Market Update 7/27/26

By Jerry Wagner

Market snapshot

•  Stocks: Stocks struggled for the second week in a row. The S&P 500 Index dropped 0.6%, the NASDAQ tumbled 2.1%, and the Russell 2000 declined 1.1%. 

•  Bonds: Bonds also had a rough time. The U.S. Aggregate Bond ETF (AGG) fell 0.75%, and the 20-year Treasury Bond ETF (TLT) lost 1.5%. 

•  Gold: Gold futures closed the week at $4,055.20, up $36.4 per ounce, or 0.91%. The U.S. Trade-Weighted Dollar rose 0.71%. 

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

***

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

As I forecast in my last update, the stock market tested its early June highs again this month. Unfortunately, the retest failed … twice. Since then, stocks have moved lower, led by the popular tech names of just a few months ago.

The current configuration of S&P 500 prices, shown in the chart above as of Monday’s close, continues to favor positive returns over the next 20 trading days (a 72% chance based on the last 10 years of price data). However, if the 20-day moving average closes below the 50-day moving average this week, which seems likely, the odds of a move down to the 200-day moving average (about 6% lower) would increase.

For the most part, the downturn has been driven by geopolitical events and fears that the AI boom has, at best, been overblown and, at worst, is a drain on economic resources. It has not been caused by economic weakness or poor corporate performance. Both categories have been relatively strong.

Employment gauges have shown surprising strength in most surveys. For example, the widely watched report of initial jobless claims fell to 187,000 for the week ending July 18, the lowest weekly total since September 1969 and the lowest four-week average (207,500) since 1969, according to the Department of Labor. Even more remarkable, current claims remain near historical lows despite the labor force having more than doubled, from 81.6 million in 1969 to 169 million now.

Headline CPI fell 0.4% month over month in June, its largest monthly decline since April 2020. According to Bespoke Investment Group, over the last 80 years, there have been six other months when CPI fell at least 0.3% more than a year outside of a recession. Three months later, the S&P 500 was higher in all six instances, with a median gain of 3.7%. These results should be viewed with some caution, though, since the primary driver of the decline was falling oil prices. With the Iranian conflict still ongoing, this cannot be counted on.

On the corporate front, second-quarter earnings season has been very favorable. Bespoke Investment Group reports that, among S&P 500 companies that have released results, 88.5% have exceeded earnings estimates and 83% have beaten sales expectations.

Geopolitics are likely to continue to impact stock prices in the short term. A change in direction at the Federal Reserve’s July 29 meeting (increasing rates) could also generate stock market volatility, likely to the downside. Prices may, however, get some support from positive political seasonality readings between now and August 18.

The bottom line: Despite favorable economic, corporate, and seasonal conditions, the macroeconomic environment and price technical factors seem likely to increase downside volatility over the month ahead.

Bonds

Bond yields remain above their moving averages, though they have improved from the recent high reached just a few days ago. With a Federal Reserve meeting this week, the bond market has been reluctant to move too far one way or another.

As discussed in the Stocks section above, the economy has been stronger than many have expected, inflation improved in the latest monthly reading, and oil prices have retreated almost 25% from their recent highs during the Iranian conflict. As a result, the talk this week has been that the Fed has room for a surprise rate hike. Rates have moved up in anticipation. If this does not occur, and oil continues to fall, rates may be able to start a move back toward their short-term moving average, in the 4.5% range.

In the meantime, bond prices have continued to fall, as the chart below demonstrates.

The ETF representing the high-yield bond market sector (HYG) moved to new highs as stocks advanced but has since pulled back.

Gold

An important determinant of the price of gold is the real interest rate. When real rates climb, the metal has tended to struggle because, unlike fixed income, it doesn’t bear interest. Unfortunately, real interest rates have spiked as oil prices have risen. This has continued to place downward pressure on gold’s pricing.

At the same time, U.S. Global Investors reports that, “according to Kitco, China’s gold imports reached a 26-month high in May and are up 76% year to date, underscoring robust physical demand from the world’s largest gold market. Continued buying by Chinese consumers and investors is providing an important source of support for gold prices amid ongoing macroeconomic and geopolitical uncertainty.” In addition, “the People’s Bank of China bought 15 [tons] of gold in June—its largest single-month purchase since October 2023—bringing official holdings to 2,346 [tons]. That represents 20 consecutive months of accumulation, the longest streak on record, according to the World Gold Council (WGC). … Its rate of accumulation has accelerated as the price of gold has fallen. …”

U.S. Global Investors notes, “The country added 40 [tons] in the first half, during which gold lost close to 30% of its value from its all-time high in late January. Analysts at New York-based hedge fund Zweig-DiMenna calculate roughly $5.7 billion of Chinese purchases in [the first half of 2026], most of it in the second quarter, against about $2 billion in all of 2025, when gold was rallying hard.”

Legendary hedge fund manager John Paulson, who made billions shorting the subprime mortgage market in 2007, told CNBC last week that he believes we’re still in the early innings of a long-term gold rally. “As people lose faith in paper currencies, gold as an alternative will continue to grow,” Paulson said, adding that the metal “is becoming the most apt reserve currency in the world, replacing fiat currencies.”

Speaking of fiat currencies, the U.S. dollar has resumed its march higher since my last report. That, of course, is not supportive of gold.

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 of future stock market price changes that I watch are now mostly negative. Yet our QFC S&P Pattern Recognition strategy has a reading of 2, suggesting an exposure of 200% to the S&P 5000 500 Index as of Monday’s close.

Our QFC Political Seasonality Index strategy moved into stocks at the close on July 23. It will return to its defensive positioning at the close on August 18. (Our QFC Political Seasonality Index—with all of the daily signals for 2026—is available post-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 120% net long exposure to the NASDAQ 100. Systematic Advantage ended the week 120% net long. Our QFC Self-Adjusting Trend Following strategy returned to 100% exposure on Monday (7/27). QFC Dynamic Trends is in a 2X NDX exposure within the Quantified STF Fund (QSTFX). Investing for the longer term, Classic continues 100% long equities.

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 stage (inflation and GDP are growing). Historically, a Normal environment has occurred 75% of the time since 2003 and has been a positive regime state for stocks, bonds, and gold. Stocks have the highest rate of return 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 Falling reading. Since 2003, this environment favors stocks over gold and then bonds from an annualized return standpoint. Gold has the highest drawdown risk among the three asset classes, making bonds the asset class with the best risk-adjusted return profile in this regime. Bonds also have the lowest return, risk, and drawdown. The Low and Falling combination has occurred 32% of the time since 2003.