In this Friday morning market commentary, Kenny Polcari reviews the previous day’s broad equity rally and bond market moves, attributing the risk‑on bounce to falling oil prices and a brief easing of inflation concerns. He details the performance of major U.S. indices and sector breakdowns, notes that oil remains above $100 but may test $91, and explains how the 10‑year Treasury yield slipped to 4.95% after an eight‑day rise. Polcari highlights the upcoming $183 billion Treasury issuance of 2‑, 5‑ and 7‑year notes and outlines scenarios that could push yields higher or lower, linking them to oil, economic data, and geopolitical risk. He reviews recent economic releases – weaker housing starts and permits, resilient jobless claims, and upcoming industrial production numbers – and assesses their impact on the market narrative. European markets are down, U.S. futures are mixed, and he cautions that high volumes from quadruple‑witching and S&P rebalancing are bookkeeping trades, not fundamentals. He ends with a promotional plug for a complimentary portfolio review and a step‑by‑step linguine puttanesca recipe, using the dish as a metaphor for market dynamics.
Chapters
Well, good morning. Yes, it's me, Kenny Polcari, your host of the party. And today is Friday, September 18th, 2026, and it is pouring rain outside, coming down in buckets. So let's see what that means, if anything, because here are the things that you need to know to get your day started. Well, what a difference 17 hours makes. Oil declined, yields declined, and it was a risk-on for the sexy growth names yesterday. We have $183 billion of 2, 5, and 7-year notes coming due next week. Let's see how the market responds to that. Housing data is weak. Building permits were weak. Mortgage rates are kissing 7%. And what do we have for dinner tonight? We're gonna have the linguine puttanesca. Oh my God, so delicious. Well, that didn't take very long. Less than 24 hours after the traders and the algos threw a Then over Kevin Walsh's rate hike and Hawkish message, investors came storming back into the market. Stocks and bonds rallied together in this risk-on reaction as falling oil prices helped ease the inflation anxiety. At 4 PM yesterday, here's what the scoreboard looked like. The Dow added 316 points or 6/10. The S&P up 85 points or 1.1%. The NASDAQ surging by 440 points or 1.7%. The Russell added 15 points or 0.6%. The Transports gained 108 or 0.6%. The equal-weighted S&P added 45 points or 0.5%, while the Mag 7 surged by 635 points or 1.8%. Technology leading the charge, gaining 2.2%, while the semiconductors surged by 3%. Disruptive tech added 4.5%. Software up 0.8%. Cybersecurity up 1.4%. Memory names up 4.4%. And quantum gained 8%. The growth trade gained 1.5%, while the value trade was up 0.6%. And besides technology, we saw strength in consumer discretionary names up 1.1%, utilities up 0.9%, energy's up 1 point— uh, excuse me, 0.7%. Healthcare and basic materials both gained 0.6%. Real estate was up 0.3%, and consumer staples and industrials were up 0.2%. Only 2 S&P sectors ended the day lower. Financials and Communications, and they were down 0.1% and 0.6% respectively. And so what? What caused all the excitement? Well, oil. Why? Because both WTI and Brent got sold yesterday, not because peace broke out in the Middle East, but because the Saudis convinced everyone that, that they have everything under control and the damage done to their pipeline will not create the supply catastrophe. Right? I said that in yesterday's note. In addition, the savvy traders that rode the wave higher also decided to hit the sell button and lock in some of those profits. But let's be clear, oil is still above $100 and the conflict in the Middle East is not over. Period. The end. This morning, WTI is trading down, currently down 8/10 at $101.10. Now, if you look at the chart, we could see that— we could see oil fall to probably the $91 level before it finds any real support. And that would certainly help fire up the troops. And now let's discuss the bond market because that also helped the mood and because that is as important. Yesterday saw the 10-year Treasury yield, which finished at 5.02 on Wednesday. It ended the day yesterday at 4.95, snapping an 8-day move higher and allowing investors to just breathe a small sigh of relief. But let's be clear. 4.95. 4.95% is still well within the danger zone. It continues to pressure stock valuations, mortgage rates, housing affordability, and corporate borrowing costs. Unless we see yields move meaningfully lower and remain there, I'm not convinced that Thursday's feel-good mood can last at all. So what could send the 10-year surging back above 5%? Well, a renewed spike in oil would be the most immediate catalyst. Why? Because inflation expectations would jump and bonds would sell off, and that would send yields higher. Stronger economic data could do it as well. If industrial production and manufacturing activity and employment or consumer spending remain hotter than expected, investors may decide that the economy can handle and tolerate additional rate hikes. That would push expectations for the terminal rate higher and put renewed pressure on Treasuries. Now, the terminal rate Is the rate that the federal funds rate would reach before the Fed either stops hiking, pauses, or begins to cut. Then there's the supply issue. Next week, the Treasury comes to market with $69 billion of 2-year notes that are currently yielding 4.67%. That's on Tuesday. $70 billion of 5-year notes currently yielding 4.78%. That's on Wednesday. And $44 billion of 7-year notes currently yielding 4.85%. That's on Thursday. That's a combined $183 billion of issuance that will surely test investor appetite. Now, strong demand will push yields down, but if buyers demand a higher yield or dealers are left holding too much inventory, we could see the 10-year kiss and penetrate 5% again. Okay, now to be fair, then what could push them lower? Well, oil would need to continue to decline, inflation data would need to cool, and economic activity would need to soften, not collapse, just soften. We'd also need to see strong demand at the upcoming Treasury auctions and some indication that Wednesday's rate hike was enough for now. A weaker labor market or disappointing production data would also cause investors to put money into Treasuries, and that would also pull yields down. And finally, any significant geopolitical escalation that creates a true risk-off reaction could see money move out of stocks and into Treasuries, and that would also send yields lower. Again, if you look at the chart, if yields break below 4.9%, then we could see 4.8% fairly quickly. And if that happens, then we could expect stocks would rally. Conversely, if the 10-year pushes back up and through 5% and remains there, well, then all bets are off. Gold rallied by 1.9% yesterday to end the day at $4,340, taking it up and through intermediate-term trendline resistance. This morning it's up another $20 at 4,360, leaving it now at the— within the 4,320-4,540 trading range. And the VIX, the fear index, well, it plunged by 13% to end the day at 15.44, ending below now all 3 trend lines, putting it firmly in the complacent zone. It is essentially saying there's nothing to see here, which is exactly why you need to stay awake and keep your eyes open. And then there is the latest economic data to consider, because yesterday's mixed economic data also deserves attention. Weekly jobless claims fell to 196 versus the expected 208 estimate, suggesting that the labor market is what? Resilient. Housing told a very different story though. Overall housing starts fell by 2.6% in August versus the expected increase of 6.7%. Building permits, which points to future demand, also disappointed, Falling 2.7% versus the expected loss of 1.5%. But there is some nuance to that, right? Single-family starts rose by 7.6% while multifamily starts fell by 22.5%. Builders are struggling with higher financing costs, high material costs, and labor shortages. In addition, 30-year mortgages are kissing 7%, which makes affordability less affordable. So builders are having to offer all kinds of upgrades for free in order to sell their new homes. In the end, bad news for housing and a decline in oil helped to push bond prices up and yields down, and that dynamic helped to fuel the rally in stocks, especially the high-growth sexy names. Eco data today includes August industrial production expected to be up 0.3%, manufacturing production also up 0.3%, and capacity utilization at 76.4%. These reports are going to tell us whether the production side of the economy is maintaining momentum or beginning to feel the pressure from higher borrowing costs, tariffs, elevated energy prices, and tighter financial conditions. Here's how you need to think about it. Strong production data would reinforce the argument that the economy can absorb Wednesday's rate hike, but it could also push bond yields higher. refer back to the section, what could cause yields to surge. Weak data, on the other hand, could raise concerns about a weakening economy. Again, I ask you to refer back to the section, what could cause bond yields to decline. European markets this morning are all lower, down about 0.7% across the board, every single one of them down about 0.7%. U.S. futures though are trying to figure it out. Dow futures are up 16, S&P's are up 10, NASDAQ's up 108 while the Russell is down 2. Markets are trying to put a positive finish on what has been a turbulent week. 3 straight days of lower oil have helped calm inflation fears, and that has helped to improve the overall tone. But let's not confuse calmer with calm. Brent and WTI remain above $100, and that's going to keep the inflation story alive. Iran remains the antagonist in the story and appears to have no interest in making a deal until after the midterms. Hoping that their unwillingness to come to the table neuters Trump at the ballot box. Meanwhile, the 10-year yield is at 4.96%, reminding us that the bond market is not ready to take a back seat. Gold is pushing back towards $4,400 in what I think is a safety trade, and the VIX is at 15.35. It's suggesting everything is just perfect in the world. Today is both a quadruple witching and an S&P 500 rebalancing day. That means enormous volumes, especially on the opening and the closing bells. But it does not mean anything at all fundamentally has changed. It's all really a bookkeeping trade. So do not overanalyze the explosion of volume, period, the end. The S&P closed yesterday at 7,637. It was up 85 points. We're on the north side now of the trend line. So 7,615, which was resistance, Now becomes support. Futures are suggesting that we're going to churn here at the opening and then try to figure it out. Yes, yesterday was a good day, but was it the beginning of a broader move higher, or was it just another dead cat bounce? Today's eco data is going to give us one more piece in the puzzle. But in the end, until we get geopolitical clarity, I suspect that the volatility is going to continue. If you'd like to discuss your goals, Or evaluate the risk in your portfolio, simply get a second opinion. Feel free to give me a call at 561-931-0190, or better yet, you can go to the website and click on the link, uh, Contact Us, and the email will come directly to me. I'm always happy to provide you with a complimentary portfolio review and risk assessment. Okay, so now it's time for dinner. This is one of my favorite meals, right? I don't make it that often, I'm gonna make it tonight. It's linguine puttanesca. It's a classic, classic dish that originated in Naples, and it is today the staple of a Neapolitan household. It's made from tomatoes, black olives or Kalamata olives, one or the other, capers, anchovies, onions, garlic, oregano, and parsley. It's easy to make, and it does have its own interesting history. It's spicy, it's tangy, and it's vibrant. It's an appropriate description of what the markets are doing today. Now, start by bringing a pot of salted water to a rolling boil, then turn it down to simmer until you need it. Now, start with 3 crushed garlic cloves sautéed in olive oil about 3 or 4 minutes. Crush them, right? Don't slice them, just crush them. Don't let them burn. Now you're going to add in a diced white onion. Sauté that for another 5 minutes or so. After that's done, you're going to add in the chopped anchovy fillets and sauté. Look, as they cook, the fillets are going to melt away. You won't even know they're there. Now after that, you're going to add 1 can, 1 28-ounce can of kitchen-ready crushed tomatoes. Not puree, you want crushed tomatoes. Add about a quarter of the can of water to the sauce. Let it all come right to a boil. Let it simmer for 10 minutes or so. Now you're going to add the capers, the oregano, the pepper, uh, the chopped Italian parsley, and the rough chopped pitted Kalamata olives or pitted black olives, whichever you prefer, but don't mix them. It is one or the other. There's no need to add salt at the moment because the anchovies are salty enough. Now, if you want more bite, here's where you can add the red pepper flakes. You want to then cover it, let it simmer. Now add the linguine, turn the heat back up, add the linguine to the pot, let it boil for 8 minutes until it's al dente. Take it out with the tongs, remove it, put the pasta right in the sauté pan. And Romaine, you want to keep the— your pasta water because you're going to need that. Now you're gonna, uh, you're gonna add the pasta to the sauce. You're gonna, you're gonna stir it up, mix it till it's all coated and fragrant. If you need to, you're gonna add a little bit more, uh, of the pasta water, maybe a ladle or so of the pasta water to get it, um, to get it silky and smooth. You don't want it soupy, but you want it certainly silky and smooth. And then you want to toss in a, a handful of fresh grated Parmigiano cheese and mix that as well. You, when you serve it, Serve it nice and warm, bowls on the table. Always have more cheese on the table for your guests, because if you're like me, you put cheese on everything. In any event, it is Friday. It's stormy here. It's thunder and lightning out. Uh, the weekend is coming. Until Monday, take good care.
