This is the daily notebook of Mike Santoli, CNBC’s senior markets commentator, with ideas about trends, stocks and market statistics. Runaway Federal Reserve-tightening fears and galloping bond yields keep chasing stocks to their next test, after the S & P 500 in the past week has failed to hold several purportedly crucial levels, from 4,000 to the 50-day average — to the halfway point of the whole June-August rally. So far Thursday, a possibly more consequential level has been in play, just above 3,900, a notable technical-cycle area and the late-July low. Underneath the uptrend line from the mid-June low, there isn’t much standing between the index and a potential retest of that low, aside from a significant buildup of oversold readings that increase the prospects of a strong bounce emerging any time now. The index has gained traction a few times so far in the morning just above 3,900 with financials firming up in particular. An accelerating Treasury sell-off is underway on firmer ISM and weekly unemployment claims data, as well as sheer negative momentum, general illiquidity and a drumbeat of Fed speakers insisting victory over inflation is far off. Here’s the 10-year look at the 10-year yield: The bond market for months has priced in a decisive decline in inflation heading through 2023 and beyond — which is part of why longer-term yields and market-based inflation expectations have been tame. The unknown has been whether we get there the easy way (inflation trends lower, Fed eases back, soft-ish landing) or the hard way (Fed takes nothing for granted, explicitly tries to choke off demand/employment and squeeze markets). Since Powell’s speech Friday, the second scenario has gained on the former. Whatever portion of the June rally was due to a hoped-for Fed “pivot” to easing has evaporated. What seems to remain is the part of the relief rally based on the economy showing more resilience than feared. The fresh data, for now, fit the idea that things are holding together OK. We seem to be in a “good news (for the economy) is bad news (for stock/bond performance)” for the moment. Seems blasphemous to say after Jackson Hole, but the Fed pivot story isn’t off the board. It’s simply reliant on the next couple/few months of inflation numbers. We remain probably a few months out from a Fed pause, then it’s “higher for longer” but with more of a data-dependent and less-strident Fed watching the economy respond to forceful tightening already in train. Sentiment is again getting pretty fearful (AAII bull/bear ratio back near 2022 lows) and positioning once again has become defensive (here’s the NAAIM equity-exposure survey of active investment advisor traders): There’s much attention of past bear-market retest cycles, with the 2000-2002 and 2007-2009 episodes arguing we’re far from a bottom, though neither one was a Fed-tightening-driven bear with healthy consumer balance sheets. The 1962 precedent, noted here several times, remains intriguing (nasty non-recession bear off a January peak following a bubbly tech melt-up, occurring in the second year of a first-term Democrat’s presidency). Saw a scary near-retest of a June low in September. This is the hopeful touchstone, an interesting “What if?’ exercise, if nothing else. New lows in Nvidia and semis punished in general show the hazards of playing the last cycle’s leaders prematurely. Valuation is no longer their issue; the path of volumes/earnings is the game. To the degree the market has work left to do in bringing broad valuations lower, that unfinished business remains concentrated in the upper reaches of the mega-cap elite. The overall S & P 500 has slipped just below a 17x forward P/E. Without the five largest stocks (Apple, Microsoft, Alphabet, Amazon, Tesla), it’s under 15x. Both Apple and Microsoft still trade near 24-times earnings. Any reason they shouldn’t trade down toward their five-year aver of 20-21x and maybe get their dividend yields above 1%, given bond yields, macro noise, US dollar strength, etc.? If it happened, it would cost each 12%-15% downside from here. It would drag on the S & P 500 but the median stock need not tag along for that ride. Market breadth is skewed heavily to the downside but not like last Friday’s purge readings. VIX up a point, still not in panic mode with the S & P still well above the June intraday low (3636 is a full 7% down from here).