Jefferies Wood GREED and fear Election rout pending and credit tremors

Election rout pending and credit tremors Verbier Trading financial markets around consumer confidence data has never made too much sense to GREED & fear, most particularly in a world of ever more K-shaped economies. But the same does not apply from a political standpoint. And the latest US consumer confidence is such as to make GREED & fear assume, until proven otherwise, that a rout is facing the Republicans in the forthcoming mid-term elections. The Conference Board’s US consumer confidence index declined by 6.7 points to 81.9 in September, the lowest level since April 2014 (see Exhibit 1), compared with consensus expectations of 89.0.

Exhibit 1: The Conference Board's US Consumer Confidence Index

140 The Conference Board US Consumer Confidence Index

Source: Bloomberg, The Conference Board

That is not necessarily terrible for markets, and GREED & fear has read a lot of late about how the US stock market usually rallies after the mid-terms. But, there again, the stock market has historically done relatively badly going into the mid-terms whereas that has not been the case so far this year, primarily because of the stellar earnings growth driven by the highly earnings-accretive AI capex cycle. The LSEG I/B/E/S consensus data as of 25 September shows that S&P500 3Q26 earnings are expected to rise by 30.2% YoY, up from 16.1% growth expected last October. The IT sector has the second-highest forecast 3Q26 earnings growth of 65.1%, up from 22.3% last October (see Exhibit 2). All 12 sub-industries in the IT sector have higher forecast earnings than a year ago, with the semiconductor and semiconductor materials & equipment sub-industries having the highest earning growth (131.7% and 68.9%, respectively).

Please see analyst certifications, important disclosure information, and information regarding the status of non-US analysts at the end of this report. 1 *Jefferies Hong Kong Limited

Exhibit 2: S&P500 3Q26 consensus earnings growth forecast revisions by sector (%YoY) 112.0 Current 1 October

Energy Utilities S&P 500 Comm Svcs Materials Cons Staples Cons Disc Financials Industrials Real Estate Info Tech Health Care

Note: Based on earnings growth forecasts as of 25 September 2026. Source: LSEG I/B/E/S

This is the key reason why US equities have so far been able, more or less, to ignore rising bond yields and rising geopolitical tensions. Still, the bond market is now reaching levels where the risks to equities are growing, most particularly with the emergence of a new more hawkish Federal Reserve as discussed here last week (see GREED & fear – The virtues of small over large, 24 September 2026). The ten-year and 30-year bond yields, at 5.34% and 5.69%, reached their highest levels this week since April 2002 and May 2002, respectively (see Exhibit 3). That is a major move which reconfirms, again. GREED & fear’s base case since March 2020, namely that G7 bonds have entered a structural bear market after a 39-year bull market. While a two-year Treasury bond yield at a peak of 4.96% this week, or 108bp above the midpoint of the federal funds rate, should be seen as a sign that more rate hikes are coming (see Exhibit 4).

Exhibit 3: US 10-year and 30-year Treasury bond yields

6 (%) US 10Y Treasury bond yield 30Y Treasury bond yield

Furthermore, the bond rout has now triggered a pickup in both volatility and credit spreads. The MOVE index is almost back at the level prevailing when the US-Israel attack on Iran was launched (see Exhibit 5), and GREED & fear continues to view the MOVE as now far more important than the VIX, as bonds represent the collateral in a highly leveraged system. While US high-yield spreads have also finally begun to move (see Exhibit 6). Meanwhile, the real damage in the credit space cannot be seen on a mark-to-market basis. That, of course, is private credit.

1 October 2026 2 Please see important disclosure information at the end of this report.