Since the hike the S&P 500 has gained 1.58%, and it’s 12.1% higher on the year, with valuations the Fed staff put down in July to AI enthusiasm and strong profits. I measured two things that reading leaves out. The gain since the hike came on the two days the U.S. 10-year yield fell most, and the index’s options price its members as close to independent, a state that since 2023 has more often brought a 1.58% drop than a 1.67% rise. Yields are why I doubt the calm, and correlation is why I expect the drop. My view is that the index gives back its gain since the hike before the Fed decides on 28 October.
S&P 500 Could Drop to 7,550 as Options Market Warns of Pullback
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Key Points:
- Cboe’s one month implied correlation closed at 9.28 on 29 September. Since 2023 the 131 sessions at or below that level saw a drop the size of the move to 7,550 before a rise the size of the move to the record 70.2% of the time, against 42.2% for all sessions.
- The edge held whichever way the 10-year moved. I read it as real and modest, thinner against 2026’s base of 58.4%, and the 22 such sessions of 2017 and 2018 never reached the drop first.
- The 10-year Treasury yield closed at 5.26% that day, its highest close since 12 June 2007. Across 176 sessions of 2026 before the hike its daily returns ran at a correlation of -0.42 with daily 10-year changes, and the gain since the hike came on the two days the 10-year fell most.