Market Update 11/2/26

By Jerry Wagner

Market snapshot

•  Stocks: Major U.S. stock indexes finished mixed last week. The S&P 500 fell 0.56%, the NASDAQ declined 1.99%, and the Russell 2000 rose 1.30%.

•  Bonds: Bonds finished higher last week. The U.S. Aggregate Bond ETF (AGG) gained 0.42%, and the 20-year Treasury Bond ETF (TLT) rose 0.61%.

•  Gold: Gold futures closed the week at $3,898.90, down $109.00 per ounce, or 2.72%. The U.S. Trade-Weighted Dollar rose 0.07%.

•  Market indicators and outlook: 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 SPDR S&P 500 ETF (SPY) closed Friday at 755.72, below its 50-day moving average (767.49) but above its 200-day moving average (728.85). With the 50-day still above the 200-day, the longer-term trend remains intact, although the short-term picture has weakened.

Concerns about AI spending weighed on stocks last week. CNBC reported that investors are questioning the return on all that investment. The Global X AI & Technology ETF fell 4% on the week and 8% in October, leaving it about 15% below its summer record. Chip stocks have fallen further from their peak, with the iShares Semiconductor ETF roughly 29% below its recent high. Cboe’s JJ Kinahan said the case for the AI boom is now “in question,” and the article suggested investors consider taking profits or hedging.

The other story was Washington. Ahead of the midterm elections, Bespoke Investment Group noted that polls and betting markets favored a Republican president facing a Congress fully controlled by Democrats. Historically, the S&P 500 has posted gains, on average, under that combination, although those gains have been noticeably weaker than the average across all congressional sessions. A split Washington could also limit new policy, while investigations, budget fights, and even another government shutdown should matter little to stocks.

Still, Bespoke cautioned against placing too much emphasis on which party holds what. The S&P 500 has risen in every congressional session since the financial crisis, including the current one so far, under several different combinations of party control. Broader macroeconomic trends may therefore deserve more attention than the balance of power in Washington.

Seasonal trends may offer a stronger historical signal, according to Bespoke’s study of the presidential cycle (see the following chart). The S&P 500’s return over the year following early November of a midterm year has ranked near the top of all days in the cycle, and those periods have been positive the large majority of the time. Of course, the market can find a new worry once the votes are counted, and past performance is no guarantee of future results. So I would treat the calendar as a tailwind to weigh against the chart, not a replacement for it.

The bottom line: The trend remains intact above the 200-day moving average, but it is under pressure below the 50-day. I’ll be watching whether SPY can regain its 50-day or instead tests the 200-day, whether the AI sell-off spreads, and how stocks digest the midterm results.

Bonds

Treasury yields fell last week, and the Federal Reserve had little to do with it. The 10-year Treasury yield fell 7 basis points, from 4.996% the prior Friday to 4.930%. Bespoke Investment Group tied the pullback to worry that the AI boom may be peaking, which would ease its heavy demand for capital. Bespoke gave no credit to Fed communication or the PCE data. Trading Economics reported that Friday’s drop to a seven-week low came as weak Alphabet, Amazon, and Intel earnings sent investors from technology stocks into Treasurys.

According to CNBC, the Fed held its target range at 3.75%–4% on Oct. 28, where it has been since a quarter-point hike in September. Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented in favor of another quarter-point hike. The Fed’s statement continued to describe inflation as elevated and economic activity as expanding at a strong pace.

The driver is AI funding. CNBC reported that Microsoft priced $25 billion in new bonds on Oct. 29 to help fund AI spending. CNBC’s Nov. 1 follow-up said the deal was oversubscribed, and that Microsoft’s credit default swap spreads, near a five-year high, are still far below Oracle’s. So buyers showed up, even as the cost of insuring that debt stood near its five-year peak.

Gold

The precious metal’s trend is broken. The SPDR Gold Shares ETF (GLD) closed Friday at 355.78, below both its 50-day moving average (390.57) and its 200-day moving average (412.92), reaching a new one-year low. Gold futures also fell on the week, and Bespoke Investment Group noted on Oct. 29 that gold had entered a bear market.

The decline came despite conditions that typically help gold. A firmer U.S. dollar generally weighs on gold, while a weaker one tends to provide support. But the dollar was little changed last week. Kitco noted that gold fell to a roughly 12-month low even as the Fed held rates steady and Treasury yields fell sharply. According to Kitco, gold appears to be responding more to expectations for future Fed policy rather than to current yields or the dollar.

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 QFC S&P Pattern Recognition strategy increased its net long exposure from 60% the prior Friday to 100% on Monday, reduced it to 10% by Thursday, and ended the week at 40% net long.

Our QFC Political Seasonality Index strategy moved from out of the stock market to fully invested at Wednesday’s close and maintained that position through Friday. (Our QFC Political Seasonality Index—with all of the daily signals—is available after login in our Weekly Performance Report section under the Domestic Tactical Equity category.)

FPI’s intermediate-term tactical equity strategies are mixed. The Volatility Adjusted NASDAQ strategy reduced its net long exposure to the NASDAQ 100 from 40% on Thursday to 20% on Friday. The Systematic Advantage strategy increased its net long exposure to the S&P 500 from 90% on Tuesday to 120% on Wednesday, then reduced it to 60% on Thursday and maintained that level through Friday. The QFC Self-Adjusting Trend Following strategy remained 0% net long throughout the week. QFC Dynamic Trends held QSTFX throughout the week. Our Classic strategy remained fully invested throughout the week.

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.