Market insights and analysis

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

1st Quarter | 2024

Quarterly recap



Current market environment performance of dynamic, risk-managed investment solutions.

By Jerry Wagner

Stock market warnings and concerns have always been a big part of the financial press. And I get it; no one likes to lose money. But I do find it amusing that, in both good times and bad, someone on one of my various internet feeds is always predicting the end of the financial world as we know it. Some market gurus seem to think that if they keep yelling “sell,” they will eventually be correct. And when they are, we’ll undoubtedly see ads trumpeting their successful market call.

Avoiding the “perma-bear” trap: Balancing between caution and growth

I’m certainly not immune from the business of making market calls. I’ve been classified as a “market timer” since the early 1980s when I founded Flexible Plan Investments, Ltd. (FPI). In that role, I’ve shouted “sell” many times. For example, in 1987, just days after the market high, we moved all our clients to cash, avoiding the 25% crash of the Dow just a few weeks later. More recently, our defensive moves in 2020 and again in 2022 allowed us to miss much of the stock market carnage.

However, just as being a “perma-bull” is not always appropriate, being a “perma-bear” can be even more dangerous to your financial health. For over 100 years, the stock market has been the place to be for investors. It is the ultimate inflation hedge. It is not only the foundational asset class on which to build a retirement nest egg, but it is also crucial for protecting the income stream and purchasing power of that nest egg during the distribution phase, when you rely on these resources.

So, avoiding the stock market has to be the exception, not the rule.

Now is not one of those exceptions.

Our recent research highlights the perils of relying on fixed-term investments like CDs and fixed-term annuities to garner seemingly high yields when the markets experience a correction or worse. These might seem like safe choices in the short term, but they lock you into timeframes that can cause you to miss out on the enormous benefits of the “buy” signals that tend to come long before those restrictions end.

Unmasking the market’s “sheep in wolf’s clothing”: Current trends and predictions

The warning to beware of a wolf in sheep’s clothing has been around since the Sermon on the Mount when Jesus warned in the Gospel of Matthew 7:15 (King James version), “Beware of false prophets, which come to you in sheep’s clothing, but inwardly they are ravening wolves.”

We’ve seen many times over the 2000 years since that warning was spoken how prescient those words of wisdom were, especially when dealing with the financial markets. The wolf often knocked at the door, but investors did not recognize it.

But that is not what I see happening now. The costumes have changed. Today, we have a sheep in wolf’s clothing on the prowl on Wall Street.

In my article “The 400-pound gorilla in the room,” I explained that “without the benefit of hindsight, no one can say with certainty what’s happening in the market. But from my chair, the invisible gorilla this time around is the resumption of the stock market rally that began last October in the depths of the 2022 market correction.”

While the S&P 500 has risen about 4% since I wrote that article, I don’t believe the rally is over. Historically, we are still in a bullish seasonal period for the stock market. The week around Thanksgiving has produced gains more than 70% of the time. The last two months of the year have also produced gains at the same high success rate.

In a recent poll, stock market investors rated the upcoming presidential election period as their biggest threat. Yet, history suggests that the year before a presidential election, as well as the election year itself, tends to be profitable.

In our democratic system, a presidential election has been a harbinger of hope for both those in power and those out of it. It offers the chance to continue the rewards when times are good and new beginnings when the nation is hurting.

More darkly, some say it is a time when the party in power uses its ability to influence the election by opening the “easy money” floodgates, which causes stocks to gain ground during that year of the four-year cycle. In this tight-money era, such a move is possible this time around, and it would have the intended market effect if it occurs next year.

Talk of an impending recession continues to worry investors. I have been clear that I think we had our recession over a year ago and have already experienced the downdraft that usually follows. If another recession is on the way, the “double dip” that I have also warned of, it’s important to remember that the market often falls after the recession is clearly delineated and well underway. That isn’t the case now, as indicated by the more than 4% growth in the gross national product.

Third-quarter earnings reports have been encouraging, with most companies reporting better-than-expected earnings growth. Although revenue beats were lower than last time, more than 50% of stocks still exceeded analysts’ revenue predictions.

Despite some weakness in housing and employment numbers, a wide array of economic indicators points to better times ahead. The inflation report last week was better than expected, suggesting a continual decline in the pricing pressures that have concerned the Federal Reserve. The weekly retail sales report surged higher at a rate never associated with recessions in the past.

And in just a two-week period, the Goldman Sachs Financial Conditions Index recovered over half of the tightening pressures seen during the recent three-month surge that put us in a market correction in the third quarter. This type of rebound is associated with universal gains in the S&P 5000 over the next 12 months.

Technically, the current rally remains healthy. Nearly every indicator we follow in our QFC Classic and QFC Systematic Advantage market-timing strategies is on a “buy” signal. Leverage is maxed out on our award-winning QFC Self-adjusting Trend Following strategy.

Navigating the financial jungle: Strategy over fear

But what if? What if there is no sheep, and the wolf is actually a wolf? What if the cited indicators defy the probabilities and are wrong this time?

First, including an FPI strategy in your portfolio—such as the QFC Multi-Strategy Core strategy appropriate for your suitability profile, or one of the QFC Multi-Strategy Explore options such as Equity Trends—differs from making a buy-and-hold investment. These are all very actively managed strategies. They are all dynamically risk-managed to respond to changes in market direction for you.

Secondly, these QFC Multi-Strategy offerings are all diversified by strategy. They can hedge each other, even when most are positive. For example, our QFC S&P Pattern Recognition strategy, included in our QFC Multi-Strategy Explore: Special Equity strategy, remains bearish as I write this. Our Volatility Adjusted NASDAQ strategy is only 80% invested in the NASDAQ, in contrast to the 200% equity exposure of the QFC Self-adjusting Trend Following strategy.

In other words, just as in 1987, 2020, 2022, and all the years in between, FPI remains actively involved in controlling the risk of your portfolios—not like passive players who only focus on the hope of future returns.

Tigers may not change their stripes, but we know the markets often do. Are you missing the 400-pound gorilla in the room? Has the sheep been walking among us dressed in wolf’s clothing? Neither may be visible to the average investor, and Wall Street may not be talking about it. However, FPI was created for just this type of task, and it has been doing so for over 40 years.

Wishing you and your families a happy, healthy, and profitable Thanksgiving season.

Comments are closed.