’s romp in quantum stocks, which went haywire from mid September through mid October. I wonder if we’ll see another round of re-engagement in these names, if speculative fervor will find another release valve, or even head to the sidelines for a bit.)
Moderna, for its part, also sputtered on Tuesday.
“Today has all the hallmarks of a key negative inflection for MRNA,” wrote Jonathan Krinsky, chief market technician at BTIG. “Several other names along with MRNA have helped the SPDR Biotech ETF (XBI) hold up well, but now with these names starting to unwind their parabolic advance, XBI is starting to break short-term support.”
Correlated Kings
High dispersion and the lack of breadth in the stock market has been a top-of-mind issue in this newsletter and across financial media.
But enough talk about what hasn’t been working: instead of moaning about the inability of all the different sectors of the market to join hands and sing kumbaya in unison, let’s give thanks for two incredibly important cohorts that found their footing simultaneously.
The largest spenders of the AI boom and the biggest industry group that benefits from this spending are both doing well!
The 21-session correlation between VanEck Semiconductor ETF and hyperscalers recently flipped from its most negative ever back into positive territory as the S&P 500 made its march towards a fresh summit. The correlation between these groups had fallen apart after the pan-everything rally in April off the 2026 low for the S&P 500.
Oh, and about bad breadth? Well, that might be starting to change.
The S&P 500’s cumulative advance-decline line has bounced vigorously as of late, with four straight positive sessions — its longest such streak since August.
CCCs and desist
Well, we always need something to worry about. Lately, one such fly in the ointment on the outlook for risk has centered on the credit market looking much less encouraging than the stock market.
“My credit and rates colleagues continue to signal high anxiety,” wrote Goldman Sachs’ Brian Garrett earlier this week.
The note included a version of this chart showing the three-month correlation between the daily net change in IG CDX (five-year credit default swap spreads on a basket of US investment grade companies) and the percent change in the S&P 500.
We’d expect higher equities and tighter spreads to go hand-in-hand; the typically very negative correlation between the changes in the S&P 500 and five-year credit default swaps has softened substantially as of late.
One complicating factor, however, is the recent roll in the CDX, which saw its composition change on September 21. That introduces some noise into the notion of mixed messages being sent by credit versus stocks, at least by these metrics.
(For what it’s worth, the similar weakening in correlations in 2020 also happened amid the September roll!)
The trend in US investment grade credit continues to be that investors are concerned about where there’s more supply, not where there’s more risk. Excess returns (over Treasuries) for BBB bonds (the lowest rated among IG) have been running far stronger than AAA corporate debt in 2026.
Admittedly, the weakest credits do look particularly weak.
No matter how good the economy is, there will always be people, and companies, struggling. In the high yield space, these weak credits are rated CCC. Their spreads have been widening dramatically of late, and are much higher versus their five-year average than better-rated BBs (the highest-rated junk bonds) or BBBs.
In an economy with strong nominal and real growth, heavily indebted companies faring poorly operationally stick out like a sore thumb. Their issues are structural, not cyclical. “If you can’t do well in an economy like this, when exactly will you?” is the question to be asking. The next question to be asking is: “And won’t refinancing your heavy debt loads be a lot difficult because interest rates are higher?”
About 40% of the US CCC index is composed of struggling health care, telecom, and media players.
Optimum Communications had a market cap of $25 billion in 2017, and it’s a penny stock now. Do its travails mean that Americans can no longer afford internet and TV? Or do they simply mean that consumers are getting those needs taken care of somewhere else?
Some might consider it a mistake to judge the economy, or the markets, by their biggest and strongest components. And there’s some merit to that. But it’s definitely a much bigger mistake to use the weakest, most marginal firms as evidence of any broad macro trend. They’re smaller, exert less influence, and tend to not be facing new challenges; they’re just unable to overcome past ones.
I continue to think that people concerned by the argument about the bond market being a negative catalyst for equities have the causality backwards. When it comes to what’s been happening lately, it really seems like the strength of the equity market — buoyed by expectations that strong sales and profit growth will persist — is the proximate cause of the pain in fixed income.
Seen on Socials
Via @VolSignals on X:
What to watch
Wednesday:
Earnings from Applied Digital due out postmarket.
Minutes from the Federal Reserve’s September meeting scheduled for release at 2 p.m. ET
Thursday:
PepsiCo slated to release quarterly results ahead of the open.
St Louis Fed President Alberto Musalem due to speak at 1:40 p.m. ET.
Friday:
Earnings from Delta Air Linesdue out premarket.
