Day Hagan Catastrophic Stop Update July 28, 2026
A downloadable PDF copy of the Article:
The Day Hagan Catastrophic Stop model held steady at 59.09%. At this level, the Catastrophic Stop model continues to support benchmark equity exposure.
The message is participation with a seat belt: remain invested while respecting the model’s clearly defined risk boundary. A reading below 40% for two consecutive days would shift the evidence toward defense. Until then, the model favors staying engaged rather than allowing headlines or short-term volatility to dictate portfolio positioning.
Figure 1: The model remains constructive, with the 40% threshold defining the line between participation and defense.
Investor psychology has traveled from spring fear to early-summer enthusiasm and back toward balance. The composite’s 53.59 reading suggests neither panic nor complacency. AAII optimism has improved, but a higher VIX and unusually low institutional cash (as a % of market capitalization) reveal competing crosscurrents. For advisors, this is a market where sentiment can still support gains.
Figure 2: Sentiment is neutral, leaving neither a strong contrarian opportunity nor a clear sign of euphoria.
Credit is still giving equities a green light. Investment-grade spreads show little evidence of systemic stress, and credit-default-swap trends reinforce that message. The important caveat is price: tight spreads leave less cushion if economic growth weakens or liquidity deteriorates. Healthy credit conditions support staying invested, but they also reward selectivity because investors are being paid less to absorb an unexpected deterioration in corporate fundamentals.
Figure 3: Credit markets remain calm, but historically tight spreads offer limited protection against weaker growth or liquidity.
Market breadth remains constructive, but not exceptionally strong. Roughly 59% of Russell 3000 stocks trade above their 50-day moving averages, while 63% remain above their 200-day averages. These readings show that the S&P 500’s advance is supported by a majority of stocks across both short- and long-term horizons. However, neither measure has reached the 70% strong-breadth threshold, suggesting broad participation without an overbought or powerful breadth thrust.
Figure 4: Broader participation would potentially strengthen the advance and reduce dependence on a small group of market leaders.
The S&P 500’s long-term uptrend remains intact, with total return comfortably above its rising 200-day average. However, the index has slipped below its 50-day average, while RSI readings near 39 and 47 signal fading short-term momentum—and not yet oversold conditions.
Figure 5: Some technical damage has occurred over the past month.
The Nasdaq’s long-term uptrend also remains intact, with the index still above its rising 200-day average. However, it has also fallen below its 50-day average, and RSI readings of 33.7 and 41.7 point to weak short-term momentum. Conditions are nearing oversold territory but have not yet generated a clear reversal signal.
Figure 6: Similar message from the Nasdaq index.
Volatility-targeting strategies hold equity exposure near their five-year average after briefly rising above one standard deviation. This neutral positioning suggests limited immediate buying or selling pressure. Falling volatility could prompt renewed equity purchases, while a spike in volatility would likely force these systematic strategies to reduce their exposure.
Figure 7: Vol-targeting funds’ exposure is neutral.
DBMF’s estimated S&P 500 exposure remains positive at 17.3%, down from nearly 40%, despite stocks trading near record highs. This suggests managed-futures positioning is still moderately bullish, although weakening exposure indicates reduced trend conviction and potentially less systematic support for further market gains.
Figure 8: Positioning indicators remain mixed.
Second-quarter S&P 500 earnings growth surged to 37.9% from 24.8%, potentially the strongest result since 2021. However, much of the increase reflects Alphabet’s $98 billion nonoperating investment gain, which produced GAAP EPS of $9.11 and accounted for 92% of the index’s weekly earnings increase. This distortion lifted Communication Services year/year growth from 7.3% to 112.4% and pushed its earnings revisions into the 100th percentile. Excluding Alphabet, sector earnings would have declined 0.4%. The broader revisions picture remains constructive, with the S&P 500 in the 99th percentile and Technology, Industrials, and Financials also showing historically strong upward revisions. (Source: FactSet)
Figure 9: Earnings growth rate expectations continue to support equities. Interestingly, if Alphabet’s earnings were excluded, the earnings growth rate for the S&P 500 would be 25.9%, down from 37.9% — still solid.
Semiconductors now trade at 18.2 times forward earnings, below the S&P 500’s 20.0 multiple and sharply below their recent premium. Within today’s strong earnings-revision environment, this suggests semiconductor profit expectations have risen faster than share prices. The group’s valuation has become more reasonable, but the discount also reflects concern that exceptional AI-related growth may slow. If earnings estimates hold, the sector offers a more attractive entry point; if revisions weaken, the apparent value could prove misleading.
Figure 10: If earnings hold up, the Semiconductor industry is trading toward the lowest forward P/E since 2022.
Wall Street remains broadly optimistic: the average 2026 year-end S&P 500 target is 7,845, roughly 6% above the index’s latest 7,412 level. Forecasts vary widely, from 7,100 to 8,300, highlighting considerable uncertainty. Most targets anticipate further gains, but the relatively modest average upside suggests strong earnings expectations and favorable developments are already reflected in current prices.
Figure 11: Wall Street targets are modestly optimistic.
Despite elevated price-to-earnings multiples, strong long-term earnings-growth forecasts make equities appear inexpensive on a PEG basis. The S&P 500, 400, and 600 PEG ratios all sit well below their historical averages, with large caps showing the largest discount. This suggests valuations are better supported by expected growth than P/E ratios alone imply. However, the apparent value depends heavily on companies delivering analysts’ ambitious earnings forecasts.
Figure 12: Valuations holding up rests on earnings expectations being achieved.
Figure 13: Updated S&P 500 cycle composite for 2026 and 2027.
The FOMC meets July 28–29, with markets still expecting no immediate policy change. As of July 27, futures imply roughly a 69% probability that rates remain unchanged and a 31% chance of a quarter-point increase, with virtually no chance of a cut. The two-year Treasury yield is approximately 4.33%, about 70 basis points above the 3.63% effective federal funds rate. This positive spread reinforces the market’s hawkish policy outlook, although easing oil prices have reduced rate hike expectations from Friday’s levels.
Figure 14: No change expected on Wednesday. But the markets are implying it will be a closer call than most expect.
WTI near $84—about $14 above longer-dated contracts—signals a significant near-term energy shock but also expectations that supply pressures will fade. Higher gasoline and transportation costs could keep inflation elevated, strengthening the case for tighter policy and lifting the probability of a July hike to roughly 31%. However, oil’s retreat from April’s $97 level and the steeply declining forward curve argue against treating the increase as permanent, leaving a rate hold more likely.
Figure 15: Oil prices are too high to be complacent about a Fed hike.
Breakeven inflation rates remain well anchored despite higher oil prices. The one-year rate is below 2%, while two-, five-, and ten-year expectations cluster near 2.25%. This suggests bond investors view the energy shock as temporary rather than the beginning of sustained inflation. With expectations close to the Fed’s long-term objective, policymakers have less urgency to hike Wednesday and can wait for additional inflation and economic data.
Figure 16: Given all of the noise around inflation, breakeven rates continue to imply that investors aren’t overly worried.
The economic outlook remains stable, with manufacturing and services PMIs at 53.3 and 54.0, respectively, signaling continued expansion without clear signs of overheating. Meanwhile, the Economic Surprise Index has risen to the 90th percentile, showing data are consistently exceeding forecasts. This strength removes any urgency to cut rates, but the moderate PMI levels do not necessarily demand an immediate hike. The Fed can hold Wednesday while retaining a tightening bias if growth and inflation remain firm.
Figure 17: Recent PMI levels and economic surprise data support our view that U.S. economic activity is stable.
The S&P 500 remains near record highs even as prediction markets assign Democrats an 86.5% chance of winning the House. Investors therefore appear comfortable with—or are largely ignoring—the prospect of divided government. That could eventually change as the midterms approach. Potential risks include policy gridlock, budget and debt-ceiling disputes, investigations, and uncertainty surrounding taxes, spending, trade, and regulation.
Figure 18: Interestingly, the odds of Democrats taking the House are about the same as when the Iran conflict accelerated.
U.S. Economic Releases:
Last week’s data portrayed an economy growing at a moderate, uneven pace—not approaching recession. Services activity accelerated sharply, manufacturing remained in expansion, new-home sales exceeded expectations, and jobless claims fell to 187,000, signaling very few layoffs. Offsetting that strength, the Leading Economic Index declined 0.2% and weekly ADP hiring slowed.
Inflation news was less encouraging. S&P Global reported input costs at a 14-month high and selling-price inflation at its fastest pace since August 2022, reflecting higher energy, tariff, and supply-chain costs. Overall, growth remains stable, but renewed price pressure keeps rate-hike discussions alive and gives the Fed little reason to ease.
This week it's all about the FOMC meeting on Wednesday and PCE on Thursday.
Figure 19: Economic release calendar. Source: Forexfactory.com
Bottom Line: The weight of the evidence remains constructive, but the market’s cushion has narrowed. Long-term trends, broad participation, calm credit markets, and strong earnings revisions support continued equity exposure. Near-term momentum and systematic positioning are less convincing, while valuations depend heavily on companies delivering expected profits. Economic growth remains stable, with low layoffs and expanding business activity, but renewed price pressures and higher oil complicate the outlook. The Fed is still expected to hold rates Wednesday, though a hike is no longer a remote possibility. Overall, remain invested, stay selective, and respect the Catastrophic Stop model’s clearly defined risk boundary.
For more details on each sector and current model levels, please visit our research page at https://dayhagan.com/research.
This strategy uses measures of price, valuation, economic trends, liquidity, and market sentiment to make objective, rational, and emotion-free decisions about how much capital to place at risk and where to allocate it.
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 convenient time.
Sincerely,
Donald L. Hagan, CFA
Chief Investment Strategist, Partner, Co-Founder
Sources:
This material is for educational purposes only. Further distribution is prohibited without prior permission. Please see the information on Disclosures here: https://dhfunds.com/literature. Charts with models and return information use indices for performance testing to extend model histories; they should be considered hypothetical. All Rights Reserved. © Copyright 2026 Day Hagan Asset Management. Data sources: Day Hagan Asset Management, 3Fourteen Research, J.P. Morgan, Goldman Sachs, Barchart, StreetStats, Atlanta Fed, St. Louis Fed, Koyfin, Yardeni, MarketEar, S&P Global, SPDR, FactSet.
Disclosures
Disclosure: The information contained herein is provided for informational purposes only and should not be construed as investment advice or a recommendation to buy or sell any security. The securities, instruments, or strategies described may not be suitable for all investors, and their value and income may fluctuate. Past performance is not indicative of future results, and there is no guarantee that any investment strategy will achieve its objectives, generate profits, or avoid losses. Investing involves risks, including loss of principal.
This material is intended to provide general market commentary and should not be relied upon as individualized investment advice. Investors should consult with their financial professional before making any investment decisions based on this information.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise, and bonds are subject to availability and changes in price. Bond yields are subject to change. Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest, and credit risk.
References to markets, asset classes, and sectors, are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested in directly. Index performance is not indicative of the performance of any investment and does not reflect fees, expenses, or sales charges.
Data and analysis are provided “as is” without warranty of any kind, either express or implied. Day Hagan Asset Management, its affiliates, employees, or third-party data providers shall not be liable for any loss sustained by any person relying on this information. The materials may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates or market returns, and proposed or expected portfolio composition.
All opinions and views expressed are subject to change without notice and may differ from those of other investment professionals within Day Hagan Asset Management or Ashton Thomas Private Wealth, LLC.
Accounts managed by Day Hagan Asset Management or its affiliates may hold positions in the securities discussed and may trade such securities without notice.
Day Hagan Asset Management is a division of and doing business as (DBA) Ashton Thomas Private Wealth, LLC, an SEC-registered investment adviser. Registration with the SEC does not imply a certain level of skill or training.
There is no guarantee that any investment strategy will achieve its objectives, generate dividends, or avoid losses.
All hypothetical results are presented for illustrative purposes only. Back testing and other statistical analysis is provided in use simulated analysis and hypothetical circumstances to estimate how it may have performed prior to its actual existence. The results obtained from "back-testing" information should not be considered indicative of the actual results that might be obtained from an investment or participation in a financial instrument or transaction referencing the Index. The Firm provides no assurance or guarantee that the products/securities linked to the strategy will operate or would have operated in the past in a manner consistent with these materials. The hypothetical historical levels have inherent limitations. Alternative simulations, techniques, modeling, or assumptions might produce significantly different results and prove to be more appropriate. Actual results will vary, perhaps materially, from the simulated returns presented.
S&P 500 Index—An unmanaged composite of 500 large-cap companies, 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. Professional investors widely use this index as a performance benchmark for large-cap stocks. This index assumes reinvestment of dividends.
Russell 3000: The Russell 3000 Index measures the performance of approximately 3,000 of the largest U.S. publicly traded companies, representing about 98% of the investable U.S. equity market.
AAII Sentiment Survey — A weekly survey measuring whether individual investors expect stocks to rise, fall, or remain unchanged over the next six months.
Backwardation — A futures-market structure in which near-term commodity prices exceed longer-dated prices, often indicating tight current supplies.
Benchmark Equity Allocation — The normal percentage of a portfolio assigned to stocks based on its investment objective and risk profile.
Breadth — The degree to which market gains or losses are shared across individual stocks. Broad participation generally strengthens a market trend.
Bull-Bear Spread — The percentage of bullish investors minus the percentage of bearish investors.
Catastrophic Stop Model — Day Hagan’s risk-management model designed to identify periods when major market deterioration may warrant reducing equity exposure.
CDS, or Credit Default Swap — A market-based measure of the perceived risk that a borrower will default. Rising CDS costs generally indicate increasing credit concern.
Contrarian Buy Signal — A signal suggesting widespread pessimism may have become excessive, potentially creating a buying opportunity.
Contrarian Sell Signal — A warning that optimism, risk-taking, or positioning may have become excessive, increasing vulnerability to disappointment.
Daily Market Sentiment Composite — Day Hagan’s 0–100 measure combining multiple indicators of investor psychology. Readings below 30 indicate excessive pessimism, while readings above 70 indicate excessive optimism.
DBMF — The iMGP DBi Managed Futures Strategy ETF, used here as a proxy for positioning among systematic, trend-following strategies.
Drawdown — The percentage decline from an investment’s previous peak to its subsequent low.
Earnings Revisions — Changes analysts make to company profit estimates. Rising estimates are generally supportive of stock prices.
Federal Funds Rate — The Federal Reserve’s primary short-term policy interest rate.
FOMC — The Federal Open Market Committee, the Federal Reserve group responsible for setting monetary policy and interest rates.
Forward Earnings — Analysts’ estimates of company profits over a future period, commonly the next 12 months.
Forward Earnings Growth Rate — The expected percentage increase in future corporate earnings compared with the prior comparable period.
Forward P/E Ratio — A stock’s price divided by expected earnings over the next 12 months. Higher readings generally indicate more demanding valuations.
Magnificent Seven — Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla.
Maximum Drawdown — The largest peak-to-trough decline experienced during a specified period.
OAS, or Option-Adjusted Spread — The additional yield a bond provides over a comparable Treasury after adjusting for embedded options. Wider spreads generally indicate greater perceived credit risk.
Overbought — A condition in which prices have risen rapidly and may be vulnerable to a pause or pullback.
Oversold — A condition in which prices have fallen rapidly and may be positioned for a rebound.
PEG Ratio — The price-to-earnings ratio divided by expected long-term earnings growth. A lower ratio may indicate a more attractive valuation relative to anticipated growth.
Risk-Off Signal — An indication that market conditions have deteriorated enough to favor reducing exposure to riskier assets.
RSI, or Relative Strength Index — A momentum indicator ranging from 0 to 100. Readings above 70 commonly indicate overbought conditions, while readings below 30 indicate oversold conditions.
Systematic Investors — Strategies that adjust exposure using predefined rules based on trends, volatility, momentum, or other quantitative signals.
VIX — A market-based measure of expected S&P 500 volatility over the next 30 days, sometimes called the market’s fear gauge.
Volatility-Targeting Strategy — A rules-based strategy that generally reduces equity exposure when volatility rises and increases exposure when volatility falls.
WTI — West Texas Intermediate, a major U.S. crude-oil pricing benchmark.
WTI Forward Curve — The series of prices for WTI crude-oil futures across different expiration dates, reflecting supply, demand, storage, and market expectations.
Communication Services sector: The Communication Services Sector includes telecom and media & entertainment companies, including producers of interactive gaming products and companies engaged in content and information creation or distribution through proprietary platforms.
Consumer Discretionary sector: The Consumer Discretionary sector's manufacturing segment includes automobiles & components, household durable goods, leisure products, and textiles & apparel. The services segment includes hotels, restaurants, and other leisure facilities. It also includes distributors and retailers of consumer discretionary products.
Consumer Staples sector: The Consumer Staples sector includes manufacturers and distributors of food, beverages, and tobacco, as well as producers of non-durable household goods and personal products. It also includes distributors and retailers of consumer staples, including food & drug retailers.
Energy sector: The Energy sector includes companies that operate in exploration & production, refining & marketing, and storage & transportation of oil & gas, as well as coal & consumable fuels. It also includes companies that offer oil & gas equipment and services.
Financials sector: The Financials sector encompasses banking, financial services, consumer finance, capital markets, and insurance. It also includes Financial Exchanges & Data and Mortgage REITs.
Fixed Income sector: The Fixed Income sector includes investment securities that pay investors fixed interest payments until maturity. Designed for income generation and capital preservation, this sector includes government, corporate, and municipal bonds, as well as certificates of deposit (CDs).
Health Care sector: The Health Care sector includes health care providers & services, health care equipment & supplies, and health care technology companies. It also includes companies involved in the research, development, production, and marketing of pharmaceuticals and biotechnology products.
Industrials sector: The Industrials sector includes aerospace & defense, building products, electrical equipment, machinery, and companies that offer construction & engineering services. It also includes providers of commercial & professional services, including printing, environmental & facilities services, office services & supplies, security & alarm services, human resources & employment services, and research & consulting services. It also includes companies that provide transportation services.
Information Technology sector: The Information Technology sector includes software and information technology services, manufacturers and distributors of technology hardware & equipment, such as communications equipment, cellular phones, computers & peripherals, electronic equipment and related instruments, and semiconductors and related equipment & materials.
Materials sector: The Materials sector includes chemicals, construction materials, forest products, glass, paper and related packaging products, and metals, minerals, and mining companies, including steel producers.
Real Estate sector: The Real Estate sector includes companies engaged in real estate development and operation. It also includes companies offering real estate-related services and Equity Real Estate Investment Trusts (REITs).
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
© 2026 Day Hagan Asset Management