Current market environment performance of dynamic, risk-managed investment solutions.
By Daniel Poppe
Market snapshot
• Stocks: Stocks were mostly down last week.
• Bonds: The 10-year Treasury yield fell last week.
• Gold: Spot gold rose last week, closing above $2,600 an ounce.
• Market indicators and outlook: Market regime indicators show the market is in a Normal economic environment stage, which is historically positive for stocks, bonds, and gold but with a substantial risk of a downturn for gold. Normal is one of the best stages for stocks, with limited downside. Volatility is High and Rising, which favors stocks over gold, then bonds.
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The major U.S. stock market indexes were mixed last week. The Russell 2000 returned 1.13%, the S&P 500 returned -0.45%, the NASDAQ Composite returned -0.49%, and the Dow returned -0.59%. The 10-year Treasury bond yield fell from 4.62% to 4.60%. Spot gold closed the week up 0.72%.
For the latest information on our Quantified Funds, check out our weekly fund updates. You can also see the daily holdings of the funds here.
Stocks
The SPDR S&P 500 ETF (SPY), which tracks the performance of the S&P 500, finished the week above both its 50-day and 200-day moving averages.
Stocks remain slightly below the highs reached in December. Market volatility followed the Federal Reserve meeting on December 19, as the committee’s stance appeared less dovish than expected. If interest rates decline less than anticipated, corporate earnings could face additional pressure. Equity valuations are also ripe compared to historical levels.
A new administration enters Washington on January 20, and AI optimism continues to influence the economy. Potential productivity gains from AI could drive earnings growth in various industries.
As January begins, equity prices face both upward and downward pressures. It will be interesting to see what path they take. The upcoming earnings season will provide insights into how companies ended 2024 financially and offer clues about the potential direction of the market in early 2025.
Bonds
The iShares 7-10 Year Treasury Bond ETF (IEF), which tracks intermediate-term Treasury bonds, finished last week below both its 50-day and 200-day moving averages.
Bond prices remain subdued from heights last seen months ago. A short-lived rally in late November fizzled out, and prices have fallen below their late-November lows.
The bond market is currently predicting no rate change during the Fed’s January meeting. However, the probability of a rate decrease exceeds 50% for the May meeting.
At the start of 2024, the yield curve was inverted, a pattern often seen as a recession indicator. Now, the curve has returned to an upward slope. Despite earlier warnings, a recession has yet to materialize.
Gold
The SPDR Gold Shares ETF (GLD), which tracks the price of gold, finished the week below its 50-day moving average but above its 200-day moving average.
Flexible Plan Investments (FPI) is the subadviser to the only U.S. gold mutual fund, The Gold Bullion Strategy Fund (QGLDX), designed at its introduction 11 years ago to track the daily price changes in the precious metal in a more tax-efficient manner than its ETF counterpart, GLD.
FPI’s indicators
The QFC S&P Pattern Recognition strategy’s primary signal started last week with a 200% net long exposure to the S&P 500. On Thursday, exposure decreased to 130% net long.
Our QFC Political Seasonality Index strategy was aggressive throughout the 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.)
The Volatility Adjusted NASDAQ strategy started the week 40% net long to the NASDAQ 100. It increased exposure to 60% net long on Friday.
The Systematic Advantage strategy began the week with 90% net long exposure to the S&P 500. On Tuesday, it decreased exposure to 60% net long.
Our QFC Self-adjusting Trend Following Strategy’s primary signal started the week 100% net long to the NASDAQ 100. On Monday, exposure decreased to 0%.
The Volatility Adjusted NASDAQ, Systematic Advantage, QFC Self-adjusting Trend Following, and QFC S&P Pattern Recognition strategies can employ leverage, so the investment positions may exceed 100%.
Our Classic model remained in stocks throughout 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 platforms that are more restrictive and can take up to one month to generate a new signal.
FPI’s Growth and Inflation measure is one of our Market Regime Indicators. It shows that we are in a Normal economic environment stage (meaning a positive monthly change in prices and a positive monthly change in GDP). Historically, a Normal environment has occurred 60% of the time since 2003 and has been a positive regime state for stocks, bonds, and gold. Gold tends to outpace both stocks and bonds on an annualized return basis in a Normal environment but carries a substantial risk of a downturn in this stage.
Our S&P volatility regime is registering a High and Rising reading, which favors stocks over gold and then bonds from an annualized return standpoint. The combination has occurred 23% of the time since 2003. It is a stage of high risk for equities.