In 30 seconds: The S&P 500 bull market celebrates its fourth anniversary with 124 all-time closing highs since October 2022, even as rising real yields drive rotation out of small-caps and semis into mega-caps and defensive sectors. Brad Setser and others argue the PBOC heavily manages the RMB to boost exports, with China's current account surplus widening predictably as the real yuan weakens, while Chinese tech firms circumvent US chip restrictions by buying over one million Nvidia gaming and workstation chips. The Federal Reserve has accumulated nearly $878 billion in unrealized losses on bonds bought at historic lows, while 10-year yields surging past 5% and mortgage rates above 7% are pressuring housing and equities, with the Fed signaling potentially one more rate hike. Iran has dramatically escalated attacks on tankers transiting the Strait of Hormuz while simultaneously suffering its worst GDP contraction in nearly 40 years, per IMF estimates, as the US-Iran conflict reshapes global energy flows.
The index closed at 7,805.45 on 2026-10-13, essentially flat on the day, slipping 0.02%. Since the October 2022 low, the nominal price index has climbed 113%, the total return index 127%, and the inflation-adjusted price index 93%. Along the way the index has notched 124 all-time closing highs since the bull market began, with the lone 2022 record high occurring on Jan. 3 — prior to the bull market's start. The bull market's durability, however, masks a sharp rotation underneath. Just two months ago small caps were outperforming large caps by 10 percentage points on the year. The small caps vs. large caps performance gap has narrowed by 10 percentage points in just two months. Rising rates and higher borrowing costs are taking a much bigger toll on smaller companies. Flows confirm the tilt. In the week ended 10/9/26, large-cap ETFs led equity inflows, aggregate bond funds recorded largest inflows within fixed income, and thematic strategies experienced largest overall outflows. Breadth, at least, continues to improve, with advancers exceeding decliners 7 out of 8 days. Over the last 7 years, the S&P 500 has annualized 16.9% versus 0.4% for US bonds, a spread of nearly 17% that stands as a record for the stock-bond gap. Across 24 midterm years since 1928, the S&P 500 has never started a 10%+ correction in the month of October.
Those who ignored the real exchange rate move of 2022 and 2023 in their current account forecasts — the IMF among them — got the evolution of China's current account very wrong. The logic is straightforward. A weaker inflation adjusted (real) CNY predictably raises its exports and increases its current account surplus. One can debate whether China is so far from internal balance that its trading partners should turn a blind eye to its evident undervaluation and growing external surplus — but one cannot debate whether the exchange rate matters. The PBOC heavily manages the RMB and yet keeps insisting that market forces play a decisive role in the currency's valuation — a claim that, according to the records, simply cannot be made credibly. Meanwhile, the corporate sector looks increasingly fragile: 12.5% of Chinese companies now lack revenue sufficient to cover interest payments, up from 6% in 2019. Share of Chinese companies with revenue insufficient to cover interest payments: 6 per cent. When you block the front door, people come through the window, even if the window was never designed for that purpose.
The Fed has a portfolio problem that keeps getting worse. Back in 2020, the central bank bought trillions of dollars in Treasury and mortgage-backed securities when yields sat at all-time lows. By this June, those positions had generated $878 billion in unrealized losses. 10-year yields surged above 5%. The Federal Reserve bought trillions in Treasury/Mortgage bonds in 2020 when yields were at all-time lows. By this June, they had amassed $878 billion in unrealized losses. And that was BEFORE 10-year yields surged above 5% and mortgage rates rose further. The inverse correlation between the 10-year yield and the S&P 500 continues to hold. Bond futures hedges are clustered around the 99-101 level. Bond future hedges: 99-101.
The Strait of Hormuz is the narrowest bottleneck in global energy logistics, and Iran has decided to treat it like a toll booth. On Sunday, Iranian forces targeted six tankers transiting the strait. Given that the waterway typically handles 20-25 transits per day, that single day's harassment amounted to roughly 25% of all traffic. If you are an insurer pricing war-risk premiums on a tanker booking, that is not a rounding error. The pattern is not new. UKMTO-confirmed attacks in the Hormuz region have reached 24 since September 30th. Daily tanker transits (assumed average): 20-25. According to new IMF estimates, Iran will suffer in 2026 the biggest GDP contraction in nearly 40 years, down 7.6% year-over-year. The broader picture, oddly, remains contained. Global economic growth stays above 3% and every major economy avoids recession despite US-Iran war.
Here is where the labor market stands for your paycheck.
Initial jobless claims: 197,000, down 1.01% on the week
Continuing claims: 1,716,000, up 1.00% on the week
Job openings (JOLTS): 7,079.00, down 3.49% on the month
Quits rate: 1.90, flat 0.00% on the month
Unemployment rate: 4.20, up 2.44% on the month