Market insights and analysis

By Jerry Wagner

Market snapshot

•  Stocks: The major market indexes finished mixed this week. The NASDAQ Composite climbed 1.51%, the S&P 500 Stock Index rose 0.59%, the Russell 2000 small-capitalization index gained 0.23%, and the Dow Jones Industrial Average lost 0.07%.

•  Bonds: Bonds were also mixed. The 10-year Treasury yield climbed 9 basis points to 4.423%. The U.S. Aggregate Bond ETF (AGG) inched up 0.06%, while the 20-year Treasury Bond ETF (TLT) lost 0.6%. Expectations for a rate cut later this year are rising, even as inflation came in slightly higher than expected.

•  Gold: Gold futures closed the week at $3,358.7, down $9.30 per ounce, or 0.28%. 

•  Market indicators and outlook: Technical indicators are mostly positive, with several strategies increasing market exposure. The economic environment is classified as Normal, favoring gold and stocks from a return perspective. Volatility is Low and Falling, a regime historically favorable for stocks 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

The stock market continued to set new highs last week, though gains have slowed since the April lows. As such, the S&P 500 remains well above its 50- and 200-day moving averages, which are still in a golden cross formation (when the 50-day average rises above the 200-day average). While this looks good, the growing positive divergence means that trend-following systems will give back more than usual should a decline ensue.

Still, from a data-driven quant perspective, it does not get much better than this. On top of the new stock market highs, almost all of last week’s economic data—of which there was plenty—came in better than expected. Of the nine inflation reports, all but one beat pre-release estimates. The exception was the year-over-year data for the consumer price index (CPI), which rose slightly from 2.6% to 2.7%. Of the 12 other economic reports, 10 exceeded expectations and two met them. We are in a very positive economic environment right now.

Second-quarter corporate earnings have also been strong. Of the 75 companies reporting, 89% have beaten earnings projections, and 79% have topped sales estimates.

The better-than-expected economic numbers, moderate inflation, and strong earnings present a challenge for the Federal Reserve. It’s hard for the Fed to justify rate cuts in response to the Trump administration’s demands when the economy continues to exceed estimates. At the same time, the inflation monster many feared would follow tariff hikes has yet to materialize. As a result, while the Fed talks a hawkish game, in the less-noticed reserve arena, it has quietly increased liquidity—adding $30 billion in the last week alone.

The effective rate of all U.S. tariffs is likely to approach 12% in July. Many experts argue that the increase should lead to either higher consumer prices or lower company margins. In reality, it’s likely to be a mix of both, which would seem to have minimal effect on the economy.

At the same time, the tariffs have brought in over $100 billion in unanticipated revenues—helping ease the strain of rising U.S. debt. And despite predictions that tariffs and deficits would drive away foreign investors, we’ve instead seen near-record inflows into both U.S. bonds and stocks.

Seasonality remains supportive for the rest of July. The CBOE Volatility Index (VIX) continues to hold below 20, a level historically supportive of equity growth.

The bottom line: The Fed seems more supportive than it voices, and a move to lower rates may come as early as September. Investors should enjoy the summer highs while they can, as the immediate forecast is for clear skies.

Bonds

As I wrote in May, interest rates have experienced plenty of ups and downs this year. At the moment, they remain above both their short- and long-term moving averages—a pattern that has generally preceded further increases, as we saw from December through mid-January. But recent price action suggests we may remain locked in the 4%–4.5% price range in the near term. Approaching either end of the range seems to send rates moving quickly in the opposite direction.

Last week, rising rates pushed longer-term bond prices lower. This was both in anticipation of, and in response to, the Fed sticking to its “wait and see” attitude on rate cuts.

Meanwhile, the high-yield bond market moved higher with stock prices. Although there were some signs of topping out as the week progressed, high-yield bonds—like stocks—still appear to have a clear road higher in the near term.

Gold

Gold’s meteoric ride higher over the last year has flattened out. The environment continues to be positive for the yellow metal, with global market uncertainty, renewed inflation fears due to tariffs, and unresolved regional conflicts. As recently as April, gold demonstrated its portfolio value, rallying to new all-time highs while stocks declined.

That said, gold has struggled to build on those gains. While prices remain near recent highs, they have also been threatening to break below the intermediate-term moving average—never a good sign.

One of the headwinds gold faces is the renewed strength of the U.S. dollar, which has rebounded from recent lows. As shown in the chart in the Stocks section, investors have been flocking to dollar-denominated U.S. bonds and equities over the last month or so. Combined with the Fed’s decision to hold rates steady—making it one of only two central banks that have yet to implement a rate cut—this has definitely improved the prospects for greenbacks.

FPI is the subadvisor to the only U.S. gold mutual fund, The Gold Bullion Strategy Fund (QGLDX). Introduced 11 years ago, 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 all positive. However, the QFC S&P Pattern Recognition strategy currently holds -50% exposure to the S&P 500 Index, contrary to this outlook.

Our QFC Political Seasonality Index (PSI) strategy has been in the stock market since its close on June 27. 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 a mixed bag. Classic continues 100% long equities. The Volatility Adjusted NASDAQ (VAN) strategy was 180% net long the NASDAQ 100 last week. The Systematic Advantage (SA) strategy finished the week 90% net long. Our QFC Self-adjusting Trend Following (QSTF) strategy’s primary signal has maintained a 200% net long exposure since the close on May 13. One of our newest strategies, QFC Dynamic Trends (DT), which outperformed the S&P 500 in the second quarter, also has its primary signal positioned 200% net long to stocks. VAN, SA, QSTF, and DT 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 one of the best stages for bonds, followed by gold and then stocks.

Our S&P volatility regime is registering a Low and Falling reading. This environment favors stocks over gold and bonds from an annualized return standpoint. Volatility, of course, favors bonds. But stocks are the next best, followed by gold. The Low and Falling combination has occurred 37% of the time since 2003.