Transcription
Hello everyone. Welcome back to another episode of the weekend charts. Today's special edition called the state of the markets, July 2026. Charlie Bolo here, bringing [music] you the most important charts and themes I'm seeing today in markets and investing.
Today, we're going to run through the whole gamut of markets here. Stocks, bonds, the Fed, real estate, housing, commodities, currencies, crypto, intermarket analysis, and we'll end with the US economy. Here we go.
Let's start out here with the stock market. Stocks hitting all-time highs once again in the month of June. We've got the three major US indices here, the S&P 500, NASDAQ 100, Russell 2000, all hitting record highs in June. We could see recovering from the about 10% correction in the S&P 500 after the start of the Iran war. Recovering from that and going on to hit many more new all-time highs.
If we look at the S&P 500 year to date, 24 all-time highs so far this year. That follows 39 in 2025 and 57 in 2024. So, it's been a great couple of years for the US equity markets.
If we look at the signal here in terms of momentum, a very strong move higher off of those March lows for the S&P 500. It gained 19% over a 9-week period. That's pretty historic going back to 1950. It's the 16th biggest 9-week gain for the S&P 500. And if we look in the past, what has happened following those periods? Most of the time, a year later, the stock market is higher, and we tend to actually see outperformance as investors chase those strong returns.
As I've been noting though, this time a little bit different than these other scenarios because in these other examples, most of the time the stock market was recovering from a bare market or recession. So you had bigger declines preceding this situation. This time around, we didn't have that. We just had a 10% correction. So, a little bit different this time around. And so far, the S&P has simply moved sideways over the last month following this extremely strong sharp move higher off of those March lows.
If we look at earnings here, this is the big driver, the big story so far this year. We're just entering second quarter earnings season for the S&P 500. The expectations are more of the same, meaning the earnings boom is going to continue. We're going to see more all-time highs in terms of earnings on a trailing 12-month basis. I'm showing you here S&P 500 earnings. They're expected to increase 19% year-over-year, looking at the second quarter. So, we're just going to start to get those earnings coming in this week, and we'll see if those expectations are met.
If we look at the full year for 2026, this is really unprecedented historic move higher in terms of expected earnings here. 24% earnings growth is the expected growth rate now for 2026. That would be the strongest year for earnings for the S&P 500 since 2021. But the difference here, as you can see, is 2021 we were recovering from the 2020 COVID period, the decline in earnings. So, we had a snap back leading to a big percentage increase. This time around, this earnings increase is following two pretty good years for earnings in 2024 and 2025.
If we look at profit margins in Q1, we hit a record high 14.8% in terms of S&P 500 profit margins. Never seen anything like it. The expectation for Q2, at least for now, is we're going to stay above 14%. So stay uh pretty elevated, but not quite as high as what we saw in Q1 2026. So a lot of eyes will be focused on that number.
If we look at valuations here, this is the interesting part because last year we're talking about expanding valuations and the year before that as well. This year valuations are actually down a little bit year to date because the earnings numbers have been so strong. And again, this is including estimates for Q2, but we're seeing S&P 500 trailing 12-month multiple actually down from where it was at the start of the year.
And here I'm showing you year-over-year what's going on in terms of earnings and price increases for the S&P 500. We have the S&P 500 index up 21% over the last year. This is from the end the end of the second quarter in 2025 through the end of the second quarter this year. 21% increase in the S&P 500, and you have earnings, and again, this includes second quarter estimates here, up 19% over that period of time.
If we look at the supply picture, there's a wave of supply that's coming. It already came in terms of SpaceX being the biggest IPO ever in history by a wide margin, but that's expected to continue. Philanthropic Open AAI. We don't know when they're going to price, but likely within the next 6 months or so, we're going to see two more huge IPOs. And we could see potentially this being a record year for IPO proceeds raised here. We're already uh getting closer to that 2021 number, and we're only a little over halfway through the year with about 115 billion raised in terms of IPOs there. 142 billion was the 2021 peak number.
And in terms of that SpaceX IPO, we talked a lot about that. Is it a sign in terms of sentiment? Uh, there was definitely a media, a lot of euphoria, a lot of retail investors piling in. And the question was, is this time different in terms of would SpaceX just continue to run away from the first day close unlike all of the major IPOs we've seen in the last 15 years? Well, now we have the answer to that. SpaceX is trading back below that first day close, which is around $161, and this is before the insiders and early investors in SpaceX are really uh allowed to sell. So the lockup period is going to start to end in terms of SpaceX early investors with that first quarter earnings uh report, and that's likely to come sometime in early August. That's going to be the first real test in terms of supply here.
SpaceX, as we talked about, is a smaller weighting in the ETFs because the float that it had initially, about 5% of its shares outstanding were floated, makes the adjusted market cap weight much lower. So in terms of looking at the total market ETFs or even the NASDAQ 100, which it's going to be included uh this week in that, uh much lower than what its market cap would imply. But in terms of the IPO experience, what we've seen in the past 15 years, SpaceX really following that script where you have this initial euphoria when the IPO comes out, and then reality sets in, and then you have this period where supply is coming in terms of insiders, and that's going to be the real test that's going to happen starting in August.
If we turn and look at the factors year-to-date, this is absolutely fascinating in terms of all of the major equity factors have reversed so far this year. And I say reversed from what? Really the decade-long trend was prior to a few years ago. So what we're talking about here is US versus international, large caps versus small caps, and growth versus value. So the dominant force was US large cap growth for over a decade. That was the leading area of the market. And this year, we've seen all of that flip and reverse here.
Looking at emerging markets up 24% through the first half of the year. Small caps 22%, midcap 17%, large cap value up 16%, international stocks overall up 14%. You've got the US still a pretty strong return for only a six-month period, up about 10%. Uh, but look what's lagging here. Large cap growth only up 5%. The Magnificent Seven names, the names that everyone was talking about for over a decade, actually down a few percent uh so far this year.
And if we look at the tech sector here, what's really interesting is that the number one sector in the S&P 500, still technology, despite the fact that growth in the Mag 7 are lagging here. Look at the return here in the first six months of the year. Tech sector ETF up almost 33%, far and away the best sector in terms of year-to-date performance. And what's interesting here is that the worst performer, or something closely related to tech, communication services, down 9%. And what we've been talking about in the week of in charts is this huge dispersion within the technology sector between the winning stocks and the losing stocks within the sector. We haven't seen that type of dispersion that wide since the year 2000, since the peak of the dot bubble. So the question is, is this some type of sign? We'll only know that in hindsight, but interesting to see this huge dispersion between the winners and losers within the technology sector.
If we look at the year-to-date uh returns for small caps, again, we haven't seen this in quite some time. So for five straight years, we're talking about small caps lagging large caps. And I noted at the start of this year when I do my year-end charts review that the only other time in history we saw that happen where small caps underperformed large caps for five years in a row happened in the mid to late 1990s. So from 1994 to 1998, we saw a similar period of large cap domination. And then what followed that was actually one, two, three, four, five, six straight years of small cap outperformance. Are we at the start of that this time around? It's too early to say, but pretty sizable outperformance from small caps in the first half of this year. Small caps up over 22% in the first six months of 2026. That was the best first half for the small cap index here since 1991. 1991 being a pretty good year for small caps, up 46% on the year. So is this a trend change? We have we saw the ratio of large caps to small caps hitting its highest level since 1999 entering the year. So that was an interesting stat. So almost at a record high, and now we're seeing this reversal, very similar perhaps to what we saw in the mid to late 1990s.
Then we have value versus growth. Another area that we saw just a stunning period of outperformance of growth versus value, particularly in 2023 and 2024. You could see most of the last decade growth outperforming value, and that has flipped this year, despite the fact that the technology sector is leading here. Growth is underperforming value by 10%, on pace for the biggest underperformance that we've seen. So you have to go back to 2000 if it were to keep this pace through the second half of the year. So interesting again, notable perhaps a trend change here. What happened in 2000, and then for the next six years, what we saw was a reversal with value outperforming growth over that period of time as well.
So if we talk about the Mag 7, uh, we can't lump them all together. Uh, for a long time, they were trading together in terms of outperforming or underperforming. That has not been the case since the start of 2025. What we've seen is the Magnificent 7 really being condensed to the MAG 2, in terms of just Google and Nvidia are actually outperforming the S&P 500 since the start of 2025. The rest of the names in the index underperforming: Apple, Amazon, Tesla, Meta, and Microsoft, with Meta and Microsoft actually down since the start of 2025. I think that stat would surprise a lot of people.
So what's going on here in terms of the technology sector, in terms of the dispersion we're seeing? What we're seeing is a narrowing of leadership, where semiconductors or things related to semiconductors and the infrastructure AI infrastructure boom are doing very well this year, while everything else is not. So we're talking about here semiconductor stocks ETF here up 113% in the first half of 2026, while the Magnificent 7 names are actually down a few percent. And so the question is, and I I wrote about this recently saying something doesn't add up. Are the Magnificent Seven names, many of them considered hyperscalers, are they going to continue to spend a good portion of their free cash flow and raise debt and raise equity to fund this AI infrastructure boom where the semiconductors are largely benefiting from that in terms of the spending there? How long is that going to continue? Are they just going to transfer that wealth from themselves to the semiconductors going out in in forever into the future? That seems to be the expectation, the way the semiconductor stocks are are moving here or being valued, but that doesn't add up to me. There's going to be a moment where they start questioning that uh spending level, and perhaps it's coming sooner than investors think.
Now, in terms of the semiconductor and memory mania, haven't seen anything like this before. Uh, because the fastest ETF in history to hit 25 billion in assets was also the fastest to hit 20 billion, 15 billion, 10 billion. All happened during this second quarter period. This ETF, the DRAM ETF, launched on April 2nd of this year, and it hit 25 billion in less than 3 months. So on June 25th, hitting 25 billion in assets. Why are investors pouring money into this? It's just good old-fashioned performance chasing. This ETF was up 160 something percent uh through the end of June from its launch date there on April 2nd. So just ridiculous returns, mostly in just three stocks: Micron Technology, Samsung, and SK Hynix in the memory space. And of course, profits in those companies have exploded higher. But anytime I've seen this type of chasing in terms of investors pouring money after the fact, after the performance, usually ends in disappointment. So this will be one to watch in the second quarter. It'll be something to watch in terms of will the stocks keep up this rate of return? Seems unlikely. And what will investors do when it starts moving another direction? So there's a lot of momentum in the semiconductors in the market, in high beta stocks. A lot of signs of speculation that we saw in terms of the IPO market and other things in the month of May and June. And let's see in the second half if we start to see the flip side of that uh take hold here. I've never seen an ETF uh in history receive this much money in terms of inflows in a short period of time and not see investors disappointed in terms of of chasing that return.
So, if you're looking at your portfolio for the second half of the year, now is a great time to reach out to us at Creative Planning. Go to creativeplanning.com/charlie, fill out this form, get a free wealth path analysis from one of our advisors at Creative Planning. We're in all 50 states and we're abroad as well. So, we likely have a location right near you. Over 700 billion in assets under management and advisement, and we're here to help. So, go to creativeplanning.com/charlie. I'll have a link in the show notes.
Let's talk about the bond market. The Fed, inflation here. The drawdown, the longest drawdown in history for the bond market continues here. 71 months and counting. This started back in August 2020, to almost six years of a drawdown. So, while the stock market has been hitting all-time highs for the past few years, not so for the bond market. Bond market still in a drawdown, but slowly clawing its way out of there. About uh less than 2% to go. We're talking about a 1.4% drawdown at the end of June here. So, almost there. And if yields just stay where they are, uh, the coupon payments alone are going to take us out of this drawdown within the next few months. But if interest rates rise, it's going to take longer.
So what's going on so far this year is duration has been a liability because we've seen longer-term bond yields rise. So the 10-year and 30-year yield rising so far this year. So we're seeing anything with longer duration like TLT or Zeros ETF uh really underperform. So far this year, and really that's been the story in the last decade because of those all-time lows in yields. Look at the 10-year returns for TLT and Zeros in negative territory. So, we haven't seen this before in the bond market because we haven't we never before saw yields so low. We had the 30-year and the 10-year Treasury yields below 1% back in 2020, and bond investors who bought back then are suffering the results.
Now, if we fast forward to today, very different environment for for the bond market. So, I hear a lot of people saying, "Oh, the next five to seven years are going to be the same." Definitely not. They're not going to be as painful. Likely to be much, much better for the bond market uh because yields are much higher. So, if we look at the broad uh uh market, bond market ETF here, AGG, 4 and a half percent is the yield on this thing now. So, you're talking about going from less than 1% to 4 and a half percent. So the forward returns for the bond market much better.
And what we've seen over the past five years is really a divergence here between short duration and long duration. So short duration, if you look at treasury bills, you're simply getting that short-term yield on the treasury bill over time. It doesn't have any drawdown. So that's actually gone up over the last five years, 18% over 18%, while long duration really getting crushed because of that rise in yields. Zeros ETF down 49% over that period of time, really shows you that the bond market is not risk-free, particularly when interest rates are at record lows and rising from those record low record lows. There's a lot of risk in bonds when yields are low, but the higher the yield, the less the risk. And the good news for bond investors, it's been painful in the short run, is that yields are much higher today, both on a nominal basis and a real basis. So the 10-year around 4.5, 5%, and the 10-year real yield. So, this is adjusted for expected inflation, is at 2.26%. You could see highest in a few years. And if you go back to 2020, this was actually in negative territory. So, investors were accepting a negative real yield, negative adjusted for inflation, back in 2020. So much better today, over 2% above expected inflation.
And if we look at the most important factor for the bond market in the short run, of course, changes in interest rates dictate everything in the bond market. But if you start to go out a few years, you go out seven years, which is the average duration for the US bond market, it's all about that initial yield. So where are we today? Between four to 5% yields. And so what should investors be expecting in terms of returns? Exactly that over a seven-year period. What happens in the short run is going to be dictated by interest rates. So if interest rates fall, you'll get more of that return in the short run. If interest rates rise, it's going to take longer to get to that return, but over the next seven years, very likely to fall in that four to 5% range.
If we look at credit spreads here, still extremely tight, not far from record lows. Investment grade spreads 75 basis points above treasuries. High yield spreads 2.75%, 275 basis points above above treasuries. You can see the record low back in 2007 was 241 basis points, and so we're only 30 basis points above that record low. So what this essentially means is that investors in the bond market are accepting a very, very low yield for these risky uh bonds today compared to the historical average and compared to history here going back to the mid-1990s. So last 30 years, very rare to see uh credit spreads this low. Similar looking at the equity markets in terms of valuations, uh, it's a similar type of metric here. Investors very optimistic that there won't be many defaults in the bond market. So, they're uh accepting a lower yield. Historically, the best return for risky bond investments has come when credit spreads have spiked, and the worst returns have come during periods where investors are accepting a low uh spread between the rate they're receiving and the rate on treasury bonds. So, we'll continue to monitor this, but in the short run, this simply means that investors are not pricing in a recession. They're not thinking about defaults. They're reaching for yield. They're taking risk. Uh, and that's driving these credit spreads lower.
If we look at the yield curve here, what we've seen is a little bit of a flattening in the curve. This is a spread between the 10-year yield and the 2-year Treasury yield. It's a little bit flatter over the past few months here. And what we've seen essentially is the 10-year rise over that period of time, but the 2-year yield rise more. And that's leading to that flattening of the curve. Why is the 2-year yield rising more than the 10-year? Because the bond market is now pricing in some expectation of interest rate hikes from the Fed. And that's a big, big change from where we were at the start of the year. So at the start of the year, the bond market was saying the Fed's going to cut two times in 2026. A lot of people were talking about the new Fed chair was going to be extremely easy and dovish in terms of the language. That was part of this, but the expectation was Fed's going to continue cutting rates, going to cut two times, and now we're in a very different place. The bond market's actually pricing in one hike before the end of this year. So, you're talking about pretty widespread here between expectations at the start of the year and the end of the year. And that's what's driving this two-year yield higher.
If we look at the Fed meeting for July though, not much of a chance here. Uh, 75% chance of the Fed doing nothing. So holding rates. Only 24% chance today of the Fed hiking rates. I think uh if they're going to hike rates this year, they probably want to telegraph it a little bit more. So maybe the September meeting, if the July comments come in hawkish, I think that's more of a probability, but not likely to see such a big shift here. But the question is, is the next move going to be a hike? Well, the market is at least for now saying that it will be, which is a big change from what investors were expecting at the start of the year.
If we look at the December probabilities here, what the bond market's essentially pricing in is a a uh more than a 70% chance that the Fed is going to hike rates at least once this year. So up to that 3.75 to 4%. So not not a huge move if they do that one hike, but uh it's a change nonetheless, and a change from what the Fed was expecting at the start of the year and bond market investors were expecting at the start of the year.
Why is the Fed going to change policy here, or at least not cut interest rates? Well, if you look at their projections in June, what they're essentially saying is that we're going to have higher inflation this year. We've already seen that uh with CPI moving above 4%, but their PCE expectation at the end of the year is 3.6%. Even core PCE, which excludes food and energy, is above 3%. So, well above their 2% target. And so they moved their Fed funds rate projection up to 3.8%, which would imply uh one hike this year. The unemployment rate, they're still expecting to stay low at 4.3%, and GDP right around 2.2% for the year. So what they're saying is higher inflation, unemployment rate actually moving down versus their earlier projection. So they're not as concerned about the labor market, which would lead to that tightening bias.
If we look at the inflation rate versus the Fed funds rate, we're back above it now. So, we have uh this would be considered a not restrictive policy. It's actually easy policy because you have a negative uh Fed funds rate adjusted for inflation here. And the big question is, the Fed uh has known now for a while that they haven't met their inflation target of 2%, and will they want to correct try to correct that by normalizing interest rates by hiking interest rates? And this is the chart to look at in terms of what inflation has actually been versus the Fed's target. We're about 14% above the Fed's 2% inflation trend since the start of 2020. So the Fed has a 2% inflation target. We've been averaging more than double that target since the start of 2020, so for over six years. And if they want to regain credibility as an inflation fighter, I've been arguing that the Fed should hike interest rates and end their latest round of quantitative easing. We'll see if they have the will to do that uh this year. There's going to be a lot of pressure, of course, for them not to do that. Uh, but if they want to regain credibility as an inflation fighter and have that 2% target, they should be hiking interest rates and restrictive uh pursuing more restrictive policy.
Now, this is where it gets a little tricky here because as as I've always talked about, the Fed really likes to focus only on year-over-year inflation, and year-over-year inflation may have already peaked. If you think that the war in Iran is over and the truce that we have, or uh memorandum of understanding, is going to uh hold here and the war is not going to reescalate. If you think that's the case and commodity prices will stay down, that means perhaps that the inflation rate in the US has already peaked at 4.2%. The Cleveland Fed is projecting a move down to 3.9% for the month of June. So, we'll get that uh data next week. And then for July, they're saying 3.5%. But still too early to tell. So, what the Fed, if they're going to hike interest rates this year, the Fed has to be looking at not just the direction of the inflation rate, but the fact that it's been above their target and well above their target for over six years now. So regardless of where the direction of the inflation rate is, the cumulative inflation is still more than double the Fed's target over the last six years, which is why I think they should still hike rates even if the inflation rate has already peaked for this year.
If we talk about real estate and the housing market here, this is one we've been watching for over four years. The uh REIT uh ETF here, the VNQ, and it finally clawed its way back out of the drawdown. So, we've been watching uh this drawdown since the start of 2022. We had a bare market for the overall S&P 500 that year, down around 27%. But if you looked at the real estate ETF, it never recovered like the broad stock market. So the S&P would get back to new all-time highs by early 2024. That did not happen for uh REITs here. It took until just this past month to get back to a new high. So finally getting there. And of course, this is a total return, so includes uh dividend payments over this period of time as well. Uh, it's not just looking at price.
If we look at commercial real estate prices, it's still uh below the peak or down over 10% from the peak uh back a few years ago. So what we're seeing is just a recovery here in terms of prices, up around 4% over the past year. And if we look at REITs relative to the S&P 500, this is something I pointed out on the last state of the markets. We had reached a low, an all-time low in terms of this ratio, meaning real estate ETF versus the S&P 500, actually broke below its low from 2000. And you can see here, this was the 2000s uh real estate bubble mania where you had just huge outperformance from REITs, outperforming the S&P 500 by an enormous margin, and then you see the crash back in 2007, 2008 into 2009. And now we've gone on just to see a huge long period of underperformance. And the question is, are we finally at that low period? We're going to start to see a move back in the other direction.
If we look at the housing market overall here, looking at the US housing market, it's been a challenging, challenging period in terms of affordability, to say the least. Uh, least affordable housing market in history. If we're looking at prices relative to incomes, uh, you could see prices up here starting to level off, and the housing affordability index, at least, is not hitting new lows, but still uh very, very low levels of affordability. And so what we're seeing as a result of this is a a a imbalance between sellers and buyers. So buyers in terms of that affordability, really has crashed, but sellers are starting to come back into the market. And so you can see the spread here in terms of buyers and sellers. Pretty widespread here. 1.48 million sellers is an estimate from Redfin, and a little over a million buyers. So what we're seeing is a spread close to 47% between uh sellers and buyers. So 47% more sellers than buyers, which means that if you have more supply than demand, you should see price increases moderate. That's exactly what we're seeing here. A 0.8% increase over the last year, year-over-year. So less than 1% increase for the overall US housing market.
If we look at a more real-time number here from Zillow, 0.7%, this is as of the end of May. And housing, of course, is regional. But if we look at the 20-city index here, you can see the big gains, year-over-year gains are uh really behind us. And what we're seeing is about half of the cities in this index are actually down on a year-over-year basis. And what we're seeing is even the three-year uh gains start start to moderate. So, uh, the big question is, are we going to see a repeat of what we saw following the 2000s housing bubble with a significant nationwide declines, or are we just going to see a period where inflation outpaces home prices uh for a decade or more? So far, it's been the latter, where home prices just kind of moderating here, and prices going up more than them, wages going up more than them. So, you're seeing a a a slow improvement in terms of affordability. Uh, and in certain areas where we have more supply and more building, you're seeing uh some drawdowns, although they're not huge given the run-ups before. So, Florida would be one of those examples, Texas being another one. We're seeing some uh drawdowns off of their all-time high levels. Uh, Miami just a few percent, but some areas in in Florida down double digits here. If you're looking at Naples, uh, for down 12%, Fort Myers 18%, Cape Coral 21%. So, if you remember back after the peak in the 2000s bubble, Florida home prices were down, and even in Miami, I think they were down over 50% from their peak. So, this is nothing uh compared to uh back then so far. Uh, but we're seeing what we're seeing in Florida is kind of a microcosm of what we're seeing nationally, which is supply is recovering, and because affordability is still very low, you're seeing supply outpace demand, which is leading to either price declines or a moderation in terms of home price appreciation.
The good news, if you're waiting to buy a home, as I've been saying, is rental affordability continues to improve. And that's because unlike the home uh housing market to buy apartments or houses for rent, we haven't seen new highs in terms of the uh national level here for almost four years. So, uh, rents peaked back in the summer of 2022 here. And what we're seeing here is essentially flattened down over this period of time. It's actually been now 37 consecutive months where rents have declined on a year-over-year basis nationally. And this isn't true, of course, in all areas. The housing market is is local. Uh, but on a national basis, to see for over four years, uh, prices not hit new highs, that's a big thing. That's an important thing because people's incomes have gone up over this period of time, meaning the affordability level of that rent has improved. And the big reason for this in terms of the year-over-year declines is that uh we're seeing high levels of vacancy. This has come down so far this year. So not as high as where we were at the start of the year. Uh, but still at above 7% is pretty high. So we wouldn't be expecting to see year-over-year price increases as long as uh vacancy rates remain this high. As as as we talked about a number of times, there was a big multifamily construction boom in 2023, 2024 that added a lot of supply uh to the market. And uh what we're seeing now as a result of that, a lot of excess supply leading uh to rents really being flat now for four years on a national basis.
Let's talk about commodities here. Gold was the biggest story entering the year because it had its best year since 1979. In 2025, it was up 64%, and then in the first few weeks of 2026, it just went parabolic. It went crazy. Was up another 25 to 30% in just a few weeks. Uh, and now we've seen a pretty sharp reversal from uh that first few weeks of this year. It's actually now down 7% year-to-date as of the end of the second quarter here. So, if we're looking at the last five months, very different uh than the five months that preceded it.
So, the big story was dollar down, gold up, silver up. That was the big story last year. Uh, last five months, we've seen a total reversal of this. We got the US dollar index up 7%, gold down over 25%, and silver down over 50%. And this was the chart I was showing a few months ago back in February. It uh that's the ratio of gold to inflation really went parabolic and was like nothing we've seen before, with the exception of the late 1970s uh period, which peaked in early 1980 at this 2.5 times inflation. Well, we finally broke above that level and last year, and what we saw was just a vertical move higher. So, this went as high as 4 and a half times uh inflation, and now has crashed down to 3.3 times after the pullback in gold. So the question for gold investors is, are we going to see a repeat of what we saw back then, which is essentially it comes back down to the mean, which in the long run, if you think gold should track inflation and not outpace inflation, then you think uh that this is going to lead to mean reversion. If you think that gold uh is different now, it's going to outpace inflation over the next 10, 20, 30 years, then you could see this ratio move higher. But there's no question about it. What we saw entering January in the first few weeks of January was just a parabolic uh move in terms of price of gold and silver. And the narrative really drove everything. And a big part of that narrative was that the Fed was going to continue to ease monetary policy, that interest rates were going to fall, and that would be less competition in terms of gold, in terms of opportunity cost. Well, that narrative now has been taken away with the Fed now expected to hike interest rates and not cut interest rates. So, a big part of gold is always the story and the narrative, and that narrative of Fed unnecessarily unwarranted easing that we saw throughout 2025 has really been taken away for this year.
And this is a chart just showing you that inverse relationship between real interest rates and gold. You can see here gold peaking earlier this year, and you can see what's happened with real interest rates. As real interest rates rise, gold prices falling. This is not a negative one correlation, but it's one of the strongest things you see in terms of gold. The higher the real interest rate, the the harder it is for gold to perform. And that makes some sense because if there's an investment out there that's giving you an inflation adjusted return uh that's higher, well that's uh less of a reason that you need to own gold. And when this thing was negative back in 2020, a lot of people were rightfully so saying bonds are going to give you a negative real yield, so you should own gold. Well, very different situation that we're seeing today with real uh bond yields above 2%.
If we look at commodities over the last year, this chart looks a lot different than it did a month ago. Uh, because what we've seen is a truce in terms of the Iran war. We'll see if that's a lasting truce. Hopefully, it is. Uh, we don't have the answer to that. But what it's meant is that commodity prices have really pulled back. If we look at things like uh crude oil and gasoline, they were much, much higher, bigger increases uh just a month ago uh than they were today. But in terms of silver and gold, a big moderation here in terms of the one-year percentage changes as well.
If we look at the uh broad commodities index here, it it came out in 2006, so it's a little over 20 years old now. This is the ETF DBC. And really over this period of time, it's been the worst performing major asset class. Actually peaked back in 2008 and still has not surpassed that. And really, it's up about 40% in the last 20 years, which is not very much. But uh all of that return essentially coming over uh the past year here uh with that second spike in commodities prices.
But if we look at the price of gasoline in the US, moving in the right direction. And so it peaked a little bit above 450 uh back in uh May, and since then has been moving down as crude oil has been moving down. The expectation is that supply, more supply is going to be coming. The Strait of Hormuz is slowly reopening here. Again, we don't have any clarity in terms of whether this is going to last. Hopefully it does. But uh in terms of where gasoline prices are today, much better than where they were a month ago. If we compare it to last year, still well above last year's level. So in terms of US consumer and inflation on a year-over-year basis, still paying higher prices. This is still going to contribute to a higher uh CPI. But if we look at compared to the May number, uh, this is a much better situation. So hopefully uh the situation there is resolved and we see gas prices and other commodity prices continue to fall.
Let's talk about currencies here. The big story in 2025 was the falling dollar. And look at look at the dollar now. Over the past year, actually up a few percent over the past year. So, uh, very different in terms of what the dollar is looking like today versus back then. If we look at the last decade, you can see we've had big swings in both directions, but the dollar index actually up about 5% last decade. Uh, dollar index is mostly the euro and the yen.
And if we look at the yen, it's actually at its lowest level now uh since uh 1986. So 40-year low uh it hit uh just this past week. And if we look at the last uh five years, it's lost over a third uh uh about a third of its value against the dollar. So yen very, very weak. Uh, part of that is by design. The Bank of Japan continues to pursue aggressively easy monetary policy. Although it has been starting to adjust that and the expectation it's going to continue to adjust that, it's still just behind the curve in terms of where its central bank rate is still sitting at 1%. So, uh, for a long time, they pursued zero negative interest rate policy. Now, they're up to 1%. They're expected to continue to hike, uh, but still well below, uh, the US Fed funds rate, of course.
And we got the Eurozone. So the other big component of the dollar index is the euro. They're still uh uh pursuing easy money, even though they're starting to hike interest rates or expected to hike interest rates. So uh Bank of Japan, the ECB, and the Fed all pursuing easy money here with negative central bank rates. But all three expected to hike here. The Bank of Japan has already hiked. The ECB has already hiked. And the Fed now is expected to hike by year-end. So, a lot of factors uh determine where a currency is. Uh, growth rates, you have inflation rates, you have investor flows, a lot of different things, a lot of different moving parts, of course. But the narrative that the dollar was going to have a free fall, which was the narrative last year, has not played out so far this year.
Let's talk about crypto here. Bigger drawdowns uh for for Bitcoin and Ethereum here. Biggest drawdowns we've seen since 2022. Uh, you got Bitcoin down over 50% from its peak last October, and Ethereum down about 70% from its peak uh levels. So pretty sizable drawdowns. Very different than the medium phase that we saw last year, which ended in October, where we saw just all-time high after all-time high in Bitcoin. It got up to around 126,000 last October uh before peaking. We're now in the biggest and longest correction since 2022. So 54% decline off of that high last October and 267 days. Have we seen bigger declines than this for Bitcoin? Yes. 2022 one was over a year uh and it actually declined 78%. So uh we'll see what happens from here in terms of crypto, but sentiment very different of course than what we saw last October uh in terms of uh momentum has faded, sentiment has faded, and narrative surrounding Bitcoin and and Ethereum has faded as well.
The four-year cycle here uh which a lot of investors focus on, showing you the declines in 2014, 2018, 2022, and now this year as well. So, were your cycle holding up here? And what is is there a solid reasoning behind this? Uh, we can debate that, but uh for now, investors are selling Bitcoin every four years, and then the gains in between them are are parabolic. So uh markets always change. Of course, we saw a decline last year. So perhaps investors were front-running that, getting out of it before uh the declines they were anticipating this year. Uh, we'll see what happens with Bitcoin in the second half of this year. But when people ask, why is it going down? Well, you have just momentum on the downside. So it was momentum that pushed it up on the upside, momentum now on the downside. And you have the MicroStrategy situation uh which I've talked about a lot, where now they're selling Bitcoin. Uh, previously they were the biggest buyer of Bitcoin, uh, and then you have of course the the uh competing investments in terms of speculation. Investors are seeing these huge moves in semiconductors and AI related names, and so they're speculating more in those areas of the market versus crypto, which they've been seeing going down, and narratives will always change based on price. So gold and Bitcoin uh both moving lower in the first half of the year, and the narrative for both of those asset classes completely changing because of those price declines.
Let's talk about intermarket analysis here. First, looking at the ratio of stocks to bonds hitting another record high in the second quarter, with stocks outpacing bonds. Bonds essentially flat for the year, with the S&P 500 up about 10%. So, you're going to see this ratio rising as a result of that. Correlations. Uh, this is a trend here that I've been talking about, falling. So, we hit uh the highest, almost the highest correlation between stocks and bonds on record a few years ago. And what we're seeing now is correlations move back uh down, meaning stocks and bonds are not not moving in tandem as much as they were uh before. Why were they moving so much uh together? Because inflation was a big concern. And so you had interest rates rising, and that causing stocks and bonds both to fall, particularly in 2022. That was the uh biggest correlation that we've seen uh that I've seen uh in terms of following markets. And since then, we've seen more of a divergence uh between stocks and bonds. But correlations, as I've talked about, doesn't equate to performance.
If we look at the stock and bond market over the last five years, you got stocks up 84%, and bonds actually down uh slightly over the last five years. If we look at the last seven years, it's pretty incredible. Looking at a 60/40 stock and bond portfolio in the US, you got a 10.6% return, but almost all of that, well over 90% of that is coming from the stock side. So S&P 500 up 16.8%, 8% per year over the last seven years, while the US bond market only doing 1.2%, 2% per year. And the odds of this of spread being this wide in the next seven, I would say very low. Again, bonds now have a much higher yield, four to 5%. Got US stock market uh valuations on the elevated level, so I would be shocked to see this repeated uh in the next seven years. You should have a higher contribution, at least to the 60/40, coming from the bond market.
If we look at the ratio of stocks to commodities here, rebounding off of uh the March lows. So, this was the the where the S&P 500 had a 10% correction. Got commodity prices spiking, and since then we've seen a reversal, stocks hitting
new highs, commodity prices uh crashing. And if we look at stocks versus gold, uh that hit a multi-year low back in January when gold peaked, had that parabolic move and since then gold is in a 20 plus% draw down and stock market hitting new highs. So we've seen that reverse course.
Bitcoin versus the stock market is always just a simply a chart of what Bitcoin is doing because the volatility of Bitcoin is much much higher multiples higher than the US stock market. So we're seeing this ratio move down. What I think is interesting here is that if we look at essentially the last five years now we have stock Bitcoin and stocks about about the same in terms of of five years uh in terms of performance. So uh almost equivalent here. So we had this ratio a peak last year uh it's it's come down but if we look at the last five years are essentially stocks and bitcoin equivalent in terms of returns. And if we look at when the first bitcoin ETF launched few years ago stocks actually outperforming bitcoin since then.
If we look at Bitcoin versus gold, similar to Bitcoin versus stocks, uh essentially the performance is uh close to being the same over the last five years. Of course, in the last year, year and a half. Gold crushing Bitcoin in terms of returns.
Asset class returns this year. Everything positive with the exception of two asset classes. Got gold and Bitcoin. Gold down 7%, Bitcoin down 31%. This is interesting because we've never seen gold and Bitcoin be the two worst performers in any calendar year. We're only halfway through the year, but never seen this before. So, very interesting to see that. And you have US small caps at the top through the first half of the year.
Let's end here talking about the US economy still expansion 71 months and counting. So, now above the post world world war II average of 67 months. And what we're seeing is an expectation that this is going to continue at least another quarter. Second quarter GDP, the latest estimate from the Atlanta Fed is 1.2% increase. This is going to change as the as we get uh incoming data uh still for the second quarter coming in and the estimate you could see was back was uh back in May above 4%. So has definitely come down since then. uh but the expectation still in expansion mode uh for uh the uh US economy and likely to hit 74 months with that second quarter GDP number.
Unemployment rate actually moving lower which is not expected uh by a lot of people entering the year down to 4.2% 2% lowest level since last June. And we dissect the number. It's a little bit of weakness there because we got people leaving the labor force. So, it's falling uh not due to big job gains, but because people are leaving the labor force. You could see that in the labor force participation rate here. 61 a.5% lowest that we've seen since 2021.
If we look at the jobs market, I've been calling it for over a year now. The most confusing jobs market in history. I think that continues here, probably even more so today because we had a complete reversal in terms of non-farm payrolls. They were actually negative on a six-month basis, rolling six-month basis. Last October, even as uh recent as this February, they were negative on a rolling six-month basis. And now 92,000 jobs per month were added. If you believe the numbers in the last six months, that's the highest since February 2025. What I always say about these perial numbers, don't put a ton of stock in them because you just see massive, massive revisions every single month and then you have annual revisions after that. So, putting a lot of stock in this doesn't make sense really just look at the trend if you're going to look at anything or just ignore it all together and look uh more at the unemployment rate and look at jobless claims.
Why jobless claims? Because jobless claims are real numbers in terms of who how many people are filing for unemployment in the US. And that number hit a multi-year low uh in January of this year. And what we're seeing today is still pretty low. We're right in kind of the middle of the range that we've seen over the past four years. So until we see a real spike in jobless claims, uh the jobs market is going to be kind of in a status quo uh period where you have a low hire, low fire mode that we entered last year.
What's unusual about the jobs market is we've never really seen in the past 70 years jobs turn negative on a six-month basis without the economy being a recession. But there's a saying that uh if you haven't seen it before, it's only a matter of time. and perhaps that that's what we're seeing today because we're not in a recession and we had those negative payroll numbers last year. So, a lot of different reasons for that. Talked about it last year with federal government in terms of the layoffs there and the decline in immigration numbers that contributing to this. But still an unusual situation where nobody was expecting this rebound in terms of the jobs market and no one was expecting unemployment rate to go lower this year and so far that's what we've seen.
If we look at consumer sentiment, hit an all-time low uh during the start of the Iran war when commodity prices were spiking, record low. Again, very unusual because you typically only see this during recessions or inflationary spikes like we saw in 2022. And we did have an inflationary spike, but only to about 4.2%. And so, very unusual to see the consumer this grumpy considering we're not in a recession. still have a low unemployment rate and the stock market hitting many all-time highs. Uh but with the consumer, as I always say, watch what they do, not what they say. What they're doing is still spending. So on a nominal basis, you would expect this because inflation's going up, but still 7 and a half% increase in retail sales. Over the last year, the historical average is 4 and a.5%. And if you adjust that for higher prices, you're at 3.3% increase in the last year, which is above historical average of 1.9%.
Let's end here with the most important chart for an economy. That would be looking at real wage growth over time. So comparing increases in average hourly earnings to increase in consumer prices. And for 35 consecutive months, we were in a very good place, positive. So that meant that real wages were going up. And the last two months because of rising inflation, we've seen a negative number. And I hope this trend doesn't continue. It's likely going to continue for at least one more month when we get that inflation print uh for June. But hopefully we can control the rate of inflation. and it comes back down and job growth and job growth in terms of hourly earnings will continue to increase and get back to this prior trend because the only real important metric for an economy in the long run is are workers increasing their prosperity. Are their wage gains adjusted for inflation going up over the time? If they are, then that's an increase in purchasing power. You got more money to save, more money to invest, more money to spend. And if it's moving in the opposite direction, obviously less of those things. So hopefully in the back half of this year, we'll see this number get back into positive territory.
We'll end it right there. Thank you everyone for joining me on this special edition of the weekend charts, which I call the state of the markets. If you're watching this on YouTube, hit that subscribe button for all the latest content from us, and I'll see you next time on the regular edition of the week in charts.