Wesley Chapel, FL
“The stock market is filled with individuals who know the price of everything, but the value of nothing.”
Let's just get this out of the way early. I still think we are operating in the mother of all bubbles, as we have been for years. Not even during the 2022 bear market or the COVID crash in 2020 did the market drop to its average price, as measured by Warren Buffett's preferred indicator: total stock market capitalization as a percentage of GDP. In fact, the last time stocks traded at their average valuation in the past 25 years was in 2015 – a decade ago.
As I have said before, what is the only responsible thing to do in a bubble? Buy stocks and use trailing stops.
How much of which stocks, and how tight or wide to set the stops, are important questions. I plan to cover that next month.
Ironically, but perhaps not surprisingly, the Goldman Sachs Profitless Technology basket led the market higher in July. Yes, that is a thing. It's not an ETF that you can buy (I don't know why anyone would want to own it if it were), thankfully, but as a theme, it informs us about market sentiment. The ARK Innovation ETF (ARKK) is probably a decent proxy for the basket, as its portfolio manager lives and dies on these types of businesses. Guess what? When the profitless tech basket is up, ARKK generally follows suit, but it is never sustainable in the long run. When it inevitably comes crashing down, the ARKK fund crashes along with it. This cycle plays out over and over. For traders who can go both long and short, this is wonderful. For long-term investors… well, how can you call it an investment when there aren't even any cash flows to analyze? These are speculations. Plain and simple. They are basically the exact opposite of what we look for (World-Class Capital-Efficient businesses with a history of high returns and growth) as the core of our portfolios at Elevate.
We even saw the return of "meme stocks" and financial media got to coin and market their latest ridiculous acronym, the "DORK" socks.
D: DNUT (Krispy Kreme)
O: OPEN (Opendoor Technologies)
R: RKT (Rocket Companies)
K: KSS (Kohl's)
OPEN was up 500% at its peak and has since pulled back 40%, which still leaves it 265% higher than where it closed on June 30, 2025.
Meme stocks are characterized by a furious rise not because of business fundamentals like revenue, profit, or even growth potential, but because the company becomes a viral topic on social media platforms like Reddit, X (I suppose I can finally call it X, sigh), and even TikTok. Users post ridiculous memes and rally around them, encouraging others to buy and drive the price up.
The phenomenon typically starts when a group of retail investors identifies a stock that probably deserves to be bankrupt and is heavily shorted by professional investors (meaning many have bet the stock will fall), who can see from the reported financials that the company is in big trouble. Retail investors then begin buying the stock and posting about it, potentially causing a "short squeeze."
What is a short squeeze? Let me briefly explain.
When you bet that a stock will rise, you buy it. To exit that trade, you sell the stock. But when you bet a stock will fall, you do it in reverse. You sell the stock first, and then to exit the trade, you must buy it back to close the trade. Most professionals who short stocks have limits imposed by their firms on how much a shorted stock can rise before the firm forces them to buy it back to exit the trade. This forced buying, along with the retail buyers, leads to far more buyers than sellers, and the stock "squeezes" rapidly higher… usually just before the stock crashes once more when all the forced buyers are finished.
What makes meme stocks unique is the community-driven hype. The price movements are often extreme and disconnected from the company's actual financial health. For example, GameStop and AMC became iconic meme stocks in 2021, with their prices skyrocketing due to online campaigns, despite struggling business models. Investors in meme stocks are often motivated by a mix of humor, rebellion against institutional investors, and the thrill of speculative trading.
There is nothing wrong with speculative trading. In fact, I do some of that, too, both professionally and personally. However, people often get into trouble when they confuse speculation with investing or compare returns from a long-term investment portfolio to the short-term pumps of a speculative mania.
Given what I've written so far, it shouldn't come as a surprise to you that during July, our portfolios, which are heavily weighted toward highly profitable and capital-efficient businesses with very high long-term returns on invested capital, underperformed the market.
In the aggregate, our managed accounts were essentially flat for the month compared to the S&P 500 index, which rose 2.2%, led by the so-called Magnificent Seven (Mag7) and, as I mentioned earlier, the profitless tech basket.
That brings the year-to-date return (which I only quote because people are interested in it, not because I think it is relevant to a long-term investment program) for the S&P 500 to 7.8%. Notably, the largest stocks in the world (i.e., the most expensive stocks in the world) have diverged significantly from the "forgotten 490" stocks in the S&P 500. If you look at the returns in the chart below, you'll notice that the black line (S&P 500 Equal Weight) and the blue line (Mag7) went in totally different directions for almost the entire month, particularly at the very end.
The Top 10 stocks were dragged down in July by the two fairly valued world-class stocks in the group, Eli Lilly (LLY) and Berkshire Hathaway (BRK/B), but the Top Ten maintains a slight lead over the Mag 7, up 8.5% to 8.3% respectively, in 2025.
I continue to prefer the diversity and objectivity of the Top Ten vs. the Mag7.
Gold was down slightly for the month (another asset we own a lot of that underperformed in July), but maintains a yuuuge lead for the year, and millennium-to-date. As I have pointed out before, gold has outperformed both the S&P 500 and Nasdaq (by A LOT) for more than a quarter of a century and counting. It has been flat since the middle of April when the stock market bottomed and started to rally – does a few months of underperformance mean we should bail? I think not. Does that mean you should have put all your money in gold ahead of the "Y2K" switch? Maybe, but I think not.
Many people say and post things like, "If you had just bought $10,000 worth of gold in 2000 and done nothing, you’d have $110,000 today."
Well. Sort of.
If you bought $10,000 of gold in 2000, you would have first watched it rise to $25,500 in 2006 before dropping swiftly to $19,900. And then you had to do nothing.
Then you would have had to do nothing, as it rose to $35,800 and then swiftly dropped to $25,400 in 2008.
Then, you would have had to sell none as it rose to $67,800 by 2011. And done nothing again as your position fell to only $37,500.
Then, you'd have to sit back and watch as it climbed to $73,600 in 2020, and then do nothing as it dropped to $65,000 over the next two years.
Finally, you'd have had to do nothing as it rose to $110,000 today.
Easier said than done. And don't even get me started on Bitcoin, which is up 1,999,900% (using the $6 price from when you could have first bought it on coinbase.com) since 2012.
Looking a little closer at gold, you will see that a "consolidation" pattern has formed with gold failing to breakout to and hold a new all-time high since mid-April.
A consolidation pattern in trading refers to a period when a stock, index, or other financial asset moves within a relatively narrow price range, showing no clear upward or downward trend. It's like the market is "taking a breather" after a strong move, as buyers and sellers reach a temporary equilibrium.
During consolidation, price action typically forms recognizable shapes on a chart, such as rectangles, triangles, or flags. These patterns reflect indecision among traders. Neither bulls nor bears are in control.
Consolidation is important because it often precedes a breakout or breakdown. Once the price breaks out of the pattern (either above resistance or below support), it can signal the start of a new trend.
The consolidation pattern we see in gold right now is often referred to as an ascending triangle, characterized by a horizontal trend of highs at the top and an upward-sloping trend of higher lows at the bottom. This pattern is generally considered a bullish pattern as it often breaks out to the upside when it forms during an uptrend, as we have with gold now. The repeated tests of resistance at the top end suggest that the market may be running out of sellers at over $3,400, and once everyone who wants to sell there has sold, all that will be left are buyers, and the price could push through for an extended period. No guarantees, though. These patterns can and do break to the downside.
Upon examining the chart, you will also see that gold could fall to just over $3,000 and still maintain its long-term uptrend. That is a little more than 8% of downside from here.
Since we are on the subject of technical analysis, let's have a look at the S&P 500 using the SPY exchange-traded fund (ETF).
In the chart below, you will see that after the index fell out of the upward-sloping channel that had held since October 2023, it broke below the upward-sloping 200-day moving average (200 DMA), which then became resistance on the next bounce. From there, the index fell hard and fast to 496 (you can multiply that by 100 to get the approximate index value of ~4,968). That is the low for the cycle at -19% from the highs, not quite enough to qualify as a technical bear market.
The 200 DMA even started to trend down. Briefly.
Since then, the markets have been on a relentless climb higher with the 200 DMA trending higher and not even acting like resistance as I would normally expect. The 200 DMA only trended lower for 20 days – 1 day shy of my 22-day signal to sell the index.
At this point, the index has recovered all the losses from the tariff tantrum, and then some, making new highs several times since June. There is really no resistance overhead to speak of unless you turn to the golden ratio, or the Fibonacci sequence, which is a series of numbers where each number is the sum of the two preceding ones. It starts like this:
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, …
Mark your calendar for Fibonacci day, which comes on November 23 every year (11/23)!
This pattern continues indefinitely, and it constantly appears in nature, art, architecture, and financial markets. For example, the arrangement of leaves on a stem, the scales of a pinecone, the branching of trees, and the spiral patterns of shells and galaxies often follow Fibonacci-like proportions.
One fascinating aspect of the Fibonacci sequence is its connection to the golden ratio (approximately 1.618). As the sequence progresses, the ratio of consecutive Fibonacci numbers approaches this value, which is often associated with aesthetically pleasing proportions.
Without going into too much more detail, I have added the 123.6% ($640) and 138.2% ($657) Fibonacci retracement levels within view on the chart. Usually, I wouldn't care much about the 123.6% level, but it seems to have acted as resistance so far on this move. In my experience, the 138.2% level is more reliable as a resistance level, along with the 161.8% (or 1.618) level, which is not shown because it is all the way up at $684. It's literally off the chart.
These levels could all act as resistance for this melt-up, but none of them have to. And even if they do, it doesn't necessarily mean the start of a bear market or anything significant. It could just be a "breather" before the relentless march higher resumes.
As the wise Old Turkey said, “It’s a bull market, you know?”
If you missed last month, I wrote about the "Relentless Bid" that can keep pushing markets higher and higher via the largest 10 stocks in the S&P 500 for longer than anyone thinks possible, and the total suspension of disbelief of market participants referred to by legendary investor, Paul Tudor Jones, as the "economic kayfabe."
Both are still in play!
Before I sign off for this month, I will comment on a few things that piqued my interest since my last commentary.
Everyone is expecting the Fed to cut rates after the abysmally poor July jobs report was published in early August. Only 73,000 jobs were added, which was well below expectations. More concerning was the revision of the prior couple of months' reports, which wiped out 258,000 previously reported jobs. The report also led to an uptick in the unemployment rate to 4.2% and an underemployment rate of 7.9%. Based on interest rate futures contracts, the market is expecting two 0.25% rate cuts by the end of the year, with the first one coming next month.
Remember that when the Fed cuts rates, as it did (by 0.50%) in September last year, you cannot automatically assume that interest rates in the general economy, such as those for mortgages, car loans, or other loans, will follow suit. The difference between the 10-year and 2-year treasury yield since 2000 has averaged about 1%. This means you generally get 1% more to lend to the government for 10 years than you get for 2 years. The widest spread was 2.8%, achieved on a few occasions in 2003, 2010, and 2011. Currently, the 2-year Treasury yield is 3.76% and the 10-year Treasury yield is 4.27%, resulting in a spread of approximately 0.51%. That means the spread can get A LOT wider. Another way to say it is that the yield curve can steepen further with interest rates on longer-term loans rising. Below is a chart from my November 2024 commentary showing you what happened to the 10-year yield the last time the Fed started cutting interest rates.
Also worth noting is that the consumer price index (CPI) has averaged 2.7% for the past 14 months, and was reported at 2.7% in June, rising from 2.4% in the prior month. This is inconsistent with the Fed's stated target, and it remains unclear what tariffs will do to prices.
This was pretty funny. Vanguard considers bitcoin "inappropriate" for long-term investors. "Yet thanks to the cold logic of index investing, the $10 trillion money-management giant is now the biggest backer of Strategy, the software firm that famously reinvented itself as a proxy for Bitcoin and became a poster child for the industry's ambitions," reports Bloomberg.
Until next time, I thank God for each of you, and I thank each of you for reading this commentary.
Clients, I encourage you to click here to access your personalized performance portal and see how your portfolio performed compared to the markets last month.
Shane Fleury, CFA
Chief Investment Officer
Elevate Capital Advisors
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