OVERVIEW
Markets reversed course again last week, giving back a chunk of the prior week’s gains.
The S&P 500 fell 1.50%, the Dow dropped 2.66%, and the Nasdaq lost 2.62%. Year-to-date losses deepened, with the Nasdaq now down over 15%. Growth stocks took another hit—Russell 3000 Growth dropped 2.26%—while value stocks held steady, up 0.19%. Small- and mid-caps managed modest gains, with the S&P 400 and S&P 600 up 0.80% and 0.87%, respectively.
International markets were the bright spot. Developed markets (EAFE) surged 4.06%, and emerging markets climbed 2.09%. The U.S. dollar slipped 0.55% on the week.
Bond markets bounced back as well. Intermediate-term Treasuries gained 0.75%, long-term Treasuries rose 0.60%, and TIPS added 0.98%. Investment-grade corporates climbed 1.22%, and high-yield bonds tacked on 1.26%.
Commodities also fared well. Gold rose 2.58%, oil jumped 4.54%, and MLPs spiked 5.07%. Real estate rebounded 3.84%. The only notable pullbacks came from corn, which fell 1.36%, and the VIX, which plunged 21% as volatility cooled.
KEY CONSIDERATIONS
The Price You Pay – Last week, we spent some time digging into the fundamentals—specifically how investors try to “value” the market. I pointed out that with the forward P/E ratio sitting just under 20, the market still looks fairly optimistic about corporate earnings this year.
To be fair, we’re starting to see some downward revisions to those estimates—something we highlighted in this week’s Indicator Insights post. But even so, analysts are still calling for roughly 8.5% earnings growth this year.
If we avoid a recession, that kind of growth seems totally within reach. Maybe that happens. Let’s say it does, then the more important question becomes: what kind of multiple will the market assign to those earnings?
At the start of the year, the market seemed to think that number should be 25 or 26, based on where the orange line sat in the chart below. In hindsight, that was clearly too optimistic. Historically, the average forward P/E is closer to 18. So even at today’s level—just under 20—we’re still trading above that long-term norm.
But how does the market even decide what the “right” multiple should be? In many ways, it’s just a reflection of investor confidence. But it’s also a shorthand way of saying: this is what market prices are actually doing.
That part matters—a lot. It’s something we pay close attention to when managing risk. You might have your own opinion about where earnings are headed or what the market “should” be worth. But if the market’s going in a different direction, your opinion won’t matter much. The market tends to be right more often than any one person. When it speaks, we listen. As the saying goes: keep the trend your friend.
So, what’s the trend saying right now? It’s not great. The S&P 500’s 50-day moving average has now dipped below its 200-day—a pattern known as a “death cross.” It’s one of the more widely watched technical signals out there, and it usually means momentum is turning lower.
And that orange dashed line—the 200-day moving average? It’s starting to slope downward too. That’s never a good sign, because historically, the 200-day average has been falling roughly a quarter of the time in the past 35 years, and when that has been the case, the index has not made any upside progress. It often takes sustained strength to flatten it out and reverse course.
Okay, so where might the bottom be then?
That brings us to the final chart—an old-school favorite called the High-Low Logic Index. It looks at the number of stocks hitting new highs or lows and compares that to the total number of issues traded. When it gets really low—meaning very few new highs or new lows—it can signal a turning point. That’s because it often means either extreme pessimism (lots of stocks have already been flushed out) or a calm before an uptrend (fewer names are falling apart).
Right now, it’s moving toward a more neutral reading, largely because of the recent drop in new highs. That’s not necessarily a bullish sign just yet, but it’s worth watching. In the past, this indicator has dipped into its lower bullish zone ahead of market bottoms—including in 2008 and 2022. But a word of caution: it can be early. Those signals often showed up well before the actual bottom, so while it’s helpful context, it’s not a perfect timing tool.
So to wrap this up: based on fundamentals alone, there’s not a ton of room for markets to keep pushing higher from here—at least not without stronger earnings or a compelling new narrative. But if the technical picture starts to improve—if price action firms up and more indicators like this one start flashing green—then there could still be some upside to capture before the year is out. Until then, we’ll stay nimble and keep listening to what the market is trying to tell us.
This is intended for informational purposes only and should not be used as the primary basis for an investment decision. Consult an advisor for your personal situation.
Indices mentioned are unmanaged, do not incur fees, and cannot be invested into directly.
Past performance does not guarantee future results.
The S&P 500 Index, or Standard & Poor’s 500 Index, is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S.