Day Hagan Catastrophic Stop Update July 14, 2025
A downloadable PDF copy of the Article:
The Day Hagan Catastrophic Stop model remains unchanged at 77.27% from last week. The model indicates that investors should maintain their benchmark equity exposure.
Measures evaluating recent breadth thrusts, oversold mean reversion probabilities, investor sentiment, longer-term trends, volume-adjusted supply versus demand, relative stock versus bond trends, credit spreads, and economic activity are supportive. We note that several indicators are positioned to shift to sell signals should upside momentum start to fade.
Figure 1: The Day Hagan Catastrophic Stop model remains constructive for equities longer term.
The Day Hagan Daily Market Sentiment Composite currently indicates extreme optimism. Historically, such levels often precede either periods of consolidation or market declines once the composite has peaked and reversed. Investors should remain alert, maintaining benchmark equity exposure until the sentiment reverses below 70, signaling that upside expectations are fading. Currently, put/call ratios, small-trader investment surveys, low market volatility, and bullish short-term momentum are constructive but stretched relative to readings over the past year.
Figure 2: Day Hagan Daily Market Sentiment Composite.
High-yield OAS (Option-Adjusted Spread) measures the yield premium of high-yield bonds over risk-free rates, adjusted for embedded options, reflecting credit risk and market sentiment. A widening high-yield OAS signals increased credit risk and economic uncertainty, often correlating with stock market declines (inverse relationship with S&P 500). A narrowing OAS suggests improving market sentiment, potentially supporting stock rallies. Currently, the trend is our friend (narrowing). However, if the DH Sentiment Composite reverses back below 70 and the High-Yield MACD indicator concurrently reverses back above 0% (indicating growing investor concerns), we would consider it an important near-term caution sign.
Figure 3: High-Yield OAS MACD remains on a buy signal. We go with the flow until it reaches an extreme and reverses.
Below is an updated table detailing the current levels of 10 widely followed short-term overbought/oversold indicators for the S&P 500 and their historical ranges over the past 25 years (2000–2025). The table reflects the S&P 500’s status as of July 14, 2025, with an index value of ~6,283. Like the Sentiment Composite, short-term indicators are overbought but have not yet shown signs of a decisive reversal.
Figure 4: Short-term technicals indicate a cooling-off period is likely; however, longer-term indicators remain constructive.
We review several firms’ data on positioning, and it can be quite varied. For example, the Deutsche Bank Consolidated Equity Positioning Indicator, at the 41st percentile as of July 14, 2025, signals a neutral stance. This reflects balanced fund manager exposure, recovering from a recent volatility shock but below February 2025 highs. It suggests cautious optimism in the S&P 500, with no extreme bullishness despite new highs, indicating potential for further gains but with tempered enthusiasm.
JPM notes that the “1-week change in our US Tactical Positioning Monitor was basically flat, and the 4-week change remains around +1z. The aggregate positioning level was essentially unchanged WoW at +0.3z (68th %-tile).”
Figure 5: Market positioning reflects more intermediate-term neutral sentiment and less overbought conditions compared to the purely shorter-term technical indicators outlined earlier.
The S&P 500’s composite cycle analysis (1-year, 10-year, and seasonal since 1929) suggests an upside bias for the rest of 2025. Seasonal patterns favor strength in July, October, November, and December, but September and August are typically weaker. The 1-year cycle shows bullish momentum, while 10-year cycles indicate stable growth. Combined, the composite points to a 5-8% rise by year-end, targeting ~6,500, though tariff risks and high valuations (P/E 22.3) may temper gains.
Figure 6: Based on the cycle composite, the S&P 500 is likely entering a choppy period in anticipation of a significant year-end rally. Note: This is a second-tier indicator in our work.
Analysts’ expectations for S&P 500 earnings in the second half of 2025 reflect cautious optimism, tempered by macroeconomic uncertainties. FactSet projects Q3 2025 earnings growth at 7.3% and Q4 at 6.5% year-over-year, contributing to a full-year 2025 growth of 9.0%. However, estimates have been revised downward, with Q2 2025 at 4.8%, the lowest since Q4 2023, due to weaker-than-average earnings surprises and policy-related concerns, particularly tariffs. Goldman Sachs forecasts 7% EPS growth ($268) for 2025, below the bottom-up consensus ($274), citing tariff impacts and high valuations (forward P/E 22.3). Tech and Communication Services sectors are expected to lead, with 18% and 32% growth, respectively, while Energy lags with declines.
S&P 500 Earnings Growth (year/year):
Q2 2025 4.8% This quarter is expected to be the low bar for the rest of the year and into 2026.
Q3 2025 7.3%
Q4 2025 6.5%
Figure 7: Earnings expected to stair-step higher into Q3 2026.
The CPI will be updated tomorrow (July 15, 2025). Analysts expect the June Consumer Price Index (CPI) to rise 0.3% month-over-month (MoM), up from May’s 0.1%, with year-over-year (YoY) inflation increasing to 2.7% from 2.4%. Core CPI (excluding food and energy) is projected at 0.3% MoM and 3.0% YoY, reflecting stable but slightly hotter inflation. Tariff impacts are expected to be modest, with shelter and services driving gains. A lower-than-expected print could boost rate-cut hopes, while a hotter reading may delay Fed easing.
PPI is on Wednesday (July 16, 2025). The Producer Price Index (PPI) for June is anticipated to show a 0.2% MoM increase, with YoY at 2.7%, up from May’s 2.6%. Analysts note PPI may reflect early tariff-driven price pressures, as it precedes CPI in supply chains. A softer-than-expected PPI could signal easing inflation, supporting equities, while a higher print may raise concerns about persistent inflation. The impact on S&P 500 Earnings: For the second half of 2025, analysts remain cautiously optimistic about S&P 500 earnings, projecting 7.3% growth for Q3 and 6.5% for Q4 (FactSet). However, hotter-than-expected CPI or PPI could increase input costs and squeeze margins, particularly for non-tech sectors, potentially lowering EPS forecasts by 1-2%. Tech’s AI-driven growth (18% expected) may offset some pressures.
Figure 8: CPI and PPI are generally heading in the right direction. We expect more volatility as the tariff uncertainty ebbs and flows.
We continue to keep an eye on commodity prices. The S&P GSCI Commodity Index spiked in June due to heightened U.S. tariff threats, particularly on Canada, Mexico, and China, driving uncertainty and boosting commodity prices like gold (+26% YTD, per World Gold Council). Cocoa prices also rose, with Ivory Coast arrivals up 6.2%. Brent Crude was up 11.3%. The subsequent partial retreat from peak levels reflected tariff policy reversals and cooling oil prices due to muted demand and OPEC supply increases.
Figure 9: PPI for all commodities is up just 1.5% year/year. Wednesday’s PPI update will provide insights into the impact of tariffs.
The 5-year breakeven inflation rate, at 2.44% as of July, indicates market expectations of average annual inflation around 2.4% over the next five years, driven by recent tariff announcements. This rise from 2.3% in June reflects heightened inflation concerns, potentially impacting S&P 500 earnings by increasing costs. The 1-year breakeven rate (~2.6%) signals short-term inflation expectations, reflecting tariff and energy price pressures. The 10-year rate (~2.37%) suggests stable long-term inflation around 2.3%, indicating confidence in Fed control despite near-term risks.
Figure 10: Breakeven rates are rising slightly but are expected to moderate by the end of the year.
Initial unemployment claims have historically signaled economic weakness when they consistently exceed 300,000 per week, with levels above 350,000–400,000 often indicating recessionary conditions. Recent data shows claims at 227,000 for the week ending July 5, 2025 (better than the expected 236k), suggesting a resilient labor market. Historically, claims spike rapidly at recession starts, per Richmond Fed analysis. Based on 30 years of data, when initial unemployment claims are between 200,000 and 250,000, the average real GDP growth rate for the following three quarters is approximately 2.8%–3.2% annualized. For 2025, we expect a slightly lower range of 2.0%–2.5% due to recent economic headwinds.
Figure 11: Strong employment remains a bullish underpinning for equities.
The U.S. Johnson Redbook Index (about 9,000 general merchandise stores) is up 5.9% y/y as of 7-8-2025, and provides a more current view than Retail Sales, which was down 0.9% m/m in May. The next Retail Sales report is on Thursday, and analysts are looking for a 0.1% increase. This would help quell concerns around a weaker consumer. The Visa Spending Momentum Index, evaluating discretionary spending, hit 97.5 for June, indicating weakening discretionary spending momentum. Below the 100 threshold, it suggests fewer consumers are increasing discretionary purchases (e.g., travel, entertainment) compared to last year, reflecting caution amid tariff and inflation concerns. We’ll be watching to see if Thursday’s report confirms. (Note: Consumer Credit was up just $5.1B m/m, much lower than the $10.4B expected. We think this places greater onus on the next Retail Sales report.)
Figure 12: Consumer spending is key to economic growth. Our view is that spending is slowing down but has not retrenched.
Below are our most recent “Bullish and Bearish” Factor lists. Bottom Line: Short-term concerns, longer-term uptrend remains intact.
Figure 13: Bullish Factors.
Figure 14: Bearish Factors.
Upcoming Reports we’ll be watching closely:
Tuesday: CPI (exp. 0.3 m/m), Core CPI (exp. 0.3% m/m),
Wednesday: PPI (exp. 0.2 m/m), Core PPI (exp. 0.2% m/m), Beige Book (Fed report on regional economic conditions)
Thursday: Unemployment Claims (exp. 233k), Retail Sales (exp. 0.1% m/m), Core Retail Sales (exp. 0.3% m/m), Business Inventories (exp. 0.0% m/m), TIC (tracks U.S. and international capital flows and investments)
Friday: Building Permits (exp. 1.39M), Housing Starts (exp. 1.29M), UoM Consumer Sentiment (not a great indicator and has been very wrong of late)
Conclusion:
Shorter-term technical measures are overbought, and there are signs of excessive optimism. Historically, these conditions have led to periods of consolidation and or weakness, following reversals in the indicators. Intermediate and longer-term measures remain constructive for the markets. The key is whether or not earnings can continue to grow, and forecasts are for continued positive growth. Despite a rise in soft data concerns, such as consumer sentiment, hard economic data continues to support our outlook for moderate expansion. Should our model shift toward a higher risk of contraction, we’ll adjust portfolios accordingly.
For more details on each sector and current model levels, please visit our research page at https://dayhagan.com/research
This strategy utilizes measures of price, valuation, economic trends, monetary liquidity, and market sentiment to make objective, rational, and unemotional decisions about how much capital to place at risk and where to allocate that capital.
If you would like to discuss any of the above or our approach to investing in more detail, please don’t hesitate to schedule a call or webinar. Please call Tyler Hagan at 941-330-1702 to arrange a time that is convenient for you.
I hope you have a wonderful week,
Sincerely,
Donald L. Hagan, CFA
Chief Investment Strategist, Partner, Co-Founder
This material is for educational purposes only. Further distribution is prohibited without prior permission. Please see the information on Disclosures and Fact Sheets here: https://dhfunds.com/literature. Charts with models and return information use indices for performance testing to extend the model histories, and they should be considered hypothetical. All Rights Reserved. (© Copyright 2025 Day Hagan Asset Management.)
Disclosures
S&P 500 Index – An unmanaged composite of 500 large capitalization companies. This index is widely used by professional investors as a performance benchmark for large-cap stocks.
S&P 500 Total Return Index – An unmanaged composite of 500 large capitalization companies. This index is widely used by professional investors as a performance benchmark for large-cap stocks. This index assumes reinvestment of dividends.
Sentiment – Market sentiment is the current attitude of investors overall regarding a company, a sector, or the financial market as a whole.
Option Adjusted Spread (OAS) - The measurement of the spread of a fixed-income security rate and the risk-free rate of return (the theoretical rate of return of an investment with zero risk), which is then adjusted to take into account an embedded option.
Earnings Per Share (EPS) - is a commonly used measure of a company's profitability. It indicates how much profit each outstanding share of common stock has earned. Generally speaking, the higher a company's EPS, the more profitable it is considered to be.
Consumer Price Index (CPI) – Measures the monthly change in prices paid by U.S. consumers. The Bureau of Labor Statistics (BLS) calculates the CPI as a weighted average of pcires for a basket of goods and services representative of aggregate U.S. consumer spending.
Producer Price Inflation (PPI) – Measures the average change over time in the prices domestic producers receive for their output. It is a measure of inflation at the wholesale level that is compiled from thousands of indexes measuring producer prices by industry and product category.
Disclosure: The data and analysis contained herein are provided "as is" and without warranty of any kind, either express or implied. Day Hagan Asset Management, any of its affiliates or employees, or any third-party data provider shall not have any liability for any loss sustained by anyone who has relied on the information contained in any Day Hagan Asset Management literature or marketing materials. All opinions expressed herein are subject to change without notice, and you should always obtain current information and perform due diligence before investing. Day Hagan Asset Management accounts that Day Hagan Asset Management or its affiliated companies manage, or their respective shareholders, directors, officers, and/or employees, may have long or short positions in the securities discussed herein and may purchase or sell such securities without notice. Day Hagan Asset Management uses and has historically used various methods to evaluate investments which, at times, produce contradictory recommendations with respect to the same securities. The performance of Day Hagan Asset Management’s past recommendations and model results is not a guarantee of future results. The securities mentioned in this document may not be eligible for sale in some states or countries nor be suitable for all types of investors; their value and income they produce may fluctuate and/or be adversely affected by exchange rates, interest rates, or other factors.
There is no guarantee that any investment strategy will achieve its objectives, generate dividends, or avoid losses.
For more information, please contact us at:
Day Hagan Asset Management
1000 S. Tamiami Trail, Sarasota, FL 34236
Toll-Free: (800) 594-7930
Office Phone: (941) 330-1702
Websites: https://dayhagan.com or https://dhfunds.com
© 2025 Day Hagan Asset Management
