Market insights and analysis

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

2nd Quarter | 2021

Market insights and analysis

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

By Jason Teed

The major stock market indexes were up last week, with the Dow and S&P hitting all-time highs. The NASDAQ composite led with a gain of 2.1%, the Dow Jones Industrial Average gained 1.0%, the S&P 500 Index rose 1.7%, and the Russell 2000 gained 2.0%. The 10-year Treasury bond yield rose about 13 basis points, as Treasury bonds fell for the week. Spot gold gained 2.7%. International developed rose 1.2% and emerging markets rose 1.6%, showing a bit more strength.

Market outlook

For the next few months, the markets are likely to be more volatile than normal as we continue to digest market news and investors attempt to determine which market factors will have the largest impact in the short and intermediate term.

It looks like Congress will pass a bipartisan stimulus bill this week. While stimulus checks will likely not be part of this round of stimulus, augmented and extended unemployment benefits are widely expected. This should be a boon to those who have lost their jobs due to the impact of the pandemic. The bill is also expected to include funding for the infrastructure and transportation involved in deploying approved vaccines.

However, recently released unemployment numbers are causing concern.

First, the good news. The number of people exiting the workforce permanently because they were unable to find a job has stalled the past couple of months, indicating that we’ll likely see this figure turn around in the near future.

Yet, though unemployment has been improving, the decrease in the overall number of unemployed (which include those who are unemployed, those who want a job but are not in the labor force, and those working part-time who want full-time employment) has slowed. This was largely shrugged off by the markets, as the move was expected. Hopefully, this is just a blip in the chart; however, it is the first time this measure has stalled since April, when the economy began adding jobs after the first quarter. This will be a measure to keep an eye on during the next few months.

Something else to keep in mind is that it’s the holidays. Typically, this is the time of year when consumer spending adds the most to GDP. Expectations from the Retail sector were fairly high given the tumultuous year for the economy and consumers.

Initially, the National Retail Federation had predicted a 3.5% year-over-year increase in consumer holiday spending. However, these predictions are not materializing. Black Friday spending was down 14% from last year. Much of retail sales have likely moved online, meaning Black Friday spending may be more distributed over time than in previous years. However, current predictions now put holiday spending down 4% from last year.

One last thing to take into account in recent and forward-looking market movements is seasonality. December is a historically positive time for equity markets. Despite the infamy of 2020, the Santa Claus rally may still materialize. When December begins with the market up, as it did this year, the month typically finishes even higher. Some of the uncertainties in the markets do appear to have an end in view.

Flexible Plan update

Equities and gold were the top performers last week. As a result, our top-performing strategies were those that can aggressively invest in these asset classes. The QFC Evolution Plus Aggressive strategy was up the most, gaining more than 4.5% last week. Our Volatility Adjusted NASDAQ strategy was up by 4.4%, and our QFC Self-adjusting Trend Following strategy gained 4.3%.

Strategies that invest in other asset classes, such as bonds, didn’t fare quite as well. Our Strategic High Yield Growth strategy was down about 30 basis points for the week. Despite the poor performance of bonds last week, our QFC Tactical Fixed Income strategy was up 0.6% for the week, having had a slight inverse exposure to long-term Treasurys.

Among the Flexible Plan Market Regime indicators, our Growth and Inflation measure continues to show that we are now in a Normal economic environment stage (meaning a positive monthly change in the inflation rate and positive monthly GDP reading). In the current regime, gold tends to perform the best, followed by equities and then bonds.

Our Volatility regime is showing a High and Falling reading, which favors gold over bonds and then equity, although all have positive returns in this regime stage.



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