Current market environment performance of dynamic, risk-managed investment solutions.
By Daniel Poppe
Market snapshot
• Stocks: The major U.S. stock market indexes were mixed last week. The Dow Jones Industrial Average gained 0.41%, the S&P 500 advanced 0.12%, the NASDAQ Composite fell 0.43%, and the Russell 2000 declined 1.79%.
• Bonds: The 10-year Treasury bond yield rose from 4.11% to 4.14% last week.
• Gold: Spot gold rose 2.07% last week, closing above $4,000 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 and then bonds.
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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.
The S&P 500 finished last week nearly flat. The weekslong government shutdown finally ended on Wednesday after enough members of Congress agreed to a new funding bill. Investors were also busy digesting some of the final earnings reports for the third quarter.
Investors remain excited about AI-related developments and the prospect of further monetary stimulus. The government reopening adds to that optimism, as federal spending—a major contributor to the U.S. economy—can now resume.
According to FactSet’s Earnings Insight report, 92% of S&P 500 companies have reported results for the quarter. Of those, most have beaten revenue estimates, and a majority topped earnings expectations. The current blended earnings growth rate is in the double digits. Valuations remain above historical averages.
Bonds
The iShares 7-10 Year Treasury Bond ETF (IEF), which tracks intermediate-term Treasury bonds, finished last week below its 50-day moving average but above its 200-day moving average.
Bond prices have been moving sideways as investors contemplate the size of future Federal Reserve rate changes. With economic data disrupted by the government shutdown, it remains unclear how much the Fed may adjust rates in the near future. The central bank cut rates in September and October after holding steady from January through August.
According to CME Group’s FedWatch tool, investors currently see a higher probability of no rate change in December, though a cut remains a meaningful possibility. It is still unclear whether the government will release the delayed economic data before the Fed’s next meeting.
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). Launched in 2013, the fund is designed 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 the week with a 0% net long exposure to the S&P 500. It moved to 10% net short on Thursday and to 30% net long on Friday.
Our QFC Political Seasonality Index strategy was defensive going into the week. It shifted to an aggressive stance on Wednesday. (Our QFC Political Seasonality Index—with all of the daily signals—is available post-login in our Weekly Performance Report section under the Domestic Tactical Equity category.)
The Volatility Adjusted NASDAQ strategy held a 120% net long exposure to the NASDAQ 100 throughout the week.
The Systematic Advantage strategy started the week with a 90% net long exposure to the S&P 500. Exposure changed to 120% net long on Monday and 90% net long on Thursday.
Our QFC Self-adjusting Trend Following strategy’s primary signal began the week 0% exposed to NASDAQ 100, changed to 200% net long on Monday, and moved back to 0% on Friday.
Because Volatility Adjusted NASDAQ, Systematic Advantage, QFC Self-adjusting Trend Following, and the QFC S&P Pattern Recognition strategies can employ leverage, their investment positions may at times 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 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 stocks and gold.