Market insights and analysis

By Jerry Wagner

Market snapshot

•  Stocks: Indexes rallied last week. The S&P 500 gained 2.4%, the NASDAQ shot up 3.9%, and the Russell 2000 rose 2.4%. 

•  Bonds: The 10-year Treasury yield rose 7 basis points to 4.28%. The U.S. Aggregate Bond ETF (AGG) lost 0.2%, and the 20-year Treasury Bond ETF (TLT) fell 0.6%.

•  Gold: Gold futures closed at $3,456.10, up $56.30 per ounce, or 1.66%. 

•  U.S. trade-weighted dollar: Down 0.89% for the week.

•  Market indicators and outlook: Technical indicators are mostly positive, as are the strategies. The economic environment is classified as Normal, favoring gold and stocks from a return perspective. Volatility is Low and Rising, a regime historically favorable for gold over other asset classes.

For the latest information on our Quantified Funds, check out our weekly fund updates. You can also see the daily holdings of the funds here.

Stocks

Stocks have continued to soar higher since the April lows. By week’s end, most equity indexes had either neared or reached all-time highs, completing their move into previously unexplored territory with Tuesday’s rally.

Still, as the above chart illustrates, not all stocks are participating in these gains. Only about half of the S&P 500 members are above their 50-day moving averages—a condition also seen in the NASDAQ 100.

This is a rare event: new market highs with 50% or fewer stocks in a positive trend. While new highs often lead to further gains, history shows that when fewer than half of the component stocks are participating, the indexes can experience short-term weakness. While past instances have only been outright negative in the very short term, even intermediate-term performance has trailed the averages.

The underperformance of many index members likely stems from high price-to-earnings ratios, which numerous analysts have shown tend to lead to lower market returns. It may also be tied to tariff concerns, as media coverage has fanned inflation fears since Trump’s “Liberation Day” pronouncements.

Despite this narrative, inflation indexes have been slow to register the gains one might expect as tariff rates (and government revenues from them) rise. When Tuesday’s consumer price index reading came in lower than forecast, stocks jumped, and expectations for a September rate cut by the Federal Reserve rose to nearly 100%.

Also fueling the rally have been second-quarter financial operating reports. Of the more than 2,000 companies reporting so far, over 73% have beaten earnings estimates, and more than 74% have exceeded revenue forecasts. Rising earnings and positive earnings surprises can be quite a tailwind for stocks.

Productivity gains have also contributed to market growth. As the chart below shows, U.S. productivity continues to climb, helping offset some of the sting from inflation—and this before the full impact of the “AI revolution” has even been felt.

Another factor: As we’ve reported for months, the Fed has maintained a hawkish tone on rates but continues to inject liquidity into the economy through other means. Combined activity in the System Open Market Account (SOMA), the Fed’s portfolio of assets used to fund its monetary policy, and reverse repo activities added about $61 billion in liquidity through August 6.

Finally, seasonality remains supportive through the rest of August, although there has often been a dip around August 15. The VIX also remains below 20, a range historically supportive of equity growth.

The bottom line: Stocks continue to signal higher prices ahead, but as the analysis cited earlier suggests, there could be some near-tem weakness.

Bonds

Until Tuesday’s inflation report, interest rates had been moving higher again—perhaps in anticipation of the report and an expected increase in inflation readings. While Thursday’s producer price index report could fulfill that expectation, for the moment, rates have turned lower, and bond prices have responded by moving higher in the short term.

Meanwhile, the high-yield bond market also advanced alongside stock prices. It showed some signs of topping out a couple of weeks ago, but like stocks, high-yield bonds appear to have a clear path higher in the immediate future.

Gold

Gold has continued to trade in a narrow, flat range since hitting new highs in mid-June. Most analysts and metal trading firms still expect higher prices through year-end.

The People’s Bank of China increased its gold reserve in July, marking nine straight months of purchases aimed at diversifying its holdings away from U.S. dollars. According to data released Thursday, the central bank’s gold holdings increased by 60,000 troy ounces to 73.96 million troy ounces last month.

One recent headwind for gold was the renewed strength of the U.S. dollar, which had bounced off its recent lows. That trend reversed sharply at the start of August, and the dollar has since been trending lower. Still, gold has not yet responded, and Tuesday’s easing in inflation fears provided only marginal support. A reversal in inflationary direction in Thursday’s producer price index report may change that.

FPI is the subadvisor to the only U.S. gold mutual fund, The Gold Bullion Strategy Fund (QGLDX). Launched in 2013, the fund is designed to track the daily price changes in the precious metal and provide more tax efficiency than its ETF counterpart, GLD.

The indicators

The short-term technical indicators I watch for future stock market price changes are now mostly positive. Our QFC S&P Pattern Recognition strategy currently holds 1.6X exposure to the S&P 500 Index.

Our QFC Political Seasonality Index (PSI) strategy has been in the stock market since its close on June 27. A summer-long rally without a change in the PSI is rare, but that is what this indicator has been projecting since its annual prediction was published in January. PSI will exit stocks on September 3. (The PSI calendar—with all of the 2025 daily signals—can be found post-login in our Weekly Performance Report section under the Domestic Tactical Equity category.)

FPI’s intermediate-term tactical equity strategies are positioned fairly aggressively. Classic remains 100% long equities, maintaining that stance for an extended period and holding through the volatility earlier in the year. The Volatility Adjusted NASDAQ (VAN) strategy began the week 200% net long the NASDAQ 100, shifting to 120% net long on Monday, 100% net long on Tuesday, and 80% net long on Thursday. Systematic Advantage (SA) maintained a 90% net long exposure to the S&P 500 throughout the week. Our QFC Self-adjusting Trend Following (QSTF) strategy’s primary signal started the week with 0% exposure, then moved to 200% net long the NASDAQ 100 on last Monday’s close. One of our newest strategies, QFC Dynamic Trends (DT), which outperformed the S&P 500 in the second quarter, also had its primary signal positioned 0% net long to the NASDAQ 100 going into the week, changing to 200% net long on that Monday. VAN, SA, DT, and QSTF can use leverage, so their investment positions may exceed 100%.

FPI’s Growth and Inflation measure, one of our Market Regime Indicators, shows that markets are in a Normal economic environment stage (inflation and GDP are growing). Historically, a Normal environment has occurred 60% of the time since 2003. In a Normal climate, gold outperforms stocks and bonds on an annualized return basis, but it also carries the most downside risk. From a risk-adjusted perspective, Normal is a good stage for all asset classes, but it is best for bonds, followed by gold and then stocks.

Our S&P volatility regime is registering a Low and Rising reading. This environment favors gold over stocks and bonds from an annualized return standpoint. Volatility, of course, favors bonds. But gold is the next best, followed by stocks. The Low and Rising combination has occurred 27% since 2003.