Day Hagan Catastrophic Stop Update March 3, 2026
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The Day Hagan Catastrophic Stop model, as of today, has increased to 68.18%. The model indicates that investors should maintain their benchmark equity exposure.
Figure 1: The Catastrophic Stop model remains constructive for equities.
The increase resulted from a high-frequency measure of economic activity, the Baltic Dry Index, generating a buy signal. A buy signal from this series is usually a sign that economic activity, specifically global trade, is picking up. However, the current signal is actually the result of insurance costs spiking higher due to geopolitical tensions (Iran), and longer-trade routes as companies avoid the Strait of Hormuz. Note that the signal is sitting at 0.00%, so the odds of a reversal are relatively high.
Figure 2: Other measures of economic activity remain constructive, including recent U.S. Manufacturing PMIs, Services PMIs, Industrial Production, and Unemployment Claims.
Most other indicators within the Catastrophic Stop model also reside at or near signal thresholds. Should the market continue to trend lower, accompanied by a growing number of market disruptions (credit spreads widening, breadth deteriorating, inflation reaccelerating, economic activity slowing, rates moving higher), the model is poised to move to a risk-off position.
Turning to sentiment and behavioral indicators, note that the Daily Market Sentiment Composite (part of the composite model) remains in neutral territory.
Figure 3: Sentiment is neither overly optimistic nor pessimistic.
Coming into today, market positioning remains neutral, though several underlying near-term indicators suggest a cautious environment. Short-term overbought/oversold (OBOS) conditions are currently oversold, while intermediate-term metrics sit at a low neutral level. Volatility is on the rise, with the VIX pushing above 28 earlier today, coinciding with negative gamma across the market. Sentiment reflects this uncertainty as pessimism increases despite a generally neutral baseline.
Market breadth, measured by 50-day and 200-day moving averages and new highs for the SPX, continues to support a neutral stance. However, fund flows have turned negative as capital increasingly moves into international markets. On a more positive note, credit spreads and CDS for both Investment Grade and High-Yield debt remain bullish, keeping the long-term risk model at a neutral rating. Despite these stable areas, systemic concerns persist; private credit, supply chain disruptions, and tariff uncertainty are all viewed as ongoing problems, while growing anxiety regarding the midterm elections further clouds the outlook.
Bottom Line: While current conditions are complex, the model’s weight of evidence appraisal suggests that a major decline is not yet anticipated, as the stabilizing factors continue to balance the emerging risks.
The chart below from Sentimentrader, “reflects positions of large ‘smart money’ commercial hedgers in the S&P 500, Nasdaq 100 and DJIA futures. It combines the full contract and minis, adjusting for contract size, and calculates the dollar value of hedgers' positions.”
As you can see, more hedging has taken place, creating a potential “natural floor” for equities.
Figure 4: More hedging has often stabilized downturns. (Chart through 2-24-2026, likely to be higher now.)
Given the tensions with Iran, below are two charts we’ve been reflecting on.
The first provides historical perspective, illustrating equity and fixed income behavior during the 12-day war between Israel and Iran, which took place from June 13, 2025, to June 24, 2025. Israeli forces launched major strikes on Iranian military and nuclear sites, Iran retaliated with missiles and drones, and a ceasefire was reached around June 24, 2025, under U.S.-brokered terms.
As you can see, equities initially moved lower while Treasury yields moved higher. However, within 8 days or so, they began to reverse. U.S. equities ended higher, international equities ended less than 2% lower, and yields ended up 6.4 basis points lower. Similar?
Figure 5: The lessons from last year’s “12-day War” may prove instructive.
The relationship between oil prices and long-term interest rates suggests that a rise in crude can contribute to higher yields, but the effect is modest rather than decisive. Over rolling three-month windows, changes in oil prices and the 10-year Treasury yield tend to move in the same direction, with a correlation of 0.33 — a moderately positive relationship. The regression slope of 0.008 implies that for every 10% increase in crude oil prices, the 10-year yield rises by roughly 8 basis points on average.
Overall, oil provides a modest inflation signal for long-term yields over three-month horizons, but it explains only a limited share of the variation (R² of approximately 11%). When yields move materially away from what oil prices would imply, the divergence is typically driven by other forces — most notably flight-to-safety flows, shifts in growth expectations, or changes in monetary policy pricing.
Figure 6: Rising crude prices are modestly inflationary, but not as much as one might think.
Some quick observations around the conflict and the Strait of Hormuz:
The Strait of Hormuz handles about 20% of global oil and LNG; tanker disruptions increase probability of higher prices if flows remain constrained.
Current oil prices imply roughly $24 per barrel risk premium, reflecting possible one-month full Hormuz shutdown; partial disruptions suggest smaller, but still upward, pressure.
If disruption lasts longer, prices could rise disproportionately, as inventories deplete and demand destruction becomes necessary to rebalance markets, increasing upside price risks significantly.
European gas prices currently embed limited risk premium, but a one-month LNG halt could push benchmarks toward crisis levels, implying substantial upside versus today.
Longer LNG disruptions beyond two months could drive European gas above 100 EUR/MWh, greatly increasing probability of sharply higher global LNG prices.
Baseline forecasts remain unchanged assuming no sustained disruptions, with oil expected lower by late 2026, but risks are skewed toward higher short-term prices.
As we navigate the latest market upheaval, we are keeping in mind that two of the most important factors supporting the secular uptrend are still supportive, earnings growth and interest rates.
Figure 7: As earnings go, so go the markets.
Our 10-year Treasury Fair Value model indicates a level of 3.86%, indicating potentially lower rates ahead.
Figure 8: Rates not expected to spike higher.
U.S. Economic Releases:
There’s going to be a lot of data this week.
First, measures of Manufacturing PMIs were solid yesterday.
Services PMIs tomorrow. Crude Oil inventories likely to be scrutinized more than usual. And the Biege Book. (The Beige Book summarizes regional economic conditions across the U.S., compiled from business contacts, used by the Federal Reserve System before policy meetings.)
Unemployment claims Thursday.
Employment data on Friday.
We continue to view economic activity as stable and inflation pressures as neutral.
Figure 9: Economic release calendar.
Bottom Line: The U.S. equity market continues to operate in a broadly constructive environment, supported by resilient economic growth, slightly easing monetary policy, and strong corporate earnings expectations. After several years of volatility driven by inflation and aggressive rate hikes, the macro backdrop has begun to stabilize. The Federal Reserve has already eased policy from its peak tightening cycle and is expected to maintain relatively supportive financial conditions, which historically tends to lift equity valuations and investor sentiment. Corporate fundamentals remain a key pillar of the bullish case. Consensus estimates point to roughly 14–16% earnings growth for the S&P 500 in 2026, fueled by continued investment in artificial intelligence, productivity gains, and a broadening of profit growth beyond the largest technology companies. While geopolitical tensions and elevated energy prices have introduced periodic volatility, markets have generally absorbed these shocks without significant deterioration in risk appetite. Investors continue to view pullbacks as opportunities, reflecting confidence that the economic expansion remains intact. Overall, the equity environment appears constructive, with moderate growth, improving earnings, and gradually easing financial conditions providing a supportive backdrop for U.S. stocks.
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
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 2025 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.
© 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
S&P 500 Index—An unmanaged composite of 500 large-cap 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. 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.
CBOE Volatility Index (VIX) – A real-time index that represents the market’s expectations for the relative strength of near-term price changes of the S&P 500 Index (SPX). Because it is derived from SPX index options with near-term expiration dates, it produces a 30-day forward volatility projection. Volatility, or how quickly prices change, is often seen as a way to gauge market sentiment, particularly the degree of fear among market participants.
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.
NFIB – The National Federation of Independent Business advocates for America’s small and independent business owners.
Purchasing Manager Indexes (PMIs) – Purchasing Managers’ Indexes are survey-based economic indicators designed to provide timely insight into business conditions.
FOMC Meeting – The FOMC (Federal Open Market Committee) holds eight regularly scheduled meetings per year. At these meetings, the Committee reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-term goals of price stability and sustainable economic growth.
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.
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