In 30 seconds: Bearish sentiment surged to over 53% in AAII surveys and CNN Fear & Greed neared extreme fear, coinciding with weak housing data, rising mortgage rates, and broad S&P 500 sector oversold conditions in a volatile September. China is reportedly dumping US Treasuries ahead of the Bessent-He Lifeng meeting and a Trump-Xi summit on September 24, while the US goods trade deficit balloons to roughly $150 billion monthly driven by AI-related chip imports, and China's overcapacity in EVs accelerates export pressure on Europe. Oil prices remain elevated above $100/barrel as Hormuz exit flows stay high, a damaged East-West pipeline raises supply concerns, and diesel prices hit extreme levels, though overstretched speculative positioning and weak Chinese imports pose downside risks. The Federal Reserve hiked interest rates for the first time in over three years, triggering debate about inflation measures, future hike expectations, rising long-term yields globally, and the Bank of England holding steady, with markets pricing in further tightening.
The AAII bears hit 53.3% for the week ending 9/16/26, while AAII bulls slipped to 28.8%. AAII bears up 14%. Meanwhile the CNN Fear and Greed index sits near extreme fear, and the NAAIM exposure index dropped more than 30 points over three weeks, the largest such decline in about 2.5 years, after recently trading above 100. Professional managers went from leveraged long to ducking, which is the kind of mood swing you associate with a text from your ex, not a macro calendar. The data underneath the panic is, characteristically, mixed. The Philadelphia Fed Manufacturing Index printed at 37.8 in September, beating estimates of 32.1, with new orders at 29.2 and shipments at 27.7. Prices paid, however, ran hot at 48.9. Initial jobless claims fell to 196,000 for the week ending 2026-09-12, down from 206,000 the prior week, comfortably below the 207,000 estimate. Continuing claims came in at 1.730 million, also below the 1.779 million forecast. The labor market, in other words, is not cooperating with the bearish thesis. Housing is. August housing starts fell 2.6% month over month versus expectations for a 6.7% gain. August building permits declined 2.7% month-over-month, worse than the estimated 1.5% decline. Future home sales expectations (NAHB) dropped 6 points to their lowest since January 2023, and prospective home buyer traffic was flat but remains weak. 30-year mortgage rates continue to surge, up 0.58 percentage points year over year. Import prices rose 7% year over year in August, the largest increase since 2022. On the equity side, seven of the S&P 500's sectors sat in oversold territory, the most since March 30th, marking the 11th day this year with more than half of sectors oversold. The index itself closed at 7,637.76 on 2026-09-17, up 1.14% on the day. A bounce into a wall of fear. Classic.
China is dumping UST ahead of the Bessent-He Lifeng meeting, reportedly building leverage for the Trump-Xi AI battle on September 24. The summit itself lands 2025-09-24, yet the options market is barely flinching. SPY term structure shows only a modest bump into 9/25, and implied vols for Chinese stocks and tariff-sensitive American retailers stay quiet. Markets, in other words, have decided this is a negotiation, not a detonation. The leverage play makes more sense once you look at the trade math. US goods imports hit $349 billion in August, against roughly $200B in exports, leaving a goods deficit of about $150 billion in a single month. Annualized, that is $1,800 billion, or 6 percentage points of GDP. China digital IOU platform balances at peak: 3 trillion. A big driver: AI hyperscalers are borrowing a ton of money to pay through the nose for chips made in Asia. Pair an import-intensive capital investment boom with a 5-6% of GDP fiscal deficit and you get exactly the current account blowout the textbook predicts. At current exchange rates, Chinese firms make way more using China's dense existing supply chain to export than they make producing for the domestic Chinese market. Chinese domestic auto demand is shrinking, yet the country sits on 20 million of excess auto production capacity, including 5 million in high-quality new-energy vehicles. There is no internal Chinese constraint that stands in the way of higher exports. Imports from China into the EU car market show accelerating growth off a large base. Domestically, the picture is bifurcated. A quarter of China-listed companies logged net losses in the first half of this year, even as overall net profit grew 20% year over year, with chipmakers surging on AI-related demand while other sectors slumped. Meanwhile, China's National Bureau of Statistics unveiled a five-year plan to overhaul how it measures the economy, targeting gaps in data on the digital economy, employment and service consumption.
Crude is holding above $100 per barrel while China remains absent from the market. The setup looks bullish — crude is holding above $100 per barrel even with Chinese crude imports still 4 million barrels per day below prewar levels. If demand from China is still far from normalized and the barrel still prints triple digits, you have to ask what happens when it does come back. More than 10 million barrels per day are exiting the Strait of Hormuz, with flows rising. The pumping station is so heavily damaged that crude can't even flow through it — not just pressure loss, but likely damaged valves and internal pipes. The prompt spread compressed from 5.5 to 4 dollars. Some of this reflects overstretched spec positioning unwinding. U.S. refinery processing currently stands at 17.4 million barrels per day, versus almost 0.5 million barrels per day higher at the same point in 2025 and 2024. The debate over 24/7 oil trading has split the industry: major hedge funds and prop trading firms have backed the proposal, while the American oil industry has vehemently opposed it.
The Fed hiked interest rates for the first time in over three years, its previous move having come in July 2023. The morning after, markets were already pricing in three additional hikes by the end of June 2027. So much for one and done. The probability of a hike had been 0% as recently as in March,, which tells you something about how quickly the consensus can rotate. The case for hiking rests on the Fed's preferred gauge. The Fed adopted PCE as its inflation measure in 2000, not CPI, and as one market researcher put it, the Fed targets PCE, and that measure suggests hiking was appropriate. Supply chains are not helping: the Philly Fed delivery time diffusion index hit 26.5 in September, the highest since 2022. When it takes factories longer to get product out the door, price pressures tend to follow. Long yields are rising around the world as central banks must turn hawkish again, producing what one strategist called a global bear steepener. The exception is China, which has a significant savings glut. Gold closed at $4,383.90; one analyst noted it counterintuitively surges when the 10-year UST yield hits 5%, after which yields tend to pull back from the brink. One strategist argued the Fed rate hike is actually a set up for an equity rally, as incremental data points are likely dovish and the Fed moving max hawkish now leaves room to walk back. As one economist put it: the Fed is fighting a real problem; inflation is too high; these higher interest rates are costly medicine.
Here is what it costs to borrow money right now.
30-year fixed mortgage: 6.95%, up 19 bp on the week
15-year fixed mortgage: 6.26%, up 2.79% on the week
Auto loan rate (60-month): 7.14%, down 5.18% on the quarter
Credit card rate: 20.94%, down 0.29% on the quarter
Prime rate: 6.75%, flat on the day