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 Jason Teed

Market snapshot

• The major U.S. stock market indexes had mixed performance last week. During the third quarter, stocks and bonds suffered, while commodities outperformed.

• Treasury yields were mixed last week, with shorter-term maturities falling and longer-term maturities rising. The changes reduced the inversion of the yield curve, but it remains deeply inverted.

• Spot gold fell 3.98% last week due to the recent strength of the U.S. dollar.

• 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 Low and Falling, which favors equity over gold and then bonds.


The major U.S. stock market indexes had mixed performance last week. The Russell 2000 small-capitalization index rose 0.48%, the NASDAQ Composite gained 0.06%, the S&P 500 fell 0.74%, and the Dow Jones Industrial Average was down by 1.34%.

Only two of the 11 sectors were positive for the week. Energy, aided by rising oil prices, and Materials were the best performers, with gains of 1.27% and 0.17%, respectively. Consumer Staples and Utilities performed the worst, as safe-haven sectors suffered despite falling equity markets.

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.


In the third quarter, the U.S. economy demonstrated impressive resilience, fueling optimism for a “soft-landing” scenario (reining in inflation without causing a recession). However, financial markets faced challenges during this time, adjusting to the potential of prolonged higher interest rates.

Commodities outperformed for the quarter, gaining 4.7%—primarily due to a substantial rise in energy prices. This surge was influenced by concerns over oil supply imbalances resulting from production cuts in Russia and Saudi Arabia.

Conversely, the U.S. fixed-income market encountered difficulties, experiencing significant increases in yields. Notably, 10-year yields rose by 74 basis points during the quarter, reaching their highest levels since 2007. This rise was driven by the Federal Reserve’s continued hawkish stance and bolstered by robust economic data and an influx of bonds into the market. Nevertheless, global high-yield markets fared relatively well during the broader market sell-off, aided by resilient earnings and a decrease in default rates.

In the U.S. equity market, both large-cap and small-cap segments experienced declines. Earlier in the quarter, an AI-driven rally had pushed valuations to unsustainable levels. Moreover, while earnings surpassed expectations, corporate guidance was pessimistic.

As economic tailwinds wane and challenges grow alongside tighter monetary policy, diversification and active management will remain essential for investors. Despite last quarter’s sell-off, some asset classes (including equities) still seem overpriced given the current interest rate environment. This emphasizes the importance of active management’s ability to seek out undervalued opportunities. Currently, for instance, three-month Treasury bills yield more than S&P 500 earnings.

A notable factor on the horizon is the peak in interest rates. The recent increase in rates has played a central role in shaping the financial landscape, driven by adjusted expectations for future Fed policy. Investors have responded to Federal Reserve commentary, which suggests that monetary policy settings will remain restrictive for longer than previously anticipated.

The prevailing view is that the Fed will take a cautious approach to combating inflation, leaning toward a more gradual tightening process. Although this might lead to more rate hikes, it's essential to recognize that time could be more vital than further increases in controlling inflation. Hence, the Fed’s bark may turn out to be worse than its bite. Nevertheless, the recent rise in interest rates has pushed stock prices lower, which some see as an opportunity.

Although the rise in rates has induced market volatility and depressed stock prices, history shows that such rate increases often lead to stock market rallies. Importantly, the current inflation backdrop seems more positive. Unlike previous rate surges where inflation was rising, current data indicates a sustainable (though not entirely smooth) decline in inflation.

Longer-term yields have indeed risen more than anticipated. But with consumer price pressures easing and the Federal Reserve nearing the end of its tightening campaign, rates could be approaching their peak for this cycle. As inflation continues to decrease and economic momentum slows in the coming months, a potential drop in rates could set the stage for a year-end rebound in the stock market.

In addition to these factors, market volatility also serves as an essential indicator. While the stock market experienced a nearly 7% retraction from August through September, it is essential to recognize that this is the third such dip in the past year. The market faced a 7.8% decline from February through March and a 7.3% drop last December. Importantly, after the previous dips, the market saw robust recoveries, highlighting the opportunities that can arise from short-term pullbacks.

Furthermore, the recent downturn has not reached the extreme volatility experienced in previous instances. The VIX index, often referred to as the “fear index” for its measurement of short-term market volatility, remained well below levels observed during the previous sell-offs in March, December, and October. While days with significant market moves have occurred in recent months, they are less frequent than in previous volatile periods.

Lower volatility doesn’t mean market weakness will disappear, but it does suggest a more orderly retreat characterized by risks such as potential Fed policy mistakes and political disruptions. Yet, these are offset by positive factors such as a strong labor market, declining inflation, and resilient corporate profits.


Treasury yields were mixed last week, with shorter-term maturities falling and longer-term maturities rising. The changes reduced the inversion of the yield curve, but it remains deeply inverted.

Term yields and credit spreads increased, sending mixed signals about future market performance. Rising credit spreads often indicate market stress, while rising long-term rates are typically a positive sign. Overall, long-term Treasurys underperformed high-yield bonds, and longer-term bonds underperformed shorter-term bonds.


Spot gold fell 3.98% last week. The recent strength of the U.S. dollar, fueled by expectations of prolonged higher interest rates, is a headwind that could persist for several months unless inflation indicators show a more pronounced decline.

Non-currency safe-haven assets, such as long-term Treasurys, were also down for the week.

Flexible Plan Investments (FPI) is the subadvisor to the only U.S. gold mutual fund, The Gold Bullion Strategy Fund (QGLDX), designed at its introduction 10 years ago to track the daily price changes in the precious metal.

The indicators

Our Political Seasonality Index started last week out of the market but entered on Wednesday’s close. (Our QFC Political Seasonality Index is available post-login in our Weekly Performance Report section under the Domestic Tactical Equity category.) The very short-term-oriented QFC S&P Pattern Recognition strategy’s equity exposure started last week at 0.6X long. It changed to 1X long on Monday’s close, 0.1X on Tuesday’s close, 0.3X on Thursday’s close, and 0.1X on Friday’s close.

Our intermediate-term tactical strategies are mixed in exposure. The Volatility Adjusted NASDAQ (VAN) strategy began last week 140% long, changing to 160% long on Tuesday’s close. The QFC Self-Adjusting Trend Following strategy was 1X long for the week. The Systematic Advantage (SA) strategy traded nearly every day last week, with exposures of 30%, 60%, 90%, 30%, and 30%, respectively.

Our Classic strategy was fully invested for the week. The strategy can trade as frequently as weekly, but signals are generally longer term in nature.

Flexible Plan’s Growth and Inflation measure, one of our Market Regime Indicators, currently indicates a Normal economic environment stage (meaning an increasing inflation rate and positive quarterly GDP reading). Historically, a Normal environment has occurred 60% of the time since 2003 and has been a positive regime state for equities, gold, and bonds. Gold tends to outpace equities on an annualized return basis in a Normal environment, albeit with higher risk, while bond returns tend to be positive but fairly low.

Our S&P volatility regime is registering a Low and Falling reading. This environment favors equity over gold and then bonds from an annualized return standpoint. The combination has occurred 37% of the time since 2003. It is a stage of relatively good returns for equities but lower returns for gold and bonds.

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