Two consecutive days of gains—reversal or trap?

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Two consecutive days of gains—reversal or trap?

Monday, February 9, 2026

When the S&P 500 closed higher for two consecutive days, with a cumulative gain exceeding 1.2%, and the Nasdaq recorded a strong rebound of 1.8%—does this mean the correction is over? 📈 The market seems to be responding most directly to rising expectations for Fed rate cuts, but the shrinking trading volume and sector fragmentation remind us that this rebound may not be as simple as it appears on the surface.

More importantly, the November CPI inflation data to be released this Wednesday and Friday's nonfarm payroll report will be the final pieces determining the direction of the Fed's December policy meeting. Meanwhile, news of China continuously reducing its holdings of U.S. Treasury bonds to below $760 billion continues to ferment, stirring undercurrents in the global bond market. With these three factors intertwined, how should investors position their positions?

Technical rebound or trend reversal? Data reveals the truth

Two consecutive days of gains have indeed eased market tensions, but attentive observers will notice that this rebound lacks key confirmation signals. First, trading volume shrank by about 15% compared to the 20-day average, indicating that institutional funds did not enter the market on a large scale; more were short covering and short-term gambling. Second, sector rotation shows clear defensive characteristics: utilities and consumer staples lead the gains, while previously strong tech stocks have shown mediocre performance—this kind of "defensive rally" usually means risk appetite has not truly recovered. From a valuation perspective, the S&P 500's current forward PE ratio remains around 21 times, at the 85th percentile of the past decade. Even after previous adjustments, market valuations remain relatively high. Historical data shows that consecutive rebounds at valuation highs are often just a continuation of the decline, not the beginning of a V-shaped reversal. A real trend reversal requires attention to: 10-year Treasury yields stabilizing and retreating, narrowing credit spreads, and growth stocks rising in resonance—these three conditions have yet to be fully met.

[Image: A chart comparing recent S&P 500 trends and trading volumes shows a technical divergence, where prices rise but volume shrinks]

Double test: How will CPI and nonfarm payrolls stir up the market?

This week's market focus is undoubtedly on Wednesday's CPI data and Friday's nonfarm payroll report. Currently, the market generally expects core CPI month-on-month growth in November to be 0.3%, with year-on-year growth remaining around 3.3%. If the data beats expectations, it could completely shatter market hopes for a December rate cut—the CME FedWatch tool shows traders currently price an 85% chance of a 25 basis point cut in December, but this expectation is extremely fragile. What deserves even more attention is the nonfarm payroll data. October nonfarm payroll data was unusually weak due to the Boeing strike and hurricane impact (only 12,000 jobs added), and the market generally expects a strong rebound in November (expecting about 200,000 new jobs). If the data significantly exceeds expectations, it will reinforce the narrative of a "soft landing for the U.S. economy" or even "no landing," pushing up U.S. Treasury yields and putting pressure on the stock market. Conversely, weak data may boost expectations for rate cuts but also raise concerns about a recession—a dilemma for the market. Historical experience shows that during Federal Reserve policy turning points, the two-way shock between CPI and nonfarm payrolls often causes market volatility (VIX) to surge by more than 30% in the short term. Investors are advised to reduce leverage during this window and keep cash positions to withstand potential sharp fluctuations.

U.S. Bond Storm: The Global Asset Allocation Shift Behind China's Shareholding Reductions

According to the latest data from the U.S. Treasury, China's holdings of U.S. Treasury bonds have dropped to about $760 billion, the lowest since 2009. This ongoing "de-dollarization" operation is not a simple geopolitical game but a deep strategic adjustment in asset allocation. As the yield curve continues to invert (the 10-year and 2-year yield spread remains negative), holding Treasuries yields negative real returns, making selling a rational choice. From the market impact perspective, China's reduction of U.S. Treasury holdings has partially cushioned the impact on global liquidity. On one hand, the Bank of Japan and UK institutions continue to increase holdings, providing momentum; On the other hand, the Fed's own balance sheet reduction (QT) policy is the main source of pressure on U.S. Treasury supply. What truly needs to be watched out is the implicit rise in the 'dollar credit premium'—as the largest creditors continue to reduce holdings, the status of U.S. Treasuries as the global risk-free benchmark may face long-term challenges, which will systematically raise the discount rate for global risk assets. For China, part of the funds released from reducing holdings of U.S. Treasuries has flowed into gold (the People's Bank of China has increased its gold reserves for 18 consecutive months) and physical assets along the Belt and Road Initiative. This shift from "debt allocation" to "physical asset allocation" is reshaping the global capital flow pattern.