Most of the major stock market indexes gained last week. The S&P 500 Index was up 1.72%, the NASDAQ gained 3.69%, and the Russell 2000 small-capitalization index rose 0.88%. The Dow Jones Industrial Average was the only loser for the week, falling 0.16%. The 10-year Treasury bond yield fell about 6 basis points, as Treasury bonds gained slightly for the week. Spot gold gained more than 3.89% for the week. Last week, we discussed gold’s recent historic run in the context of performing as a safe-haven asset, as well as the long-term prospects for the metal in the United States. Gold has had a few tailwinds in the intermediate term. These include current and future stimulus packages approved by the U.S. government and the Federal Reserve’s extremely expansive monetary policy. The federal funds rate is effectively zero, and the U.S. money supply has increased at an even greater rate than comparable countries around the world (see the following chart—the U.S. is the green line). The U.S. has by far the largest increase in monetary supply over the last few months. Supply is compared to early 2020 numbers. Another factor to consider is the state of the U.S. dollar, specifically as an international standard of currency exchange. China and Russia have been working on introducing their own international standards to supplant the U.S. dollar. Should this happen, the dollar would likely reflect the underlying fundamentals of the country’s financial situation instead of being propped up as a safe-haven asset. In short, the U.S. would likely have to pay more for its loans, and the financial burden on the U.S. would further increase. Lastly, tax changes in recent years were made without a spending reduction. In fact, spending has increased substantially. For that reason, the U.S. deficit has increased in the last two years, despite increasing revenues from the recent economic expansion. Coupled with large spending packages and a severe contraction in the economy this year, the intermediate-term/long-term prospects for the U.S. dollar do not seem particularly optimistic. Holdings in precious metals, such as those accessed through our Gold Bullion Strategy Fund (QGLDX), can hedge against these risks. Earnings news Earnings season brought quite a few positive surprises, with companies regularly beating expectations. Poor earnings have already been priced into the market, so positive earnings surprises will likely lead to equity market outperformance. We’ve recently seen a sharp rise in the number of positive earnings surprises as the economy has begun to accelerate after its 30%-plus drop earlier this year. 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%. Sales have also consistently beaten expectations for most of the year, though those expectations have been tempered by the recession itself. Additionally, guidance adjustments from companies have recovered significantly after dipping during the second quarter. Should these trends continue, the U.S. economy could be on more solid footing than is currently being suggested by market movements. Sentiment Despite the positive moves in the markets and earnings announcements, sentiment seems fairly low. While this may seem like a negative for the markets, sentiment tends to be a contrarian indicator. Low sentiment often indicates higher-than-normal returns in the future, and high sentiment often indicates a market top. Near the end of the following chart, the spread of bulls to bears is quite low, indicating that there is more bearish sentiment in the markets than bullish. This likely means many investors are out of the market, meaning that further upside is possible as investors continue to re-enter the market. Overall, the markets appear to be bullish in the intermediate term, though the U.S. may have some difficulty in the coming years where currency value is concerned. In the short term, the advance in stocks appears to be on an ever-narrowing foundation, with advancing issues, volume, and new highs all failing to exhibit as strong an advance as the popular indexes, particularly the NASDAQ 100. This could lead to short-term difficulties, especially as we draw nearer to the election. Flexible Plan update Our top-performing strategies last week included those with asset allocations to the NASDAQ, as well as other equity-related trend-following strategies. The QFC and non-QFC versions of our Self-adjusting Trend Following strategy were among our top performers for the week, followed by our QFC Multi-Strategy Explore: Equity Trends offering. 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), though we do expect the market to revert to a more normal environment. Stagflation is the next-to-worst regime stage for stocks both in terms of return and drawdown; however, it is the best regime stage for gold on both measures. 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.