Day Hagan Catastrophic Stop Update June 2, 2026
A downloadable PDF copy of the Article:
The Day Hagan Catastrophic Stop model held steady at 86.4%. The model continues to indicate that investors should maintain their benchmark equity allocation.
Figure 1: A decline below 40% for two days would generate a risk-off signal for the S&P 500.
The June 2026 "Smart Sector with Catastrophic Stop" monthly letter is available from Day Hagan Research. Below are excerpts detailing the current over- and underweights, along with a summary of the portfolio’s broad macro sensitivities.
Holdings (as of 06/01/2026)
Sector
Consumer Directory
Consumer Staples
Communication Services
Energy
Financials
Health Care
Industrials
Information Technology
Materials
Real Estate
Utilities
Outlook (relative to benchmark weighting)
Modestly Overweight
Underweight
Neutral
Modestly Underweight
Underweight
Underweight
Underweight
Overweight
Underweight
Netural
Modestly Overweight
Sector Review
The sector weightings suggest a portfolio tilted toward earnings visibility, secular growth, and balance sheet quality, while avoiding areas where relative strength, revisions, or macro sensitivity is less favorable. The overweight of Information Technology is the clearest expression of this view, reflecting the sector’s dominant earnings contribution, strong revision breadth, and continued leadership from AI, cloud, semiconductors, and software. The Utilities overweight adds a defensive, income-oriented counterbalance while also providing exposure to structural growth in electricity demand tied to data centers, electrification, and grid investment.
At the same time, the portfolio is not simply a high-beta growth allocation. The neutral weights in Communication Services and Real Estate recognize attractive opportunities but also acknowledge concentration risk in mega-cap platforms and continued rate sensitivity in REITs. The modest overweight in Consumer Discretionary reflects strong earnings momentum, but the sizing appropriately respects stretched valuations and uneven consumer conditions.
The underweights in Financials, Health Care, Industrials, Materials, Consumer Staples, and Energy indicate caution toward sectors where technical indicators, earnings revisions, valuation support, or macro fundamentals are less compelling. Overall, the weightings point to a selective, pro-growth portfolio with meaningful risk controls: participate in the market’s strongest earnings engines, but avoid overcommitting to cyclicals, defensives, or commodity-sensitive sectors without clearer confirmation.
Figure 2: As of late May, the S&P 500 remains in a Tech-led uptrend, with Info Technology displaying exceptional momentum and broad participation. While valuations are elevated in leadership names, they are supported by robust earnings growth (PEG). Overall, the market continues to exhibit narrow leadership with healthy long-term trends, suggesting continued upside but heightened risk of rotation or pullback if Tech momentum fades.
As of May 29, the S&P 500 is at a record high, while U.S. credit spreads remain exceptionally tight. Investment-grade OAS is just 0.72% (vs 1.45% mean), high-yield at 2.57% (vs 5.03% mean), and HY ex-Energy at 2.71%. This reflects strong investor confidence, low perceived credit risk, and a supportive environment for equities.
Figure 3: High-yield bond OAS at the lower end of the long-term range.
The Day Hagan Daily Market Sentiment Composite stands at 75.98, firmly in elevated territory and near the +70 upper bracket. While the S&P 500 trades at record highs, investor sentiment is optimistic but not yet in euphoric extremes. This reflects strong confidence, supported by resilient earnings and tight credit spreads, yet leaves limited room for further expansion in sentiment. Historically, such elevated readings often coincide with strong markets but also signal heightened vulnerability to corrections if momentum falters.
Figure 4: Near-term, sentiment is excessively optimistic. A reversal back below 70 would generate a sell signal.
Market breadth remains moderate. Just 61.3% of Russell 3000 stocks are above their 50-day MA and 58.2% above their 200-day MA. Despite S&P 500 record highs, participation is lukewarm — signaling narrow leadership.
Figure 5: Market breadth is neutral. A decline below 30 (50-day MA) would likely indicate oversold conditions.
The market is in a clear uptrend with healthy momentum, but the high RSI levels for the S&P 500 and Nasdaq suggest it is still somewhat stretched. A near-term pause, consolidation, or modest pullback would be normal to relieve overbought conditions while the longer-term trend stays intact.
Figure 6A: SPX and Nasdaq RSI measures are reversing from extended levels in the near term. A decline below 30 would signal that oversold conditions have arrived.
Figure 6B: SPX and Nasdaq RSI measures are reversing from extended levels in the near term. A decline below 30 would signal that oversold conditions have arrived.
Risk-managed strategies are leaning bullish right now, but not aggressively so. The environment is supportive for equities relative to recent years, though not at the most crowded or overheated extremes seen in prior cycles.
Figure 7: Volatility-targeting funds have rebuilt equity exposure. Positioning is getting extended.
As detailed last week, DBMF exposure to the SPX is nearing the previously identified maximum exposure level.
Figure 8: Managed futures and trend-following funds likely have re-established their equity allocations at this point.
The move into cash that we’ve been highlighting over the last few weeks has slowed. Over the past couple of years, it has paid to add exposure when flows to cash have peaked (red vertical bars).
Figure 9: Investors slowed their move into cash last week. Will they deploy it into risk assets?
Earnings are still supporting the markets.
The main caveat: earnings revisions this strong can become a high bar. If estimates stop rising or begin to flatten, the market may become more vulnerable because expectations are now elevated.
Figure 10: Earnings growth expectations remain constructive. The highest 3-month increase in earnings expectations since at least 1990 (11.7% is the same reading as last week).
Interestingly, the 2026 and 2027 cycle composites suggest the uptrend could extend well into 2027, though some pre-midterm choppiness may occur along the way. Keep in mind that CY 2026 S&P 500 earnings are expected to be up 22.6% y/y and 2027 earnings up another 15.8% y/y.
Figure 11: Earnings are the key to the cycle composites' expectations being correct.
A reversal in commodity prices would quickly impact inflation measures. The good news is that the “Supercore PCE,” a favored measure of the FOMC, is heading in the right direction.
Figure 12: Pick an inflation measure. None are going to look good until energy prices retreat.
The latest readings suggest the U.S. economy is firming, not booming. The Citi Economic Surprise Index rose to 44.9, in the 83rd percentile, showing releases have been beating expectations more often than not. Manufacturing improved to 54.0 in May, back in expansion and near the middle of its historical range, signaling better factory momentum. Services remained expansionary at 53.6 (May numbers will be reported this week), suggesting growth is positive but not especially strong. Overall, data surprises have turned supportive, manufacturing is rebounding, and services are still growing—consistent with a resilient, moderate-growth economy rather than recessionary conditions.
Figure 13: Economic growth is OK.
U.S. Economic Releases:
Last week’s data supported a soft-landing / slower-expansion narrative. Inflation showed a bit of relief via Core PCE, but price pressures were still not fully benign. Growth was softer than expected in GDP and housing, while consumers and some manufacturing surveys remained resilient. For markets, that combination likely reinforced the idea that the Fed could stay patient: not enough weakness to force cuts urgently, but enough cooling to keep rate-cut hopes alive.
Lots of jobs data this week. Expect confirmation of “low-hire, low-fire” environment.
Services PMIs on Wednesday will be watched closely.
Figure 14: Economic release calendar. Source: Forexfactory.com
Bottom Line: The market backdrop remains constructive, supported by strong earnings trends, firming economic data, tight credit spreads, and a still-positive risk-management signal. The Day Hagan Catastrophic Stop model remains comfortably risk-on, while sector positioning favors areas with stronger earnings visibility, secular growth, and quality characteristics—most notably Information Technology, with Utilities providing a defensive counterbalance. However, the advance is not without risks. Leadership remains narrow, sentiment is elevated, positioning has become more extended, and major indexes are somewhat stretched after reaching record highs. Inflation has eased in some measures, particularly Supercore PCE, but commodity price volatility could still complicate the outlook. Economic releases point to a resilient, moderate-growth economy rather than recession, with manufacturing improving and services still expanding. In conclusion, the environment supports maintaining benchmark equity exposure with a selective pro-growth tilt, while recognizing that consolidation, rotation, or pullbacks would be normal if earnings momentum fades or sentiment reverses.
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 the model histories, and 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
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.
Sentiment – Market sentiment is the prevailing attitude of investors toward a company, a sector, or the financial market.
OBOS Indicators—The overbought/Oversold (OBOS) index relates the difference between today’s closing price and the period’s low closing price to the trade margin of the given period.
Purchasing Manager Indexes (PMIs) – survey-based economic indicators that provide timely insight into business conditions.
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 prices for a basket of goods and services representative of aggregate U.S. consumer spending.
OAS: OAS spreads are the extra yield a bond offers over Treasuries, after adjusting for embedded options, used to gauge credit risk and relative value.
Catastrophic Stop model — Proprietary model used to indicate suggested equity exposure levels.
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.
PPI: PPI, or the Producer Price Index, tracks average price changes producers receive for goods and services, offering an early signal of inflationary pressure.
PCE: Personal Consumption Expenditures measures prices paid by U.S. consumers across goods and services, serving as the Federal Reserve’s preferred broad inflation gauge.
Supercore PCE: Supercore PCE tracks services inflation, excluding energy and housing, helping policymakers assess underlying wage-sensitive price pressures that are less distorted by volatile categories.
DBMF: DBMF is an actively managed futures ETF that aims to mirror hedge fund trend-following strategies by using long and short futures positions across stocks, bonds, currencies, and commodities.
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 and producers of non-durable household goods and personal products. It also includes distributors and retailers of consumer staples products including food & drug retailing companies.
Energy sector: The Energy sector includes companies that operate in the areas of exploration & production, refining & marketing, and storage & transportation of oil & gas and coal & consumable fuels. It also includes companies that offer oil & gas equipment and services.
Financials sector: The Financials sector includes banking, financial services, consumer finance, capital markets and insurance activities. 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 the maturity date. Designed for income generation and capital preservation, this sector includes government bonds, corporate bonds, municipal bonds and 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 and machinery and companies that offer construction & engineering services. It also includes providers of commercial & professional services including printing, environmental and facilities services, office services & supplies, security & alarm services, human resource & employment services, 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 producers of steel.
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).
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
© 2026 Day Hagan Asset Management