Stockton's Three Caution Indicators That May Prolong 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.

Could the Present Rally Endure?

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.

What Could Shift Stockton's Outlook to More Bearish?

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.