Market insights and analysis

By Daniel Poppe

Market snapshot

•  Stocks: Stocks were mostly down last week.

•  Bonds: The 10-year Treasury yield rose last week.

•  Gold: Spot gold rose last week, closing above $2,700 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 Low and Falling, which favors stocks over gold, then bonds.

***

The major U.S. stock market indexes mostly moved lower last week. The NASDAQ Composite returned 0.16%, the S&P 500 returned -0.96%, the Dow returned -2.66%, and the Russell 2000 returned -2.99%. The 10-year Treasury bond yield rose from 4.08% to 4.25%. Spot gold closed the week up 0.96%.

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.

Earnings season for the third quarter of 2024 has kicked off. According to FactSet’s Earnings Insight report, with about a third of S&P 500 companies reporting so far, the blended earnings growth rate for the S&P 500 is 3.6%. The forward price-to-earnings (P/E) ratio for the Index is above both its five-year and 10-year averages.

Stocks have been rising ahead of the U.S. presidential election on November 5. Although the outcome of the election remains uncertain, it has not deterred the march higher for stocks. The S&P 500 has returned 23.12% year to date, according to data from Bloomberg. The Chicago Board Options Exchange (CBOE) reports that its volatility index finished at 20.33 as of the close on October 25, with a 52-week range of 10.62–65.73.

Bonds

The iShares 7-10 Year Treasury Bond ETF (IEF), which tracks intermediate-term Treasury bonds, finished last week below its 50-day average but above its 200-day moving average.

Bond prices have generally fallen since the Federal Reserve cut interest rates in September. While bond prices and bond yields usually move inversely—with prices rising as yields fall—there has recently been a divergence between the short and long ends of the yield curve.

As shown in the following term structure graph from Bloomberg, yields on the short end of the curve fell after the Fed’s rate cut, while yields on the long end rose. The Fed has a great degree of control over the short end of the term structure, and its cut had the intended effect there. However, the long end of the curve is driven much more by future expectations for factors like economic growth and inflation.

Investors may be driving up long-term yields since the Fed meeting, anticipating higher-than-expected  GDP growth, inflation, or both. Higher economic growth supports higher rates, as do greater levels of inflation, which require higher nominal yields to achieve the same real rate. Both factors could explain recent bond market movements.

Gold

The SPDR Gold Shares ETF (GLD), which tracks the price of gold, finished the week above both its 50-day and 200-day moving averages.\

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 20% net short exposure to the S&P 500. Exposure changed to a 70% net short exposure on Monday, a 40% net short exposure on Tuesday, a 20% net long exposure on Wednesday, a 110% net long exposure on Thursday, and a 10% net long exposure on Friday.

Our QFC Political Seasonality Index strategy started the week with an aggressive stance but shifted to a defensive position at Monday’s close. (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 with an allocation of 80% net long to the NASDAQ 100. It increased this to an allocation of 120% net long on Tuesday, brought that up to 140% net long on Wednesday, decreased it to 120% net long on Thursday, and decreased it again to 100% net long on Friday.

The Systematic Advantage strategy held a 120% allocation to the S&P 500 throughout the week.

Our QFC Self-Adjusting Trend Following strategy’s primary signal was 200% net long the NASDAQ 100 at the start of the week, moved to 0% exposure on Wednesday, and returned to 200% net long exposure on Thursday.

The Volatility Adjusted NASDAQ, Systematic Advantage, QFC Self-Adjusting Trend Following, and QFC S&P Pattern Recognition strategies can all employ leverage—hence the investment positions may at times be more than 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 Low and Falling reading, which favors stocks 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 low risk for equities.