Interest Rates and General Decline in the Market

September has been a bearish month for the stock market and market risk has definitely risen. Over the course of several months, we've seen the S&P 500 rise even higher and the decreasing market breadth continues to draw attention to the weakness of the domestic market.

Below is a chart of the S&P 500, which is trending bullish with its 50-day moving average as support for any minor pullbacks. This dynamic broke down in September, when the index dropped absolutely below this moving average. Now, it acts as the average resistance. The levels to watch as possible support areas are around 4260 (indicated by the blue horizontal line) and the 200-day moving average. If the index falls below its 200-day moving average (about 5% below Friday's close), it is overbearing for the market.

Market Breadth Continues to Deteriorate

Major market indices (capitalization-weighted) continue to rise, but the number of stocks involved in this increase has been falling for months. Below is a chart of the S&P 500 Aggregation Index (market width indicator). Over the past five months, notice how the S&P 500 Index has risen while the Total Index has fallen. Recent market weakness has pushed the total into negative territory. Stock market risk is likely to rise significantly when the index falls below zero.

Bond Yields Break Out

Historically, rising bond yields have been a sign of economic growth, offering strong support for the stock market. On the other hand, falling returns can be a sign of weakness and bearish for stocks. In the chart below, notice how yields peaked in May, which coincided with the decline in the aggregation index, among other broad indicators. So why is the stock market crashing when rates are rising? If rising rates were driven by economic strength, we would expect shipping stocks and copper (both of which are economically sensitive) to advance. Notice how they've fallen over the months in the chart below. Investors think that the increase in rates is mainly due to inflation, not economic strength. If this dynamic doesn't change soon, it could create more downside for stocks.   Interest Rates and General Decline in the Market Source: Investing.com You may also be interested in: Featured Stocks on WallStreetBets