Market Update 8/17/26

By Jerry Wagner

Market snapshot

•  Stocks: The major indexes posted modest gains last week. The S&P 500 Index finished up 0.4%, the NASDAQ rose 0.1%, and the Russell 2000 gained 1.1%. 

•  Bonds: Bonds struggled. The U.S. Aggregate Bond ETF (AGG) dipped 0.1%, and the 20-year Treasury Bond ETF (TLT) fell 0.9%. 

•  Gold: Gold futures closed the week at $4,429.10, up $29.40 per ounce, or 0.67%. The U.S. Trade-Weighted Dollar rose 0.10%.

•  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 High and Rising, a regime historically favorable for stocks over other asset classes on a return basis.

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Stocks

The S&P 500 Index made new all-time highs again this week, so the long-term uptrend certainly appears to be in place. The large-cap index’s move higher was accompanied by new highs in several other stock indexes, including mid-cap, small-cap, equal-weight, value, and growth indexes.

Notably absent were the NASDAQ Composite and NASDAQ 100, where such a high-water mark remains elusive. This was also the case for more predictive indexes such as the Dow Jones Transportation Average and S&P Semiconductors, which often lead the other indexes. They are at their 50-day moving averages (MAs) but still lagging.

Introducing a new market measure—our six-factor MA index. This measure is presented for educational purposes and is not intended to be used as a stand-alone trading indicator. The measure 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 August 17, all six factors were positive for the S&P 500, but they yielded only a slight positive edge. The best was at 20 days, with 60% of trades since 1927 being positive. Even then, the return still failed to beat the market’s average 20-day return. For the NASDAQ 100 Index, only five of six factors were positive, but that trade would have done better: 66.85% of the trades since inception were positive after 20 days, with returns 50% better than the average 20-day market period.

There have been good reasons for the market’s gains so far in August, starting with second-quarter company reports. Earnings and revenue numbers have beaten analyst forecasts at 76% and 75% of companies, respectively, compared with 10-year averages of just 67% and 65%. Among S&P 500 companies, the results were even better, with 86% beating earnings estimates and 76% beating revenue estimates for the quarter.

The July Consumer Price Index (CPI) report was just in line with expectations, but it provided a significant lift to markets. The 2.5% year-over-year core inflation reading was especially well received, as it was the lowest mark since March 2021. Last year, it was over 3% and is down from over 6% in the Biden years.

There was some negative news. Retail sales were down 0.6%, while expectations had been for a 0.1% increase. This was quickly explained away by the timing of Amazon Prime Day, which occurred in July last year but in June this year, causing the July decline in retail sales.

Also on the negative side, the University of Michigan Index of Consumer Sentiment continued to slide, as it has for the last year and a half. This was offset by a new Small Business Optimism reading that jumped to an 11-month high. Existing-home sales also beat expectations.

As you know, I’m a big fan of market seasonality analysis. It’s based on a secret the whole market knows about, but it just keeps working. U.S. Global Investors recently highlighted both sides of the midterm-election seasonal pattern. First, the period leading up to Election Day has historically been challenging:

“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.”

The yin and yang of stock market investing.

The bottom line: The market is bordering on overbought territory, on a price basis but not yet on an advance/decline basis. The VIX, often called the fear index, is very low but nearing a point where it tends to bounce higher. I’m looking for an increase in volatility. If it is not to the downside and stocks move higher, it looks like the NASDAQ will outperform—that is, before a possible September reckoning.

Bonds

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

As discussed in the Stocks section above, the CPI data was well received and provided some relief from rate-hike concerns. Still, 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. Historically, the worst drawdown from this factor positioning has been 9.24%.

The ETF representing the high-yield bond market sector (HYG) moved to new highs as stocks advanced. High interest rates may have scared away traditional government bond investors, but that has not been the case for corporate bond investors. In fact, investments in corporate bonds so far in August have already surpassed the previous all-time high for a full month.

Gold

Gold gained ground last week as the monthlong rally continued. The six-factor MA index supports a move even higher, pointing to a statistically significant gain over the next 10 trading days. While only three of the six indicators were positive, they historically yielded a 71.5% win rate over the following 10 trading days, compared with gold’s average 10-day win rate of just 55.8%.

On the fundamental front, China reportedly purchased 640,000 ounces of gold in July, up from 480,000 ounces in June. That’s the most since October 2023. Purchases have been more than double those for all of 2025. Meanwhile, the Bank of Korea made its first gold-linked investment in 13 years.

Still, gold is near a resistance point that could stop the rally. Of course, if that level is broken, further gains could ensue.

The rally in gold has been supported by the concomitant fall in the dollar. The greenback seemed to be stabilizing last week but resumed its decline this week.

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 all positive. Yet our QFC S&P Pattern Recognition strategy has a reading of just 0.4, suggesting an exposure of 40% 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 July 23, returned to its defensive positioning at the close on August 18. It will move back to stocks at the close on August 24. This begins a choppy-to-down period for the Index until October 28. The longest downturn is projected from September 8 until September 29. (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 100% net long exposure to the NASDAQ 100. Systematic Advantage ended the week 120% net long. Our QFC Self-Adjusting Trend Following strategy returned to 0% exposure on Monday (8/17). The Quantified STF Fund (QSTFX), currently the sole holding of QFC Dynamic Trends, has a primary signal of 0% NASDAQ 100 exposure as of August 17. Investing for the longer term, Classic remains 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 High and Rising reading. Since 2003, this environment favors stocks over gold and then bonds from an annualized return standpoint. Still, stocks have the highest drawdown risk among the three asset classes, resulting in gold having the best risk-adjusted return profile for this particular regime. Bonds have the lowest return, risk, and drawdown. The High and Rising combination has occurred 28% of the time since 2003.