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.

Market Update 1/30/23

By Will Hubbard

The major U.S. stock indexes posted strong gains last week. The S&P 500 was up 2.47%, the Dow Jones Industrial Average gained 1.81%, the NASDAQ Composite rose 4.32%, and the Russell 2000 small-capitalization index added 2.36%. The 10-year Treasury bond yield moved up 2 basis points to 3.50%. Spot gold closed the week at $1,928.04, up 0.10%.


Last week’s economic data figures were generally strong, and hope for a “soft landing” (bringing down inflation without triggering a deep recession) continues.

The Q4 GDP advance estimate came in at 2.9% annualized, better than the 2.6% that was expected. Durable goods orders grew 5.6%, more than the estimated 2.4%. Core orders fell 0.1% but were expected to decrease by 0.2%. The core personal consumption expenditures (PCE) price index increased by 0.3% as expected.

Jobless claims also came in at 186,000 versus the expected 203,000. This is a strong number in light of the Federal Reserve’s efforts to construct a soft landing.

The Fed has the unenviable task of balancing a reduction in inflation while battling anemic growth. The main goal is to slow demand without breaking the economy. Inflation is still increasing, albeit at a lower annualized rate, indicating that higher interest rates are slowing demand.

But a strong labor force offsets these effects. With more people working, more money is spent, and demand stays elevated.

This paves the path for further rate increases. The Fed can raise rates to help reduce demand with less concern about the strength of the economy, as the economy is currently withstanding last year’s unprecedented rate hikes.

The S&P 500 appears to be responding to this strength despite fears of inflation and higher rates. The following chart shows the average returns of the S&P 500 Index after good and bad Januarys. Since WW2, the average return for the rest of the year after a good January is 10.91%.

The result is amplified for years when the S&P 500 declined more than 10% the prior year and January is up over 5%, which is the current situation. These conditions have occurred in only two other years: 1967 and 1975. In those cases, the S&P ended the year up 11.38% and 17.16%, respectively. If we continue to defy the odds of an economic slowdown, we could see some favorable tailwinds into the end of the year.

Many big names will be reporting earnings this week. This should help give us an idea of what to expect in 2023. Using history as a guide, however, today we have reasons to be optimistic.


Bond yields largely rose last week. Prices stayed relatively flat amid the generally positive economic data described in the previous section.

The 10-year/two-year yield curve inverted even further as the debt-ceiling standoff continued in Washington with a stalemate between the Biden administration and House Republicans.

The U.S. hit the federal debt limit, which stands at $31.4 trillion, on January 19, 2023. The Department of the Treasury estimates its efforts will ward off a binding of the debt limit until June. When binding occurs, the government takes predetermined actions, paying some obligations, reducing others, or entirely cutting some.

The main problem with the debt-ceiling issue is perspective. The media is quick to make it sound like the debt ceiling needs to be increased to accommodate future policies and plans. Leonard Burman and William Gale wrote in an article at the Brookings Institute that “raising the debt limit is not about new spending; it is about paying for previous choices policymakers legislated.”

Raising the debt ceiling is nothing new. Congress has increased it 75 times since 1960. But as polarization rages in Washington, the debt limit is frequently used as a political weapon. Today’s situation is reminiscent of 2011, which caused a 16% decline in the S&P 500 and the first-ever downgrade to the U.S. credit rating.

Following the debt debacle of 2011, the Federal Reserve Board issued a study to see what the effect would be of a temporary federal debt default. In it, the Board found that if the debt-limit issue took a few weeks to sort out, the uncertainty of this event would cause a 50% decrease in year-over-year GDP, the stock market would dip 30%, and the 10-year Treasury would increase approximately 80 basis points. In today’s market, that would be like the 10-year yield going to at least 4.4%, a level not seen since 2007.

An agreement will likely be reached to kick the proverbial can down the road, as is the norm in Washington. But if it’s not, it’s worthwhile to be prepared for immediate uncertainty. If the debt limit binds, that’s something data-driven models can digest and respond to.


Spot gold was up 0.10% last week. The U.S. dollar was also up, gaining 0.11%.

Since September 26, gold has risen 18.5%, while the dollar has declined 9.5%. The inverse relationship between the yellow metal and the U.S. dollar remains intact.

Flexible Plan Investments is the subadviser to the only U.S. gold mutual fund, The Gold Bullion Strategy Fund (QGLDX), designed at its introduction nine years ago to track the daily price changes in the precious metal.

The indicators

The very short-term-oriented QFC S&P Pattern Recognition strategy started last week 120% long. On Monday’s close, it moved to 40% short. On Tuesday’s close, it moved to 90% short, where it remained through Wednesday. On Thursday, it reduced exposure again to 80% short at the close. On Friday, it moved to a 60% short position. Our QFC Political Seasonality Index was positioned in 100% equities all week. (Our QFC Political Seasonality Index is available—with all of the daily signals—post-login in our Weekly Performance Report section under the Domestic Tactical Equity category.)

Our intermediate-term tactical strategies have been varied in their degree of defensive positioning. The key advantages these strategies offer to investors are their ability to adapt to changing market environments, participate during uptrends, and adjust exposure to more defensive posturing during downtrends.

The Volatility Adjusted NASDAQ (VAN) strategy was invested in a money-market fund last week. The Systematic Advantage (SA) strategy started last week 30% long and moved to 120% long on Monday’s close. The strategy realized some gains and reduced exposure to 60% long at the close on Wednesday. Our QFC Self-adjusting Trend Following (QSTF) strategy started the week 100% long and remained there the whole week. VAN, SA, and QSTF can all employ leverage—hence the investment positions may at times be more than 100%.

Our Classic model was long risk-on positioning all last week. Most of our Classic accounts follow a signal that will allow the strategy to change exposure in as little as a week. A few accounts are on more restrictive platforms and can take up to one month to generate a new signal.

Flexible Plan’s Growth and Inflation measure, one of our Market Regime Indicators, shows markets are in a Normal economic environment stage (meaning inflation is rising and GDP is growing). This environment is the most common—accounting for 60% of the investable days since 2003—and favors stocks and gold. On average, gold has performed best during Normal market environments, but it comes with additional drawdown risk.

Our S&P volatility regime is registering a High and Falling reading, which favors gold over bonds and then equities from an annualized return standpoint. The combination has occurred 13% of the time since 2000. It is a stage of relatively high returns and lower volatility for the three major asset classes.

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