It Didn't, or Doesn't, Matter — 2026-09-11
Core thesis: Despite significant macro headwinds (yields +12 bps, crude +6%, hot inflation data), equities are displaying remarkable resilience and psychological strength—rallying through bad news via a "ratchet effect" where stocks absorb downside but refuse to give back gains when macro inputs reverse.
Key points:
- Yesterday's SPX decline of 0.58% was modest relative to the magnitude of moves in 10-year yields and crude oil; pre-market futures erased losses on only minor improvements in bonds and oil.
- Core CPI rose 0.3% in August (vs. 0.2% expected), pushing FOMC rate-hike probability to 86% (CME FedWatch) from 72% yesterday; IBKR Prediction Markets show 80% "Yes."
- University of Michigan sentiment plunged to 47.8 (near May's 44.8 record low), with 1-year inflation expectations jumping to 4.6% from 4.0%—signals of consumer stress, especially lower-income cohorts.
- Pre-market dips are treated as buying opportunities; even Oracle's (ORCL) 8% gap-up rally faded to losses by midday, yet equities remained bid.
- Bond yields initially dipped 4 bps on rate-hike fears, then erased most gains; equity traders ignored both the move and deteriorating sentiment data.
Takeaway: Equity market psychology remains solid despite inflation and rate-hike risks. Traders are either exhibiting nihilism, willful ignorance, or betting that inflation ultimately supports long-term valuations. Monitor whether this resilience holds if macro data continues to deteriorate or if the "ratchet effect" finally breaks.