The S&P finished the week roughly where it started. The Dow lost 750 points. Three hundred and fifty S&P stocks closed red on Friday. AAII bearish sentiment hit 53% — the highest in over a year. Triple witching churned trillions in options. And Bitcoin crossed $80,000 for the first time. The hike week is over. Now the market has to figure out what it believes.
The Close
Flat surface. Ugly underneath. The S&P 500 slid 0.23% to 7,620. The Nasdaq gained 0.4% to 26,526. The Dow slipped 97 points — down 0.2% to 51,673. The Russell 2000 advanced 0.4%.
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| AAII Bears | 53% | +14 pts | ||
| S&P 500 | 7,620 | −0.2% | ||
| 10-Yr Yield | 4.998% | +5 bps | ||
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| Info. Technology | +0.8% | |||
| Comm. Services | +0.5% | |||
| Utilities | +0.2% | |||
| Materials | −0.1% | |||
| Health Care | −0.2% | |||
| Industrials | −0.3% | |||
| Financials | −0.4% | |||
| Consumer Staples | −0.5% | |||
| Consumer Disc. | −0.6% | |||
| Real Estate | −0.8% | |||
| Energy | −1.0% | |||
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Here's the number that tells the real story: 350 of the S&P 500's members fell on Friday. The Nasdaq finished green only because a handful of mega-cap chip and cybersecurity names were large enough to drag their index higher while the rest of the market bled. When two of three major indexes fall and 70% of the S&P's stocks close red, that's broad selling dressed up as a mixed day.
Today was triple witching — the quarterly expiration of index futures, index options, and stock options. Volume was elevated and the moves were choppy. Some of the day's action was mechanical, not fundamental. But the breadth problem isn't mechanical. It's been building all month.
Cybersecurity stocks had a monster week. CrowdStrike gained 14% since Monday. SailPoint added 13%. Okta rose 10%. Palo Alto Networks was up 8%. The group caught a bid as companies invest heavily in protecting their infrastructure in an environment where cyberattacks on energy facilities and financial institutions are accelerating.
Bitcoin crossed $80,000 for the first time — a milestone that got lost in the Fed drama. The dollar had its best week since May. The 10-year yield crept back toward 5%, settling at 4.998% after pulling back yesterday. The Thursday pullback didn't hold.
What The Market Is Pricing In
The American Association of Individual Investors published its weekly sentiment survey today. The result: 53% of respondents described themselves as bearish on stocks over the next six months. Only 29% said they were bullish. That's the most pessimism in over a year and the fewest bulls in about twelve months.
On the surface, that sounds like a warning. When most investors expect stocks to fall, it feels like the market is about to break. But in practice, extreme bearish sentiment has been one of the most reliable contrarian indicators in market history.
Here's how Tom explains it — the words are for the reader, not the source. When everyone is already afraid, they've already sold. The people who wanted out are out. The money that was going to leave has left. What remains is a market that's absorbed the worst expectations and is sitting on a pile of cash waiting for a reason to come back. On Wall Street this is called a sentiment washout: the maximum number of people who can be scared have been scared. When that point arrives, the next surprise tends to be positive.
AAII bearish readings above 50% have occurred only a handful of times in the past decade. In most of those instances, the S&P 500 was higher six months later. March 2020 — bears hit 52% the week of the pandemic low. The S&P rallied 45% over the next year. September 2022 — bears hit 60% near the October bottom. The S&P gained 22% over twelve months. The pattern isn't perfect, but the signal is consistent: extreme pessimism is usually late.
But here's the caveat. Sentiment indicators work best when the fundamental picture is mixed — when it's not obvious whether things are getting better or worse. Right now, the case for getting worse is real: $104 oil, 5% Treasury yields, a Fed that just told you more hikes are coming, and an AI trade that's under pressure from both the market and the people building it. The sentiment signal says the selling may be overdone. The macro picture says the reasons for the selling haven't gone away. When those two forces collide, the market tends to go sideways — exactly what it did this week.
In January 2016, the first Fed hike in nearly a decade was barely a month old. AAII bears spiked. The S&P fell 10% in six weeks. And then it recovered all of it by April. The lesson wasn't that the pessimism was wrong — it was early. The selling had more to go. But the people who bought the fear, not the rally, were right within three months. Extreme bearish sentiment doesn't mean the bottom is in. It means you're closer to it than most people think.
What's Next
Three things I'm watching next week:
01 — Saudi pipeline status
Energy Secretary Wright said "soon." That was Thursday. If the pipeline reopens this weekend, Monday's open will be green and Brent drops below $100. If "soon" turns into "next month," the rally dies and oil retakes the narrative. This one headline is the single biggest variable for the market right now.
02 — Costco earnings, Wednesday September 24
Costco reports after the close on Wednesday. This is the consumer spending bellwether for the quarter. If the numbers show that consumers are still spending despite $4.50 gas and higher credit card rates, the recession fears ease. If traffic or membership renewals slow, the "K-shaped economy" thesis from earlier this week gets louder. Retail data in a rate-hiking cycle tells you whether the bottom of the K is cracking.
03 — The 10-year yield at 5%
The yield pulled back Thursday, then climbed right back Friday to 4.998%. Five percent has been tested three times this week and hasn't broken cleanly higher — but it hasn't backed off either. Next week will tell you whether 5% is a ceiling that the bond market can't sustain, or a floor that becomes the new normal. If it breaks above 5.10%, the math changes for every stock in the market. If it falls below 4.85%, the worst is behind us.
The Fed week is over. The market absorbed a rate hike, an oil shock, an AI scare, and the highest Treasury yields since 2007 — and finished the week roughly where it started. That's resilience, or exhaustion. The next two weeks will tell you which.
That's it for today. Have a good weekend. I'll be back on Monday after the close.
