Market insights and analysis

How dynamic, risk-managed investment solutions are performing in the current market environment

1st Quarter | 2022

Market insights and analysis


Updates on how dynamic, risk-managed investment solutions are performing in the current market environment.

By Peter Mauthe

Like many advisers and investors who have been following the news lately, you may be wondering how the state of inflation and interest rates will affect your investments.

Should you make a change to your financial plan? If so, what should that change be? And for how long?

Before considering your next move, remember that a good bit of misunderstanding exists about how markets behave relative to the news that drives them—and reacting to the latest economic headline isn’t necessarily the basis of sound financial decision-making.

Headlines don’t look forward, but markets generally do

When Jerry Wagner started Flexible Plan investments more than 40 years ago, he understood that some but not all data are meaningful to markets and the direction in which they move. Furthermore, he understood that markets are often quite efficient in anticipating economic events. Here are a few recent examples.

Last year, the stock market began to rise after the COVID-related crash months before the economy began to improve. And interest rates increased long before inflation began to rise.

Recent data showed that top-line consumer inflation was up 5% over the past 12 months. Over 70% (3.57% of the 5%) of that gain was in five categories: energy commodities, used cars and trucks, restaurant food, rental vehicles, and airfares. This is quite understandable given where we were in the COVID economic shutdown 12 months ago when prices for those items were very depressed.

You may also have noticed that crude oil is up more than 200% from a year ago. What you may not know is that after that substantial increase, oil is back to the same price it was 12 years ago.

The price of copper is up more than 100% from a year ago—but back to the same price it was 10 years ago.

And elevated inflation rates may not necessarily persist. The following graph shows periods of inflation rates similar to those of today, highlighted by line A.

How Flexible Plan uses the news

The economic regimes Flexible Plan monitors take inflation and other economic statistics into account. We also understand inflation has a meaningful influence on alternative assets such as gold, which we include in our strategically diversified portfolios.

However, inflation by itself can have greatly varying impacts on markets. Therefore, the actions we take within our clients’ portfolios are largely driven by market action, not headlines.

While we recognize inflation is up because prices have increased over the past year, markets have behaved in a fashion that suggests that the headlines should not be our sole focus.

The following graph illustrates the interest rates on 20-year Treasury bonds over the past 16 months. This graph indicates rates went up in anticipation of inflation going up.

However, starting in March 2021, when the details behind the rising inflation became more clear to markets, interest rates started to decline even though the headlines indicated that inflation was rising.

Portfolio solutions based on data, not headlines

Our belief, based on more than 40 years of experience, is that portfolio decisions are best made based on objective, quantitative data affecting the market now, not news headlines touting information that may already be factored into the market.

This objective, quantitative approach is what drives the design of all of our investment strategies, making the process of building portfolios that dynamically optimize both risk management and opportunity management simple.

Our website provides tools to help advisers craft dynamic, risk-managed portfolios from our more than 100 investment strategies or using our “easy button” turnkey QFC strategies. We also offer tools to monitor the activity within those portfolios.

Global economic and market conditions will continue to change over time—and our portfolio solutions are designed to objectively and dynamically adjust as history, and the data, has demonstrated is appropriate.

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