Daily Market Briefing — 26 October 2026

Headline equities are stable, but leadership remains defensive

The S&P 500 has absorbed the recent deterioration in financial conditions without a large correction. SPY closed at 765.37 on October 26, down just 0.1% over five sessions and 0.8% over 21 sessions. It remains 3.6% higher over 63 sessions and sits close to its 50-day moving average.

The internal market is considerably weaker.

QQQ has fallen 4.3% over 21 sessions and remains below its 50-day moving average. Communication services have lost 8.1% over the same period and technology 5.1%. Small caps have recently performed better, with IWM gaining 2.1% over five sessions, but they remain down 5.3% over 63 sessions compared with a 3.6% gain for SPY.

Sector leadership points in the opposite direction from the technology-led regime that previously supported the market. Energy has gained 12.3% over 21 sessions, utilities 7.7%, consumer staples 7.2% and healthcare 5.0%.

Industry-level data reinforce the split. Semiconductor equipment and materials have fallen a median 22.8% over 20 sessions. None of the 11 tracked companies is above its 50-day moving average and only one is above its 200-day average. Computer hardware is down 23.5%, uranium 29.9% and other industrial metals and mining 30.4%.

At the other extreme, consulting services have gained a median 20.3%, leisure 18.6%, oil and gas exploration and production 16.2%, and insurance brokers 16.1%.

The important signal is not a collapse in the index. It is the persistence of a major rotation underneath it. Defensive and energy exposure continues to outperform while several previously important growth and capital-intensive groups remain under pressure.

Falling yields provide relief, but the rates regime remains restrictive

Treasury yields have retreated meaningfully from their recent highs.

The 10-year Treasury yield stood at 5.00% on October 23, down nine basis points over seven days and 17 basis points over 28 days. The two-year yield was 4.69%, down five and 12 basis points over the same periods. The 10-year minus two-year curve remained positively sloped by 31 basis points.

Real yields have moved in the same direction. The 10-year inflation-protected Treasury yield fell to 2.66% on October 23, eight basis points lower over seven days and 17 basis points lower over 28 days.

This is a genuine improvement for assets whose valuations are sensitive to discount rates. The absolute level remains unusually restrictive, however. Both the nominal 10-year yield and the 10-year real yield were around the 99th percentile of their trailing 10-year observations.

The dollar has provided little additional relief. The broad trade-weighted dollar index was 121.32 on October 23, almost unchanged over seven days and 0.8% higher over 28 days.

The result is a less hostile direction of travel without a genuinely easy financial backdrop.

Volatility and credit have not confirmed the improvement in yields

The decline in Treasury yields has not been matched by an equivalent normalisation in other risk measures.

MOVE, which measures expected Treasury-market volatility, stood at 103.31 on October 23. That was down from 106.84 one day earlier, but 7.31 points above its level 28 days earlier.

Equity volatility tells a similar story. VIX was 19.45 on October 23, compared with 14.87 four weeks earlier. VVIX, a measure of expected volatility in VIX itself, was 109.70, up from 87.84 over the same period.

The VIX remained below the three-month VIX index at 20.48, so the volatility curve was not inverted in the way normally associated with acute near-term stress. The change relative to September is still material: markets are assigning more uncertainty to both equities and rates.

Credit spreads confirm that the improvement in Treasury yields has not translated into a broad easing of risk conditions. High-yield option-adjusted spreads stood at 3.38 percentage points on October 23, 45 basis points wider than 28 days earlier. Investment-grade spreads widened 10 basis points to 0.91 percentage points.

Rates have eased, but credit and volatility remain materially less benign than a month ago. That divergence argues against treating lower Treasury yields alone as evidence of a restored risk-on regime.

Oil remains an inflation constraint

Energy is also complicating the disinflationary case.

Oil prices remained above $100 a barrel in late October amid continued geopolitical and supply concerns. This matters because the latest available inflation data were already moving in the wrong direction before the recent energy shock.

September headline CPI was 3.7% year on year, up from 3.4% in August. Core CPI increased more moderately to 2.6%, while the latest available core PCE reading was 3.0% for August.

The Federal Reserve meets on October 27-28. The current target range for the federal funds rate is 3.75%-4.00%.

The policy constraint is straightforward. Lower market yields and weaker parts of the equity market would ordinarily make easier policy more plausible, but persistent inflation and elevated energy prices reduce that flexibility. Meanwhile, September's three-month average payroll gain was only about 51,000 jobs and unemployment was 4.2%, indicating a labour market that had already lost momentum.

That combination leaves monetary policy facing competing signals rather than a clean growth or inflation regime.

US liquidity has turned lower

The latest liquidity observations are less supportive than those from earlier in October.

The US net-liquidity proxy fell by $61.4 billion in the week to October 21, from $5.87 trillion to $5.81 trillion. The main change was a $59.3 billion increase in the Treasury General Account to $945.2 billion. Federal Reserve assets declined by about $2 billion.

Bank reserves fell almost exactly alongside that move, dropping $59.5 billion in the week to October 21 to $2.96 trillion.

The change reverses part of the liquidity improvement created by the earlier drawdown in the Treasury's cash balance. Net liquidity is now only $8.3 billion above its level 28 days earlier and $103.4 billion below its level 91 days earlier.

There is no evidence here of a funding crisis. The effective federal funds rate was 3.88% on October 23 against a 3.90% rate paid on reserve balances. SOFR was 3.92%, four basis points above effective fed funds and two basis points above the reserve rate. Those spreads are small, although they are less benign than earlier in October.

The reverse-repo facility can provide little additional liquidity offset because its balance has effectively disappeared, reaching just $0.2 billion on October 26.

International liquidity is not providing an obvious counterweight. The combined dollar value of Federal Reserve, ECB and Bank of Japan assets was $17.41 trillion at the end of September, down $230 billion from August and approximately $1.03 trillion from a year earlier. Currency movements explain part of the annual decline, but the estimated change in the underlying local-currency balance sheets was also negative.

Bitcoin has lost its short-term trend

Bitcoin has deteriorated alongside the less supportive liquidity backdrop.

The Binance BTC perpetual closed at $80,114 on October 25, down 2.4% over seven days and 5.1% over 28 days. Kraken spot Bitcoin was approximately $79,700 at 21:00 UTC on October 26.

The technical change is significant but not yet a long-term trend break. Bitcoin closed 2.7% below its 20-day moving average and 2.1% below its 50-day average on October 25. It remained 9.8% above its 200-day average.

The completed weekly close provides a similar distinction. Bitcoin ended the week at $80,114, still 5.3% above its 50-week moving average.

IBIT has weakened in parallel. It closed at $45.22 on October 26, down 4.9% over 21 sessions and marginally below its 50-day moving average. Its 63-session return remains 25.1%, far ahead of SPY's 3.6%.

Bitcoin therefore remains stronger on a medium-term basis than its recent price action suggests, but the short-term trend has clearly deteriorated.

Derivatives are deleveraging rather than amplifying the decline

The composition of Bitcoin's decline is important.

Binance open interest fell 2.7% in BTC terms on October 25. Across Binance, Bybit and OKX, covered open interest fell by $466 million in one day to $14.82 billion. It was also slightly below its levels seven and 28 days earlier.

Reported liquidations across those venues were weighted toward longs, with approximately $9.4 million of long liquidations against $3.9 million of shorts on October 25.

This contrasts with the October 21 rebound, when price increases were accompanied by a large expansion in open interest. The subsequent decline has removed part of that leverage.

That does not make the price signal bullish. Aggressive futures trading was skewed toward sells on October 25, the perpetual contract remained at a small discount to its index, and Coinbase spot buy-minus-sell volume was negative on the latest completed day.

The Binance long-to-short account ratio had also risen to 2.14. This measures the number of long and short accounts, not their position sizes, so it cannot establish aggregate directional exposure.

The defensible conclusion is narrower: Bitcoin is weakening while derivatives leverage is being reduced rather than rapidly accumulated. That lowers one potential source of forced instability but does not provide evidence of renewed demand.

Crypto-native liquidity is contracting

The broader crypto liquidity picture has deteriorated further.

Total stablecoin market value fell to $304.0 billion on October 26, down $2.33 billion over seven days and $4.16 billion over 28 days.

USDT supply declined by $1.11 billion over seven days and $1.33 billion over 28 days. USDC fell by $884 million and $3.54 billion over the same periods.

Stablecoin supply is not equivalent to capital entering or leaving Bitcoin. It is nevertheless a useful measure of dollar-like liquidity available within the crypto ecosystem. The current direction is contraction, not expansion.

USDT's share of total crypto market capitalisation rose to 6.76%. Because USDT supply itself is falling, that increase should not be interpreted as new stablecoin inflows. It is also consistent with the denominator, the wider crypto market, weakening.

Current US spot Bitcoin ETF flow data are unavailable. The latest complete observation in the available series is from September 25, so it cannot be used to characterise late-October institutional demand.

The contradictions are becoming harder to ignore

The strongest positive change is in rates. Nominal and real Treasury yields have fallen substantially from their recent peaks, reducing one source of pressure on long-duration assets.

Several other markets have not confirmed that improvement.

Credit spreads remain wider than a month ago. Equity and Treasury volatility remain elevated. Energy and defensive sectors continue to lead while technology and several hardware-related industries lag. US net liquidity and bank reserves have fallen. Crypto-native liquidity is contracting. Bitcoin has lost its short-term moving averages.

There is still no disorderly risk-off signal. SPY remains close to its 50-day average, funding markets are functioning normally, the VIX curve is not inverted, Bitcoin remains above its 200-day and 50-week averages, and recent crypto weakness has reduced rather than increased derivatives leverage.

The evidence therefore describes a restrictive and internally fragmented regime, not a broad liquidation and not a renewed risk-on expansion. Lower yields have improved one important variable. Confirmation from credit, liquidity, breadth and Bitcoin's short-term trend has yet to follow.