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 C. Wagner

Market snapshot

•  The S&P 500 is trending negatively, influenced by global events like the Hamas attacks and domestic concerns such as Federal Reserve decisions. Still, a short-to-intermediate-term turnaround seems likely.

•  The yield on the 10-year Treasury bond recently peaked. Expectations suggest stable rates at today’s Fed meeting but with a potential rate hike on the horizon. Meanwhile, high-yield bonds continue to be influenced by stock market direction, albeit to a lesser extent.

•  Amid global tensions, gold has risen markedly, surpassing $2,000 per ounce and outperforming the S&P 500 and U.S. dollar this year.

•  Short-term stock indicators are bearish, but various strategies show mixed market exposures. Market regime indicators show the market is in a Normal economic environment stage, which favors gold (but with a substantial downside risk) over stocks and bonds on an annualized return basis. Volatility is High and Rising, which favors stocks (but with a substantial downside risk) over gold and then bonds on an annualized return basis.

The market endured another challenging week. Last week, the S&P 500 declined by 2.5%, the NASDAQ fell by 2.6%, and the Russell 2000 decreased by 2.61%. This occurred despite bonds showing a mild recovery. The yield on the 10-year Treasury bond decreased by 7 basis points to 4.837%. Consequently, the U.S. Aggregate Bond ETF (AGG) increased by 0.6%, and the 20-year Treasury Bond ETF (TLT) rose by 1.4%. Gold futures concluded last week at $2,016.20, an increase of $21.80 per ounce, or 1.1%.

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.


From a chart perspective, the situation for the S&P 500 appears grim. The current price has broken through its 50-day and 200-day moving averages. The trend is declining, and the chart has even breached the established downward trend line. This downturn follows three consecutive months of losses. The S&P 500 isn’t an outlier; most major stock market indexes reflect a similar or even more dire message.

Surprisingly, the S&P 500 just entered correction territory, not surpassing the 10% drawdown level until the previous week. The NASDAQ also entered correction territory. The Russell 2000 small-cap index has been in this territory for some time, declining over 30% since its peak in January 2021.

While many investors might see such events as a cue for action, historical data suggests otherwise. A 10% decline in the market is more often a buy signal than a sell signal. In over 70% of cases since 1952, the market rallied over the subsequent year.

What’s concerning is what happens when the market continues to decline after such a dip. In the less than 30% of instances when the market fell further, the declines were considerable, with years like 2002, 2008, and 2018 being recent examples. This necessitates looking at other factors to ascertain which historical trends to follow.

Seasonally, the stock market often continues to rally at the beginning of the fourth quarter, particularly when the stock market has performed well in the year’s first three quarters and during the year preceding a presidential election. Historically, November has been a strong month for stocks, with the November–December period being the most favorable two-month span.

Reviewing other indicators, the present downturn seems largely driven by global uncertainties. Most charts (stocks, bonds, gold, and even bitcoins) reversed direction after the Hamas attack on Israel on October 7. Gold reversed its declining trend on the day of the attack. Bonds followed a similar upward trajectory, while stocks declined, despite short-term yield improvements.

This market behavior appears to be a response to the attack. The subsequent rise in yields in October added to the uncertainty, which I’ll label the “Hamas turnaround.” Historically, as tensions rise, the stock market weakens and gold appreciates. However, once the direction becomes clearer, a rally often ensues. The Israeli response could indicate the onset of this recovery.

Domestically, the uncertain Federal Reserve rate-decision process and potential recession add to concerns. The latter is signaled by enduring, though narrowing, yield-curve inversions.

As I mentioned in the summer of 2022, I believe the effects of these inversions are already evident, and their end might herald a significant stock rally. Additionally, today’s Federal Reserve meeting is anticipated to indicate a temporary pause, which stock investors will likely welcome.

The unexpected 4.9% annualized growth in the third-quarter GDP report supports this view. It surpassed the second quarter’s 2.1% and exceeded analyst expectations of 4.5%. However, many analysts predict a GDP decline in the next year’s first half.

We are currently in the earnings reporting season. Third-quarter earnings reports have been largely positive, with over 70% of the 490 companies reporting last week exceeding expectations. Yet, only 58% of revenue reports surprised to the upside, and many companies provided negative future guidance. Nevertheless, the Citi Economic Surprise Index was also positive.

Another indicator supporting the Federal Reserve’s hawkish rate actions is robust employment numbers, attributed mainly to the return-to-work trend. This indicates an economic resurgence. However, recent jobless claims have increased by 8% over the past five weeks, a rapid rise typically signaling impending economic downturns.

Bottom line: While the market may need more time to recover from recent global and economic events, historical patterns suggest a potential short-to-intermediate-term rally. This is supported by current readings of our intermediate-term indicators, discussed further in the “Indicators” section below.


The yield on the 10-year Treasury bond reached a new peak in this bond bear market last Monday (October 23), briefly exceeding 5% intra-day (a 16-year high). However, yields have since trended downward, resulting in a rare positive week for bonds.

All eyes are now on the Federal Reserve meeting concluding Wednesday. Will they raise, lower, or maintain short-term interest rates? The futures market, which historically predicts the Fed’s actions accurately, indicates a high likelihood of rates remaining stable this time.

Yet, historical patterns show that bond market peaks are often followed by even higher rates. Most market experts forecast at least one more rate hike next spring, despite the general downward trend in most inflation measures. Even the Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditures Price Index (PCE), declined to 3.4% after peaking over 6% earlier in the year.

The high-yield bond sector has dipped below its moving average. High-yield bonds, influenced by the stock market, have declined. However, their yield offers a safety cushion, limiting the losses to less than half of those of the S&P.


Gold is currently the center of attention. Amid global uncertainty pushing stock prices down, gold has shone the brightest. The declaration of war in the Middle East marked gold’s shift to a buy signal, and it has been on the rise since. Last week, gold surpassed $2,000 per ounce.

Additionally, with gold’s continued ascent and stocks’ decline, gold now outperforms the S&P 500 for the year. Given its history as a safe-haven asset, the potential for further turmoil could see gold continue its climb.

Gold’s advance has coincided with a pause in the rise of the U.S. dollar. The dollar topped out at the onset of hostilities in the Middle East, which coincided with gold hitting its bottom. It has now gained 8% year to date against the dollar, after trailing for a good part of the year.

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 in a more tax-efficient matter than its ETF counterpart, GLD.

The indicators

The very short-term technical indicators for stocks that I watch are all bearish. Still, the QFC S&P Pattern Recognition strategy is currently at a 40% level of exposure to the S&P 500 Index.

Our QFC Political Seasonality Index (PSI) strategy was out of the stock market last week but bought back into stocks on Monday, October 30. The PSI will not sell again until December 6.

Our QFC Political Seasonality Index strategy was one of our top-performing strategies for 2022. The strategy is available separately and is also included in our QFC Multi-Strategy Explore: Special Equities and QFC Fusion 2.0 strategies, as well as our Multi-Strategy Portfolios. (Our QFC Political Seasonality Index calendar—with all of the 2023 daily signals—can be found post-login in our Weekly Performance Report section under the Domestic Tactical Equity category.)

FPI’s intermediate-term tactical strategies remain largely invested in stocks. Classic continues 100% long equities. The Volatility Adjusted NASDAQ (VAN) strategy is 80% exposed to the NASDAQ 100, the Systematic Advantage (SA) strategy is 90% in equities, and our QFC Self-Adjusting Trend Following (QSTF) strategy is positioned 100% in the NASDAQ 100. VAN, SA, and QSTF can all employ leverage—hence the investment positions may at times be more than 100%.

Flexible Plan’s Growth and Inflation measure is one of our Market Regime Indicators. It shows markets are in a Normal economic environment stage (meaning inflation is rising and GDP is growing).

Historically, a Normal environment has occurred 60% of the time since 2003. Gold tends to outperform both stocks and bonds on an annualized return basis in a Normal environment, but also carries the most downside risk. From a risk-adjusted perspective, Normal is one of the best stages for bonds, followed by gold and then stocks.

Our S&P Volatility Regime is registering a High and Rising reading, which favors equities over gold, and then bonds from an annualized return standpoint. All have had positive returns in this environment, although stocks have experienced significant downside risk. The combination has occurred 23% of the time since 2003.

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