Is There a Breakout Coming?

Dow Jones — last week

The Dow finished the week at 51,828.62, gaining 145.98 points, or 0.3%. It was a relatively muted performance compared with the Nasdaq, which gained 2.1%, and the S&P 500, which rose 1.2%. Yahoo Finance

The week was volatile underneath the surface. The Dow suffered a three-session losing streak before Friday's strong rebound. Friday's 478.64-point, or 0.9%, advance was helped by a pullback in oil prices, which eased some of the pressure coming from inflation concerns and sharply higher Treasury yields. Yahoo Finance

S&P 500 — last week

The S&P 500 had a solid week, gaining 1.2% to close at 7,743.41, its first weekly advance since early September. The index is now only about 0.7% below its August all-time high. Yahoo Finance

The important part of the week was the leadership. Technology and communication services were the strongest sectors, with AI-related stocks again providing much of the upside. Microsoft was a major contributor on Friday after announcing additional AI capabilities, while Qualcomm and Dell also posted strong gains. Reuters

Bottom line: The S&P had a good week on the surface, but I would be careful about reading too much into the 1.2% gain. Large-cap technology is carrying much of the advance, while breadth and small-cap participation remain less convincing.

Nasdaq Weekly — last week

The Nasdaq led the major U.S. averages this week, gaining 546.17 points, or 2.1%, to close at 27,068.72. Technology and AI-related stocks powered the advance, with investors largely looking past a sharp rise in Treasury yields. The Nasdaq also recorded a series of record closes during the week. Yahoo Finance

Bottom line

The Nasdaq's 2.1% weekly gain reinforces the strength of the technology and AI trade, with the Nasdaq-100's 3% advance highlighting the continued leadership of large-cap growth stocks. However, the divergence between technology and the broader market remains an important concern.

Russell 2000 — last week.

The Russell 2000 was the clear laggard this week, falling 22.85 points, or 0.8%, to 2,837.55. That compares with gains of 1.2% for the S&P 500, 2.1% for the Nasdaq and 0.3% for the Dow. Yahoo Finance

The weakness in small caps is important because the Russell had initially participated in Monday's broad rally, gaining 0.5% as Treasury yields and oil prices eased. But that strength did not hold through the remainder of the week. AP News

Bottom line:

The Russell's0.8% decline was a negative divergence for the week. Small caps remain sensitive to interest rates and economic expectations, and their inability to participate while the Nasdaq is making new highs is a factor I'd keep front and center as we move into the final week of September. Yahoo Finance

HYG---last week

HYG had a weak week, falling about 0.9% to $77.86. It declined each day from Tuesday through Friday, with the biggest move coming Wednesday as HYG dropped about 0.7%. The ETF finished essentially at its 52-week low of $77.67.

The weakness is important because HYG is a useful gauge of high-yield credit risk and investor risk appetite. Its decline came as Treasury yields moved higher, with the 10-year yield approaching 5%, putting pressure on both bonds and equity valuations. Raymond James

Bottom line:

This is one of the areas I'm watching closely. The equity market had a strong week, particularly the Nasdaq, but HYG did not confirm that strength.

SMH ---last week

SMH had an excellent week, gaining 5.86% and closing at $606.56. The semiconductor ETF moved from $596.03 on Monday to $606.56 Friday, with particularly strong gains Monday and Tuesday. Market Screener

The key point is that semiconductors were a major source of leadership. Nvidia, TSMC, AMD, Broadcom and Micron are among SMH's largest holdings, and semiconductor strength helped propel the Nasdaq higher during the week. VanEck

Bottom line: SMH was one of the strongest areas of the market this week and provides an important confirmation of the AI/semiconductor leadership behind the Nasdaq's advance. The concern, as with the Nasdaq, is concentration: Nvidia alone represented about 19.4% of SMH as of September 23.

The latest FINRA margin-debt data, for August 2026, shows investor borrowing increased to approximately $1.454 trillion, up 2.6% from July and 37.2% from August 2025. Advisor Perspectives

That is a significant increase in leverage. Margin debt is now near its historical high of roughly $1.502 trillion, reached in June. GuruFocus

A few points stand out:

• $1.454 trillion in margin debt.
• +37.2% year-over-year.
• +2.6% month-over-month.
• Investor credit balances were about $1.029 trillion in August.
• Margin debt relative to total U.S. market capitalization was about 1.89%, slightly above its long-term average of 1.87%. GuruFocus

• Meta Platforms, Inc. has surged over 15% this week.
• Exploding call volumes, rising implied volatility, and technical overbought signals suggest META's rally is unsustainable.
• Credit default swaps for META have widened.
• META stock may see a sharp reversal.

Meta Platforms, Inc.'s (META) recent rally is likely to fizzle out. The stock has surged by more than 15% this week alone as of the close on Thursday, September 24. However, that rally appears to be an option-induced squeeze, sending the shares into a technically overbought condition. Meanwhile, credit default swaps, or CDS, have moved back toward their widest points.

The options market shows an explosion in call volumes this week, while implied volatility levels have also risen. This can be typically associated with a traditional gamma squeeze. This happens when heavy call buying triggers option-related dealer hedging flows that drive more buying of the underlying stock, squeezing shares higher.

When we look at total daily call volume minus put volume, volumes over the past week have been explosive and have risen to some of the highest levels in the last year. It has also been accompanied by a rise in 30-day implied volatility levels. Surging call volumes and rising implied volatility suggest strong demand for traders to own calls.

The Credit Markets Warning

What makes this rally all the more concerning is that credit default swaps have risen along with the stock price. Traditionally, CDS and stock prices have an inverse relationship. Meaning that when the CDS is widening (going higher), the stock price goes lower. That is not happening here, suggesting something abnormal is happening in the stock price and that it may reverse its gains if the widening continues.

There was a brief period in July when the CDS and the stock price rose together. However, that time ended, and as the CDS continued to widen, the stock eventually reversed quickly and moved back towards its lows.

Additionally, the 30-day rolling correlation shows the inverse relationship that exists between the stock price and the CDS. While it has oscillated over the past year, it spent most of that time negative. The two times the correlation turned positive, it was brief, and it quickly turned negative.

So, while equity investors appear really excited about Meta's latest AI innovations, the credit market is sending a warning about the same innovations. The credit market's warnings shouldn't be ignored or taken lightly.

Technically Overbought

The thing with options-related gamma squeezes is that they eventually fizzle out; they're not sustainable because implied volatility climbs too high and the economic cost of buying calls becomes too expensive, making further upside a losing game.

To make matters worse, Meta's stock has now reached technically overbought levels, as the price rises above the upper Bollinger band and the relative strength index rises above 70. The last few times we have seen that happen in Meta, it has resulted in the shares peaking and turning lower.

This suggests Meta's shares are due to stall out and consolidate sideways. Or that the stock is due for a harsh reversal and could head back towards its 20-day moving average, or worse, fall back to the lower end of the trading range to the lower Bollinger band, which has historically happened.

Overall, the move higher in Meta appears to be a reaction to new AI innovation. However, deeper analysis suggests the credit markets would caution against that. Meanwhile, the options market suggests the move higher created overbought speculative conditions.

If so, META stock is not only due to stall out but is likely to see a nasty reversal of fortune.

Are They a Bargain or a Trap?

Inflation is stubbornly high, but not in home broadband service. There, telecom operators are making fiber optic inroads in a business long dominated by cable television companies. The result has been discounting: UBS reports that prices for various broadband service tiers are down 7% to 14% for fiber over the past year and 17% to 27% for cable.

For telecom, this is a good deal. Wireless customers will hop from one carrier to another to score lower monthly bills or free phones, but they rarely change, or even think about, the main internet connection coming into their homes. By bundling the two together at a discount, telecoms can hold down churn in their wireless accounts, much the way cable has long done with broadband and pay television. For cable, however, this telecom insurgency looks like a second death. First, streaming companies came for pay TV. Now, telecoms are taking share in broadband.

The first death wasn’t so painful. In late 2015, when Walt Disney disclosed that ESPN subscriptions had fallen by seven million over two years, investors made up their minds. Streaming wasn’t just a way for studios to pick up extra money licensing their catalogs to Netflix and others; it was an existential threat to the cable TV bundle. Shares of networks and cable carriers tumbled for weeks. But cable had a backup plan: raise stand-alone broadband prices for customers who “cut the cord” on cable TV.

Cable TV amounts to reselling programming. After cable companies pay studios carriage fees for their cable networks, and retransmission fees for their local broadcasts, gross profit margins are left at 30% to 40%. With broadband, once the lines are installed, costs to add new customers are minimal, and gross margins can reach 70% to 90%. Cable companies faced with losing a $120 a month TV-plus-internet customer could simply raise the cost of internet service from $50 inside the bundle to $80 as a stand-alone.

The Covid-19 pandemic made fast home internet service a must, and cable companies added millions of new customers and raised prices. Share prices for Comcast and Charter Communications

CHTR -3.95%

CMCSA -0.99%

peaked in 2021. Telecom companies at the time were spending massive sums to build out their 5G service networks. But by 2023, with the move to 5G largely paid for, telecom spending fell and cash flow swelled. The obvious choice for putting these funds to work was laying more fiber, both for cellular backhaul, which offloads data traffic and makes networks faster, and home internet connections.

The result has been unpleasant for cable shareholders. Comcast—which spun off its cable networks and digital ventures such as Versant early this year and still has the NBC broadcast network, Peacock streaming, and Universal studios and theme parks—has lost nearly 60% in stock market value over the past five years. Charter, a cable pure play, has lost 84%.

VSNT -2.09%

Deep-value investors might be tempted. Charter now goes for just three times forward earnings projections, the lowest in the S&P 500, and Comcast sells for six times earnings, the sixth-lowest. But the outlook is daunting. Fiber broadband, which is generally superior to cable on speed and stability, still has only about a 22% market share, compared with 56% for cable. But fiber availability has expanded to 65% of households, and is expected to top 90% by 2030, spurring further fiber share gains.

Two lesser competitors loom, too. Fixed wireless service, whereby telecoms use spare cellular spectrum to offer home internet connections, is no match for fiber on speed but has nonetheless grabbed a quick 14% share of broadband thanks to aggressive telecom bundling. And Starlink satellite service, with a 4% share, is pricey but is cutting into cable in rural markets.

For cable, the best defense might be an upgrade path called DOCSIS 4.0, which allows for fiber-like speeds on existing copper wires. Since cable was built for television—a downloaded service—its upload speeds are slow. DOCSIS 4.0 can achieve the upload/download symmetry of fiber with speeds that are good enough for most users. To retain customers in the meantime, cable operators are offering cut-rate mobile phone service, using connections bought from Verizon and others, and bundling streaming services with broadband.

VZ -0.51%

For Comcast in particular, the Versant spinoff this year was supposed to quarantine the most challenged part of the business—cable networks—and leave behind a core of healthy growers. The question now is whether its broadband business is weak enough to warrant spinning off, too. Investors might want to hold off on cable altogether. UBS says the best pick among cable and telecom companies is AT&T.

T -0.28%

It started later than Verizon in fiber broadband but has far surpassed it in availability, including through the acquisition earlier this year of the fiber business of Lumen Technologies, which provides plenty of room for bundling and growth.

Let’s end with a quick word on fitness, banking, and robot revenge. Earlier this month, Barron’s highlighted eight stocks that can grow without much help from artificial intelligence. Among them was a catch-the-falling-knife pick, Planet Fitness, already down more than 50% this year on disappointing sign-ups. It fell more this past week on fears that Muse, a new personal AI assistant from Meta Platforms, takes the effort out of canceling memberships that consumers had forgotten about. Another pick, Charles Schwab, is off to a weak start, too, amid concern that Muse will nudge its customers to move their low-interest deposits into something that pays better.

Wall Street is still trying to get a handle on the extent of its Muse risk. When Life Time, a chain of posh gyms, fell along with Planet Fitness, the analyst at Jefferies, who likes both stocks, pointed out that while Planet Fitness members pay as little as $10 to $15 a month, Life Time members pay $245. “Nobody forgets this bill,” he wrote.

As we move into the final days of September, I remain constructive on the longer-term outlook for the market, but I believe this is a time to be more selective and cautious. The major averages continue to show impressive strength, particularly the Nasdaq and semiconductor stocks, but the lack of confirmation from small caps, high-yield credit and overall market breadth remains a concern.

Friday's rally was encouraging, but I would like to see follow-through and broader participation before becoming more aggressive. The bond market is also becoming increasingly important, with long-term Treasury yields at elevated levels. If yields continue to move higher, they could eventually put pressure on equity valuations and make it more difficult for the market to sustain its current momentum.

Next week's economic data, particularly inflation and employment, will be important in shaping expectations for interest rates and the Federal Reserve's next steps. At the same time, September's historically difficult seasonal pattern is coming to an end, and I will be watching closely to see whether the market can enter October with stronger breadth and broader participation.

For now, I would not chase the market higher simply because the major indexes remain near their highs. The underlying trend is still constructive, but breadth, credit, interest rates and participation will be the key tells. If those areas begin to improve, it would strengthen the case for the rally to continue. If they continue to deteriorate while the indexes move higher, I believe the market deserves a more cautious approach.

- Richie

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