By Tim Hanna The major U.S. stock market indexes were down last week. The S&P 500 decreased by 1.39%, the Dow Jones Industrial Average lost 1.67%, the NASDAQ Composite was down 1.44%, and the Russell 2000 small-capitalization index dropped 2.87%. The 10-year Treasury bond yield fell 3 basis points to 3.73%, taking Treasury bonds higher for the week. Spot gold closed the week at $1,921.20, down 1.88%. Stocks Equity markets finished the holiday-shortened week down. Both the S&P 500 and the NASDAQ broke their multi-week winning streaks. The recent outperformance was due for a pullback. Some of last week’s losses were driven by profit-taking activity. Mega-cap stocks, which have been a major contributor to recent gains, continued to outperform relatively. The end of the week saw an increase in investor concerns over slowing global growth and the delayed impact of the Federal Reserve’s interest-rate hikes. Additionally, reconstitution of the Russell Indexes resulted in above-average trading volume on Friday (June 23). Last week, the S&P 500 Index experienced a pullback after reaching a yearly high the previous week. This retreat followed a five-week winning streak for the Index. The Index has traded above its 50-day moving average since the start of April. Despite last week’s pullback, it still maintains a significant positive gap with both its 50-day and 200-day moving averages. The majority of year-to-date price action has remained above the 200-day moving average, and the golden cross (when the 50-day moving average crosses above the 200-day moving average) from late January remains in play. Market technicians consider price action above the 50-day and 200-day moving averages to be a bullish signal. A sustained breakout above 4,200 could indicate a continuation of the upward trend over the intermediate term. Key support levels to watch are the 4,200 price level and the 50-day moving average. Continuing on the theme of streaks, Bespoke Investment Group examined streaks in the S&P 500 and the Index’s forward performance. The rally that preceded last week’s pullback was a clear example of a breakout in equity markets. During that rally, the S&P 500 closed at overbought levels for 19 straight trading days. Bespoke defines an overbought day as one that is one or more standard deviations above its 50-day moving average. During that time, there was also an 11-day streak where the Index closed two or more standard deviations above its 50-day moving average, and a five-day streak where it was more than 2.5 standard deviations above. The Index even closed one day nearly three standard deviations above its 50-day moving average, marking its most overbought level since November 2004. Since 1945, streaks of trading days where the S&P 500 closed 2.5 or more standard deviations above its 50-day moving have been rare, as the following chart shows. The current streak of five consecutive days is the longest since a six-day streak in February 2017. Before that, you would have to go back to 1996 to find such a streak. Since the start of the current five-day trading week in 1952, there have been 19 streaks of five or more trading days where the Index closed 2.5 or more standard deviations above its 50-day moving average. The following chart summarizes forward performance over the following one, three, six, and 12 months. Across all time frames, the median return of the S&P 500 has surpassed the average long-term return for all periods since 1952. Bespoke also calculated forward performance for years with trading patterns similar to 2023, going back to 1928. To perform this study, Bespoke compared the closing prices of each year with the closing prices so far in 2023 and calculated the correlation coefficient for each set. The following table shows 10 years that have correlations of at least +0.75. The following charts show how closely the trading patterns of these years resemble the first half of this year (this year is shown in red, and other years are shown in blue). For each year, Bespoke calculated the year-to-date performance of the Index through June 22, as well as the performance for the rest of the year. The following table includes the maximum gain and loss through the rest of the year. The average and median return for the rest of the year was around 11.5%, and the S&P 500 was higher for the remainder of the year 90% of the time . Only three years saw the S&P 500 fail to increase by at least 10% at some point after June 22, and only two years experienced a decline greater than 3.5%. As market direction and patterns continue to evolve, it is important to incorporate dynamically risk-managed investment strategies that can adapt to changing market conditions as the changes are reflected in asset prices. For example, as markets reached new highs and prices exhibited positive momentum, many of our momentum-based strategies adjusted their positioning to be more risk-on. If prices continue to rise and the pullback is merely a standard shallow correction, systematic trend-following algorithms are designed to identify and participate in the upward price momentum. Conversely, if volatility resurfaces and prices decline, systematic momentum strategies are designed to identify the change and move to more defensive positioning. Mean-reversion strategies attempt to recognize and navigate sideways market conditions, offering an uncorrelated complement to momentum-based programs, which face challenges in trendless periods. The following chart shows the one-year performance of the Quantified Pattern Recognition Fund (QSPMX, 32.56%) compared to the SPDR S&P 500 ETF (SPY, 17.57%). From December to June, stocks were in a sideways range (highlighted by the yellow rectangle on the chart) before breaking out in early June. The Quantified Pattern Recognition Fund dynamically trades the S&P 500, identifying and using mathematical patterns within the market to determine exposure. It has the flexibility to adjust its position daily, ranging from 100% inverse to 200% long. The Fund is used within some of our QFC strategies and can be used in our turnkey solution, QFC Fusion. Within our more customizable turnkey solution, QFC Multi-Strategy Core and Explore solution, QFC Multi-Strategy Explore: Special Equity is currently overweighted to QFC S&P Pattern Recognition. Bonds The yield on the 10-year Treasury fell 3 basis points last week, ending at 3.73%. Bonds traded in a relatively narrow range during the week. Municipals outperformed due to demand for higher-yielding new issues. Notably, there was strong bidding on sales of recently acquired assets from distressed banks by the Federal Deposit Insurance Corporation (FDIC). On Wednesday (June 21), Federal Reserve Chairman Jerome Powell stated that there could be two more rate hikes before the end of the year if the economy performs as expected. FOMC voting member Fed Governor Michelle Bowman later said in a speech , “I believe that additional policy rate increases will be necessary to bring inflation down to our target over time.” The 10-year Treasury has been struggling to trade above its 50-day moving average (green line on the following chart) since mid-March. Despite the breakout observed in mid-May, it remains within its bearish price channel (black lines on the following chart). T. Rowe Price traders reported, “The investment-grade and high yield corporate bond markets were relatively subdued over the holiday-shortened trading week. … The bank loan market was also calm, … [and] portfolio managers of collateralized loan obligations were a source of demand in the secondary market.