The Top May Be In for Stocks
The week was good for stocks and for bonds, with both rising modestly. Last week, I discussed the all-time high in QQQ, which rallied 0.2% this week, falling from a new all-time high set on Wednesday .
A Look at the Market
The S&P 500 has returned 15.0% with dividends included, and the price is up 14.1% 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 20%. At the same time, iShares Core US Aggregate Bond ETF (AGG) has declined in price in 2026. With dividends included, the return has been -2.4%, which is well below cash.
Last week, I pointed out how QQQ had posted an all-time high. It extneded the rally on Monday and then gapped higher on Tuesday. On Wednesday, it gapped lower. On Thursday, it did fill that gap from Friday. It's a funny looking chart:
The volume soared on Thursday as the ETF broke the rising 10-day moving average and filled the gap from the prior Friday morning. Not all gaps get filled, and there is one just below the all-time high set on Tuesday, but there are some much lower as well from September.
Technology, which is a very big part of QQQ, is also a large part of SPY. The best sector in 2026 has been Energy, but Technology is soaring too. The chart for SPY shows that a new all-time high posted on Tuesday morning as well, but SPY held the rising 10-day moving average and left not gap above. There is a gap open below from last Friday on this ETF too. Instead of the three-month chart, I want to look at the one-year:
While it did make a new high, it is only slightly higher than the prior one and looks like a potential double-gop to me. A 10% correction would reduce the price of SPY to about $700, which would be above the old all-time high set in Q1. A 20% drop, which meets the definition of a bear market for many technical analysts, would be about $623, which would be below the low in March.
While reading charts can help, it's not the sole skill one needs. It helps to think about fundamentals as well in my view. The challenging part of fundamentals is there really are no solid rules about predicting how investors will handle certain information. Rates are rising, and this is usually viewed negatively, yet stocks have been advancing. Federal debt is soaring, and this can be inflationary. Inflation is high, but some of this is due to the war with Iran. Lots of things seem bad, but maybe they will get better.
I can remember when I was very young in 1987, just a year out of college and working on Wall Street. Stocks were doing very well despite interest-rates rising, and then tney plunged in October. While the move in interest-rates was very big for back then, today's changes have been big in many ways. The market had to deal with Y2K concerns at the end of 1999, a plunging stock market in 2002, then the Great Recession in 2008 and then the pandemic in 2020. Here is how the 5-year Treasury has been yielding since then:
The 5-year Treasury is the highest it has been in 20 years near 5%, sharply above the lows in 2020. I think that the higher rates are already impacting parts of the economy, but the Tech sector continues to boom.
What will happen in a month matters a lot potentially, but nobody knows how the elections will play out. I am, of course, talking about the U.S. elections, which could change control of the House and/or the Senate, but there is an important election in Israel too in late October.
I have been bearish on bonds for a while (due to federal debt and to inflationary pressures), but there is a chance that investors could lose faith in stocks again, like they did in March of this year and April of last year, and lock in these much higher rates. If the Federal Reserve moves Fed Funds higher again later this year, that could also encourage some stock sales. Will stock holders sell everything, or will they rotate from Growth to Value and from Mega-Cap to smaller stocks like they did to begin 2026?
While the S&P 500 posted a new all-time high this week, the S&P 400 and the Russell 2000 are nowhere close. Looking at the very largest stocks, none posted a new all-time high this week except for NVIDIA (NVDA), but it has dropped substantially since then. The market looks toppy, and companies are facing a tough environment.
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 49.8%, spread out across two ETFs. Here is what I did this week:
Thursday: I reduced iShares TIPS Bond ETF (TIP) and established a position in Vanguard Morningstar Small-Cap Value ETF (VBR).
Here is the current model portfolio, which now has 52.8% equity exposure in three ETFs and fixed income exposure in two TIPS ETFs that total 46.8% too:
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 lower by about 1.2% in just over 9 months. As the S&P 500 rose and the Aggregate Bond Index bounced finally, the model portfolio, which was down slightly, underperformed the index. This is due to weakness in smaller stocks relative to larger ones as well as weakness in TIPS.
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 is down a lot year-to-date that I just repurchased recently, 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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