Market Update 10/5/26

By Jerry Wagner

Market snapshot

•  Stocks: Major indexes posted mixed results this past week. The S&P 500 Index dropped 0.3%, the NASDAQ rallied 0.45%, and the Russell 2000 declined 0.2%. 

•  Bonds: Bonds were weak again. The U.S. Aggregate Bond ETF (AGG) dropped 0.6%, while the 20-year Treasury Bond ETF (TLT) tumbled 1.9%. 

•  Gold: Gold futures closed at $4,171.70, down $149.50 per ounce, or 3.46%. The U.S. Trade-Weighted Dollar rose 0.92%.

•  Market indicators and outlook: Short-term technical indicators are mostly positive for stocks. The economic environment is classified as Normal, favoring stocks and gold for returns. Volatility is Low and Rising, a regime historically favorable for stocks over other asset classes on a return basis.

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Stocks

The NASDAQ 100 made a new closing high on Friday, and the S&P 500 was only about 1% away from a new all-time closing high. The long-term uptrend appears to remain intact.

Our new AI-generated market measure—the six-factor MA index—looks at the historical look-forward results associated with the positioning of the six factors each day with respect to each other over the following 1, 2, 3, 4, 5, 10, 15, and 20 days. On October 5, returns for all periods were positive for the S&P 500 and NASDAQ but below the average market day. The NYSE Composite, which measures the daily percentage move of all New York Stock Exchange-traded stocks, showed stronger results. Its readings were positive over all periods and substantially exceeded the returns of an average market day for the index. The 10-to-20-day results were statistically significant and suggest the probability of an advance over the next 20 days is just over 70%.

While the price action of the major stock market indexes is positive, internal weakness suggests the likelihood of volatility and a possible correction this month. Despite the new highs, almost every indicator measuring the breadth of the market advance is negative and declining. The advance/decline line, new highs versus new lows, equal weight, and small caps all point to a very narrow market advance on a weak foundation. This situation can often yield short-term trouble.

Yet, the new highs do seem justified when we look at economic measures. Profit margins for U.S. corporations are at record levels and still rising, yielding lower P/E ratios and steady upward revisions in earnings-per-share and revenue estimates.

On the consumer side, the reports are uniformly positive. The poverty rate has hit a record low. Jobless claims are also at near-historic lows.

Real median income is at an all-time high. That number is adjusted for inflation, and while prices have risen 27% since 2022, 80% of that increase occurred before the new administration started in 2025. Since then, inflation has continued but only at a rate of just over 3%.

Some fear that the current bull market, which started in October 2022, is long in the tooth and due for a correction. This uptrend has indeed hit the average gain and length of past bull markets; still, many bull runs have exceeded the current run in both length and returns, often by many multiples. The closest analogy to the present AI-inspired market is the dot-com gains early in this century. As the following graph demonstrates, based on that analogy, this market has much further to run.

Finally, in our seasonality analysis of the markets, the focus remains on the midterms. As I noted in mid-August, U.S. Global Investors highlighted both sides of the historical midterm-election pattern: weakness leading up to Election Day, followed by much stronger performance afterward:

“Since 1962, every one of the 16 midterm cycles saw a decline between mid-August and Election Day. Not most of them. All of them. The average drawdown was 8.1%, and 10 of the 16 put in their low in October.”

But the pattern following midterm elections has historically been much stronger:

“In the 12 months following every midterm election since 1962, the S&P 500 has been higher. Sixteen elections, 16 gains at 14.2% on average. The narrowest was 1986 at just 1.1%, and that 12-month window contained the October 1987 crash. It still finished in the black.”

I would add a stat from Bespoke Investment Group: “The S&P has averaged a gain of 5.6% in Q4 of midterm years with positive returns 83% (20 out of 24) of the time.”

The bottom line: Don’t fight the trend, and the trend is up! But the chance of near-term below-average performance and higher volatility in the next three weeks is definitely present. Watch for a break in the trend, but if it occurs, be equally vigilant about buying back in, as any correction is likely to be short-lived in this economic environment.

Bonds

Bond yields remain above their moving averages, although they have improved slightly from the recent high reached just a few days ago.

Yields remain in their long-term uptrend, and bond prices have continued to trend lower. Our new six-factor MA index has all TLT factors moving lower. While none of the forecasts hit our significance mark, the 10-day negative reading is the strongest.

Both rates and bond performance depend heavily on market expectations about future Federal Reserve action. While Friday’s disappointing jobs numbers gave bond investors some solace by reducing the odds of a Fed rate hike at its next meeting, the yield trend remains strongly up. It will probably take more than one report to sidetrack that trend and the resulting decline in bond values.

The ETF representing the high-yield bond market sector (HYG) moved to new highs in August as stocks advanced. Since then, the reality of higher yields has caught up with this asset class. High-yield bonds have joined the ranks of securities failing to confirm recent highs in mainstay stock market indicators, further weakening the case for positive stock market and high-yield bond returns in the short term.

Gold

Gold seemed to stabilize last week, following a very weak September that reflected higher yields and a stronger dollar, both of which provide significant headwinds to rising gold prices. The six-factor model suggests flat to lower performance in the short term but statistically significant higher prices in the 10- and 20-day forward periods.

On the fundamental front, U.S. Global Investors reports: “China’s central bank added more than 20 tonnes of gold in August, its biggest monthly purchase since 2023. That stretched its buying streak to 22 straight months. China also imported a record 1,141 tonnes of gold in the first eight months of the year, already more than in all of 2025.” On top of that, U.S. gold ETFs have registered their highest rate of gold purchases in the last year, as investors continue to buy the yellow metal.

FPI is the subadviser to the only U.S. gold mutual fund, the Quantified Gold Futures Tracking Fund (QGLDX). Launched in 2013, the fund is designed to track the daily price changes in the precious metal in a more tax-efficient manner than its ETF counterpart, GLD.

The indicators

The short-term technical indicators I watch for future stock market price changes are now all positive. Our QFC S&P Pattern Recognition strategy reads 1.9, suggesting 190% exposure to the S&P 500 Index as of Monday’s close.

Our QFC Political Seasonality Index strategy, after moving successfully into stocks at the close on September 29 (up 148 S&P 500 points so far), will return to its defensive positioning at the close on October 11. It will move back to stocks on the close of October 19. This continues a choppy-to-down period for the Index until October 28. The longest downturn projected during that period ran from September 8 to September 29, when the Index was virtually unchanged (down 3 S&P points). (Our QFC Political Seasonality Index—with all of the daily signals for 2026—is available after login in our Weekly Performance Report section under the Domestic Tactical Equity category.)

FPI’s intermediate-term tactical equity strategies remain mixed, with a positive bias. The Volatility Adjusted NASDAQ strategy has a 140% net long exposure to the NASDAQ 100. Systematic Advantage ended the week 90% net long. Our QFC Self-Adjusting Trend Following strategy remains at 0% exposure. QFC Dynamic Trends has 0% NDX exposure within the Quantified STF Fund (QSTFX). For the longer term, Classic remains 100% long equities, although its signal is weakening.

Because the QFC Dynamic Trends, Volatility Adjusted NASDAQ, Systematic Advantage, QFC Self-Adjusting Trend Following, and QFC S&P Pattern Recognition strategies can employ leverage, the 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 (inflation and GDP are growing). Historically, a Normal environment has occurred 75% of the time since 2003 and has been a positive regime for stocks, bonds, and gold. Stocks have the highest returns in Normal periods. Gold has the second-highest return but has also experienced high drawdowns in these environments.

Our S&P volatility regime is registering a Low and Rising reading. Since 2003, this environment has favored stocks over gold, and then bonds, in both annualized return and risk-adjusted return terms. Gold has the highest drawdown risk among the three asset classes. Bonds have the lowest return, risk, and drawdown. The Low and Rising combination has occurred 22% of the time since 2003.