The Top Is In for Stocks
Last week, I discussed how the top may be in for stocks, and they did fall this week, with bonds rallying again.
A Look at the Market
It was a rare week, with bonds doing better and stocks doing worse. The S&P 500 has returned 12.8% with dividends included, and the price is up 11.9% for SPDR S&P 500 ETF (SPY) in 2026 so far. This leaves the market on track to post a return for the full year right under 17%. At the same time, iShares Core US Aggregate Bond ETF (AGG) has declined in price in 2026. With dividends included, the return has been -1.6%, which is well below cash.
I did warn about inflation on a post I shared (see below), and it came in at about what was expected on Wednesday. The market, though, did not like this report, and the S&P 500 plunged as interest-rates shot up for the front-end of the yield curve. The 10-year and the 30-year, which had gone up on in price on Tuesday, advanced slightly on Wedneday and moved much higher in price on Thursday and Friday. For the week, the 2-year Treasury actually declined in yield by 7 basis points to 4.72%, while the 30-year Treasury decreased by 17 bps to 5.43%. I think that the initial market reaction was that the odds of a hike by the Federal Reserve in October shifted higher, but this could be good for inflation fears, so the long-dated Treasuries rallied. Here is the update on the yield curve that shows big jumps in yields over the last year:
Energy stocks kept rallying this week, as XLF, now up 52.7% in price year-to-date rallied 4.9%. Technology was hit hard, as XLK fell 7.7%, and is now up 27.4% year-to-date in price. The main reason it was hit so hard was semiconductors, with SMH declining 10.6% and SOXX falling 11.8%.
Standard & Poors breaks down the market into 11 sectors, and 9 are up year-to-date in total return. The weak ones are Consumer Discretionary (XLY) and Communication Services (XLC ) Beyond Energy and Technology, the other sectors that are up double-digit in total return are Materials (XLB), Consumer Staples (XLP) and HealthCare (XLV). Energy is a tiny part of the S&P 500, while Technology is massive. SPY, which has returned 12.8%, has outpaced 6 of the 11 sectors. I track RSP, which is an equal-weighted ETF for the S&P 500 stocks, and it has returned 13.1%, sligtly better than SPY.
The world is paying more attention to the federal debt of our country, but there are no signs of it getting under control. The war with Iran continues, and oil prices remain high. We could see the House and/or the Senate lose Republican leadership in a few weeks, and this is likely to worry investors, if so. The market has gone up for a few years now very solidly, and it is due for a pullback. To me, it looks like the top is in. Since the end of 2022, there were sharp pullbacks in 2025 and 2026, and I am not sure that the "buy the dip" traders and ivnestors will show up again.
ETF Model Portfolio Update
This ETF model portfolio, which is measured against 60% SPY and 40% AGG, is down slightly year-to-date relative to its benchmark. This week, I did a few trades that were published here instead of on my Seeking Alpha blog. For those who would like real-time alerts (free of charge for now), just subscribe to the blog.
I haven't written any ETF articles on this blog or on TalkMarkets recently, but I did share some at Medium:
Going into the week, my model portfolio equity exposure totaled 52.8%, spread out across three ETFs. Here is what I did this week:
Wednesday: I reduced iShares TIPS Bond ETF (TIP) and added to Vanguard Morningstar Small-Cap Value ETF (VBR).
Thursday: I reduced PIMCO 15+ Year TIPS ETF (LTPZ).
Friday: I reduced ProShares S&P 400 MidCap 400 Dividend Aristocrates ETF (REGL).
Here is the current model portfolio, which now has 52.7% equity exposure in three ETFs and fixed income exposure in two TIPS ETFs that total 41.8%, with cash at 5.4%:
I have been wrong this year, at least so far, as stocks keep rallying. The rally had been until Friday more than three months ago (June 5th), when stocks had their worst day of the year. Since then, the S&P 500 and the Russell 2000 have made new highs, though not so recently. Being underweight stocks all year, my return relative to the 60/40 index is higher again (hooray!), currently about +1.7% in just over 9 1/2 months. This was a solid week of almost 3% outperformance. As the S&P 500 fell and the Aggregate Bond Index bounced again, the model portfolio, which was up, outperformed the index.
The early year-to-date strong relative performance was not due to superior returns on the equity ETFs. My TIPS ETFs have done reasonably okay relative to AGG, at least until very recently, but they aren't exactly boosting the return. I have had positive returns from three ETFs, two of which I no longer hold and one of which was down a lot year-to-date but rallied while I held it, and there has been some good trading that has helped me with a bad overall asset allocation weighting.
How I Can Help You
I enjoy analyzing ETFs and stocks, and I like sharing my thinking in writing. I was considering starting a subscription service or joining one that is already being published. What things would you as an investor like to see offered?
If you are an investment professional, I would like to work with you as well. I can help educate financial consultants about the ETFs, and I can work with management at investment firms to help create model portfolios or potential ETF investments. Please let me know if your firm would be interested in this.
My ETF articles at Seeking Alpha, written under the alias The Intelligent ETF Investor, shared a lot of my ideas. I continue to share those ideas here on this blog.
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