Katie Stockton outlines three cautionary signals—a broad support breakdown, rising credit spreads, and a VIX breakout—that could deepen the stock selloff.
Only 21% of equities are trading above their 50-day average, equalling the low point from March. But Katie Stockton of Fairlead Strategies points to three signals that could drive her into a more bearish stance.
Stockton, who founded and leads Fairlead, identifies ongoing market support and speculates that last Friday could have been a temporary floor for chip stocks. Still, she describes the configuration as having a certain fragility.
Market breadth — the count of equities participating in a price movement — has narrowed, Stockton remarked during a CNBC Squawk Box appearance. Yet the data still point to a bull cycle.
“you can’t argue against a bull cycle right now.”
Katie Stockton, Fairlead Strategies, on CNBC
Last week, the Philadelphia Semiconductor Index (SOX) fell 11.4%, representing a chip-sector selloff not seen since April 2025.
Investment bank BTIG expects the slump might continue through 2027.
Stockton outlined three caution markers. The first is a breakdown of support spanning many individual equities simultaneously.
The second encompasses broadening credit spreads — the premium investors require to take on riskier corporate bonds. She acknowledges some stress, but believes it is insufficient to mark a bearish phase.
The third is a clean breakout in the Cboe Volatility Index (VIX), known as the Street's fright measure. She monitors obstacles like the index's 200-day moving average.
CoreWeave, which provides rented AI processing capacity and funds its data centers via debt, acts as an ongoing credit trial. After its stock dropped about 16% on October 14, investors sought roughly 14.8% yield to retain its 2032 bonds. Still, Stockton regards the friction as fairly contained.
Separately, Stockton predicts the 10-year Treasury yield will plateau around 5.25% for a period of weeks, then resume its upward course. Freddie Mac's 30-year fixed mortgage rate landed at 7.40% on October 15, climbing from 6.95% on September 17.
The consequences go beyond a single firm. According to London Stock Exchange Group figures, Alphabet, Amazon, Meta, and Oracle together sold more than $228 billion in bonds through October 13.
Wider spreads could strain that financing. Jeremy Siegel of WisdomTree has cautioned of a possible Nasdaq decline as steep as 30% should AI spending fall short.
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