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“At night a candle’s brighter than the sun” – Sting

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Futures are higher to close out the week, but barring further gains in the regular session, it won’t be enough to put the S&P 500 into positive territory for the week. S&P 500 futures are up 0.5% while the Nasdaq is up slightly more at 0.6%. The catalyst for the gains this morning is lower oil prices and lower yields. Oil is lower on a report that France and other European countries are planning to release some of their diesel reserves to help lower prices. Gold is also fractionally higher while Bitcoin is up over 2%.

Asian stocks closed out the week mostly lower. The Nikkei fell close to 1% while the Hang Seng plunged more than 2.6%. South Korea bucked the trend by rising a modest 0.5%. A higher-than-expected CPI and Unemployment Rate in Japan helped contribute to the declines, while a weaker-than-expected CPI in South Korea supported the gains in the Kospi.

Unlike Asia, European stocks are closing out the week with gains. The STOXX 600 is up over 1%, led higher by Germany, while Italy lags. The gains come despite a slightly higher-than-expected Eurozone headline CPI for September, which came in at 3.8% y/y versus forecasts for an increase of 3.7%.

The main economic report on the calendar today is the September Nonfarm Payrolls at 8:30 AM, but after that, we’ll close out the week with Factory Orders and Durable Goods at 10 AM and then the Baker Hughes Rig Count at 1 PM.

Weak breadth was the story of Q3 and especially September. In the 21 trading days last month, there were just seven days with positive breadth, and the cumulative advance/decline line for the month was -1,560, which ranks as the 13th weakest monthly breadth reading since 1990. Comparing the cumulative A/D line to the index’s price level shows an ever-widening divergence as the market has become increasingly narrow. For the year, the cumulative A/D line is still positive, but after peaking just above 3,000 in mid-August, it’s now under 1,000.

As mentioned, September’s cumulative A/D line was the 13th weakest since 1990, and the chart below compares the S&P 500’s performance last month to its performance in the 24 other months comprising the 25 worst breadth months since 1990. Including last month, the S&P 500’s average performance during these 25 months was a decline of 6.7%, or more than six full percentage points more than last month’s 0.45% decline. Last month was also the only month of that group where the S&P 500 declined less than 2%.

The scatter chart below shows the breadth versus price decline from a different perspective, but here again, you can see what an outlier last month was as no other month had anywhere near as modest a decline. So, does this mean that the index is due to catch up with the weak breadth? While there’s no other month we can point to where there was as wide a divergence between price and breadth, what we can say is that of the 10 other months among the weakest 25 months for breadth where the S&P 500 declined less than 5%, the S&P 500’s median performance in the month after was a gain of 2.8% with positive returns nine out of 10 times.

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