Market insights and analysis

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

3rd 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.

The major stock market indexes fell last week. The Dow Jones Industrial Average lost about 0.75%, the S&P 500 Index fell 0.28%, the NASDAQ 100 dropped 1.52%, and the Russell 2000 small-capitalization index fell 0.39%. The 10-year Treasury bond yield fell about 4 basis points, as Treasury bonds gained ground for the week. Last week, spot gold gained more than 5%, behaving like a safe-haven asset as stocks took a break from their recent climb.

Safe-haven assets

Long-term Treasurys are yielding about 1.2%, very near a multi-decade low, and gold is performing exceptionally well, nearing all-time highs not seen since 2011. There are a couple of reasons for this:

  • Gold is behaving like a safe-haven asset class; however, there are additional inflationary concerns as well.
  • With multiple, extremely large fiscal stimulus actions from the federal government, as well as expansive monetary policy, conditions are favorable for a decrease in the value of the U.S. dollar. Last week alone, the greenback fell over 1.5%.

However, conditions may not be favorable for gold in the intermediate term if the U.S. economy picks up near the end of the year. But if larger companies file for bankruptcy between now and the end of the year, there may be further significant upside for the metal.

This trend is not limited to the United States. Other governments are initiating significant fiscal and monetary stimulus to mitigate the impact of the pandemic. Lower rates and the various stimulus packages will increase the attractiveness of precious metals versus securities that are decreasing in yield.

Some good news

While the uncertainty caused by the pandemic is still taking a large toll on our economy, there is some good news on the horizon. Multiple vaccine trials have ended positively, progressing to the next stages. Some vaccine manufacturers suggest they could have an approved vaccine available by the fall. Additionally, according to daily infection and testing data from healthdata.org, it appears that in the short term the number of new coronavirus cases in the U.S. may be declining after a recent “second wave” in Sunbelt states. Masks also offer an economically friendly method for helping to curb the spread of the coronavirus.

In other good news, we’ve seen an uptick in positive earnings surprises. While this number generally falls around 56%, which is where the number stayed for the majority of this year due to the economic downturn, the number has recently increased to over 60%. Additionally, guidance adjustments from companies themselves have recovered significantly after dipping during the second quarter. Should these trends continue, it might indicate that the U.S. economy is on more solid footing than is currently being suggested by market movements.

Summer seasonality

The markets tend to be somewhat flat in the summer months when compared to other months. The phrase “sell in May” was coined due to this well-known seasonality. The following chart shows the average market performance each year. Notice that there tends to be little overall movement during the summer months. While the markets are still largely news-driven at the moment, seasonality may also come into play in the near term.

Flexible Plan update

Our top-performing strategies for the year so far are dominated by those with asset allocations to gold. Same goes for most of our top performers for the week. All versions of our Trivantage strategy and QFC TVA Gold were among the leading performers for the week, along with our QFC Evolution Plus Aggressive strategy, which was invested largely in long-term Treasurys and gold as well.

Our worst-performing strategies were those heavily invested in riskier equities, such as WP Aggressive.

Among the Flexible Plan Market Regime indicators, our Growth and Inflation measure continues to show that we are now in a market regime characterized by Stagflation (meaning a positive monthly change in the inflation rate and negative monthly GDP reading). Stagflation is the next-to-worst regime stage for stocks both in terms of return and drawdown. It is the best regime stage for gold on both measures, as well. It is normally a period of middle-of-the-road returns for bonds with low volatility. Since 1972, the economy has been in a Stagflation stage only 9% of the time.

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



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