This is the daily notebook of Mike Santoli, CNBC’s senior markets commentator, with ideas about trends, stocks and market statistics. Stocks try to shake off a mild post-options-expiration morning hangover to gain a bit of traction, but the tape remains wary of bond yields hitting new highs ahead of an expected hawkish Federal Reserve decision. Last week’s decline after the hot consumer price index report pushed off the perceived moment of a Fed truce took the S & P 500 below the 3,900 area bulls were hoping would hold. This cracked the little uptrend from the mid-June low. It makes sense that it brings a potential retest into view near/below 3,650, but nothing is preordained. The index now hovering just above 3,850 – the “down 20%” level from the peak – and it’s starting to generate oversold conditions roughly similar (though not quite as extreme) as what was witnessed at the year-to-date lows. The S & P 500 with dates of Fed decisions circled shows that when the index has been on a sharp downside run into the Federal Open Market Committee meeting, it has led to bounces soon thereafter, for what that’s worth. The 2-year Treasury yield pushing 4% is rippling across asset classes, reflecting the combined inflation backdrop and anticipated Fed response. Some equity-valuation models tied strictly to this yield suggest the S & P 500 forward price-earnings “should” be more like 13x-14x rather than the current 16.5x. It’s a crude instrument for gauging fair value but has largely been in tune with valuation trends in recent years. Worth noting the equal-weight S & P is about there, 14.2x forecast earnings, with all the apparent overvaluation still clustered in the huge-cap growth stocks represented by the Nasdaq 100 still trading at 21x, the very high end of its pre-pandemic range. The Fed on Wednesday will clearly want to continue pressing its case that whenever short-term rates get to their destination (4% plus or minus a bit?) they will stay there for some prolonged period. It’s not clear to me that this is at odds with current bond-market pricing, so for stocks it’s really all about the lagged effect of the tightening to date on the real economy and earnings. There’s general agreement out there that 2023 consensus for profits is too high, though far from clear that a typical recession-linked 20% drop is in the cards. So many crosscurrents from high nominal gross domestic product growth to a mix of less-cyclical companies dominating the index, while on the negative side many companies ( FDX , much of consumer discretionary) clearly over-earned in the pandemic bust-boom phase. Some glimmers of outperformance in financials and consumer discretionary are visible in the quarter-to-date charts, with both sectors holding well above their June lows. Worth watching if not outright trusting. The defensiveness of tactical investors is unsurprising given the Fed tightening without much concern about the economic toll and the fact that it’s late September. Let’s see if the same folks selling into the weakness will be ready to spin bullish in a month, as the Ned Davis Research cycle composite would suggest (combines the annual, electoral and 10-year cycles). Market breadth is mixed-to-soft. Credit markets continue to hang in well, betraying little macro stress for now. VIX hovering in the mid-20s. I wouldn’t expect downside through Fed meeting, but kind of a “non-signal” in this zone.