Even though historically July tends to be a good month for the stock market, this year it has been underwhelming. With the major indexes in the red as we head towards the end of the month, there is still time they could turn positive for the S&P 500 and Russell 2000. But the Nasdaq 100 is another story. As of Tuesday, July 28th, the QQQ (NASDAQ 100 ETF) is down just over -8% for the month. That will require a bit more work to turn positive by month-end.
On the Relative Strength front, in the shorter-term, we’re seeing the S&P 500 stronger than the NASDAQ 100, as well as Large Cap Value stronger than Large Cap Growth. And to us, those can both be early-warning signs to use caution going forward. We’ve already made some small allocation adjustments along these lines over the past week or so, consistent with our investment process.
But what isn’t giving us reason to be cautious is the NYSE New Lows (mentioned last month). This indicator is still generally staying below 100, beyond occasional peaks above that. If we were to see more spikes above 200, then we’d have a bigger reason to be defensive. But for now, this data isn’t confirming the Value vs Growth factor.
The federal reserve met this week and held rates steady, as generally expected. However, there is now a possibility they will raise interest rates by at least 0.25% sometime in the next few months. That could be a catalyst to knock the market in a different direction. But that is just a factor to keep in mind as rate changes play out.
This month’s chart is a look at the Relative Strength of Large Cap Growth (IVW) against Large Cap Value (IVE). When the line is rising, then Growth is leading. And when the line is falling, then Value is leading. When Growth leads, then the market tends to be strong overall. And the opposite when Value is leading. Value tends to hold more of the “defensive” style stocks, so when it owns the relative strength, the market is usually positioning to be more defensive.
One Year chart of IVW and IVE ETFs with 10 and 100 Exponential Moving Averages (Source: Stockcharts.com)
Our Shadowridge Long-Term Trend indicator has remained positive since April 8th, suggesting the positive market trend could continue higher from here. Even with a weak-ish July, there looks to be more strength under the surface to keep things moving for now.
Our Mid-Term Cycle indicator remains somewhat neutral. It has been stuck in a range without any large swings in either direction. This tends to be a good heads-up indicator of money entering (or leaving) the market.
As of Wednesday night (July 29th, 2026), our Shadowridge Dashboard showed Positive to Negative market sectors as 7 to 4. Most sectors are holding up while the three Tech-centric sectors are weak (Technology, Communication, and Consumer Discretionary).
Right now, only one RGB Bond Index is trending positive, above a 50-day Moving Average. The one stand-out for positive strength is the Floating Rate sector.
RGB Economic and Interest Rate Sensitive Bond sectors (Source: ShadowridgeData.com)
Traditional Bond sectors continue to offer limited diversification benefits during periods of volatility. The 7-10 year Treasuries (IEF) and the Aggregate Bond Index (AGG) are still both flat for the year. We still see limited upside in these traditional asset classes for a lot of portfolios. When we’re asked to review portfolios managed elsewhere, the bond allocation is often one of the first areas we evaluate because it may present opportunities to improve the portfolio’s overall risk and return characteristics. It might feel a little outside the box, but in our experience, tweaking bond holdings can be helpful in certain market environments, like the one we’re in right now.
Bottom Line: After a strong April and May, and an underwhelming June and July, there still appears to be gas in the tank for the market to continue higher. But cracks are starting to appear, like seeing Value have more strength than Growth. We’re on alert for others to follow that lead, but for now aren’t seeing that just yet. We have leaned defensive in some of our allocations (i.e., out of Growth and into Value) to start positioning for volatility while still participating if that sentiment does reverse course abruptly.
Stay safe out there!
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