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 Wagner

Market snapshot 

•  Stocks: The S&P 500 has emerged from its short-term correction, driven by expectations that the Federal Reserve will pause interest-rate hikes. Historically, such pauses have led to substantial gains.

•  Bonds: Treasury bond yields have decreased, influenced by the anticipation of the Fed’s potential rate reduction, positively impacting bond prices, especially in the high-yield sector.

•  Gold: Gold prices have risen, reaching new yearly highs above $2,000 per ounce. This increase was fueled by geopolitical tensions in the Middle East and declining interest rates.

•  Market indicators and outlook: Short-term indicators for stocks are bullish, with an overall positive intermediate-term outlook for equities. Our Market Regime Indicators are currently positive for stocks, bonds, and gold.


The major U.S. stock market indexes pushed higher again last week. The S&P 500 gained 1.0%, the NASDAQ rose 0.9%, and the Russell 2000 small-capitalization index climbed 0.5%. Bonds dipped slightly. The U.S. Aggregate Bond ETF (AGG) fell 0.1%, and the 20-year Treasury Bond ETF (TLT) lost 0.3%. Gold futures closed at $1,983.20, up $45.50 per ounce, or 2.4%.

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.


The previous chart shows that the S&P 500 and the other major stock market indexes have burst out of their recent short-term corrections. Stocks have been up four weeks in a row despite having ventured under their 200-day moving average in late October.

The move higher also broke the S&P out of its short-term downturn that commenced in July. This downturn was the result of the peak in the two-year government bond during the same month and the conflict in the Middle East.

The recent move higher was driven by Wall Street’s growing belief that the Federal Reserve’s rate hike in July was its final one and that we have entered a pause. The Fed holding rates steady at its previous two meetings has strengthened that belief, sending bond yields lower and stocks higher. A reading of the Fed’s minutes from its November meeting also adds weight to this theory.

If the Fed has indeed paused its rate hikes, that is vital to both stock and bond investors. Past pauses have led to double-digit gains in the S&P 500, with an average increase of about 17% over the following year. Given that the index has already risen 2.5% since the last rate hike, a further gain of about 15% by next July would align with this trend.

Economic reports have also generally supported this interpretation. Last week, the government reported that durable goods orders came in much softer than expected, though the weakness was primarily in the transportation elements. Additionally, the University of Michigan’s Consumer Sentiment report indicated a decline in sentiment, as well as expectations of ongoing increases in inflation.

At the same time, the price of gasoline continues to tumble. Many states are seeing declines of a dollar or more per gallon since the summer highs. Although oil prices briefly rose following the attacks in Gaza, recent reports on gasoline reserve inventory have shown an 8% increase in the last five weeks, accompanied by a decrease in demand.

The resulting decline in the price of gas supports the notion that the economy is cooling and that the rapid increase in the cost of living is slowing down. This helps assuage the Fed’s fear of runaway inflation and validates the wisdom of its tightening policies to date. Having achieved some success, the Fed might now be in a position to pause its rate hikes.

Another critical piece of information last week came from the Goldman Sachs Financial Condition Index. The current reading suggests that we have moved into a period of easing financial conditions. Historically, owning stocks during such times has been profitable, as illustrated by the following chart.

One possible glitch in the bullish scenario could be the current overbought state of the stock market. Stock prices have risen so rapidly that a pause might be imminent. Last week, the market just barely moved into extremely overbought territory, a situation that has cut short many a rally in the past. Although, to be fair, we have often seen the market remain overbought for quite a long time before stocks turned south.

Bottom line: While a short-term pause in the stock market might be expected due to its overbought state and an upcoming brief interruption in seasonal favorability (see “The indicators” section below), our intermediate-term outlook for equities remains bright. Many indicators continue to point to double-digit gains ahead.


Ten-year Treasury bond yields have tumbled by more than half a percentage point since topping the 5% level in early October. As mentioned earlier, the bond market is now convinced that the Fed has decided to pause its battle against inflation and its policy of increasing interest rates. The market now believes that the Fed’s next move will be to lower rates.

Bond yields have been falling in anticipation of the Fed lowering interest rates, meaning that bond prices have improved. The long-term government bond ETF (TLT) has increased in price five out of the last six weeks.

The combination of falling yields and rising stock prices has been beneficial for the high-yield sector of the bond market. Since these instruments often reflect the price action of stocks and have the yield characteristics of their government cousins, high-yield bonds have gained over 5% in the recent positive market environment for both asset classes.


The upward trend in the price of gold that began on the day of the attacks in Gaza continued last week. The nearly two-month advance has taken the price of gold above $2,000 per ounce, setting a new high for the year.

The events in the Middle East have significantly contributed to gold reaching these new heights, but the decline in interest rates has also played a crucial role. Since gold does not have a yield, it competes with bonds as a hedging and contrarian vehicle. Typically, when rates fall, the price of gold often rises.

Similarly, when interest rates fall, it takes away a critical underpinning to the U.S. dollar’s value. Investors need to allocate their dollars somewhere. If U.S. bonds yield less than those in other countries, our currency becomes less attractive. As we have seen in the past, the price of gold and the value of the U.S. dollar usually move in opposite directions. Therefore, with the dollar’s decline, the price of gold has risen.

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 manner than its ETF counterpart, GLD.

The indicators

The very short-term technical indicators for stocks that I watch are all bullish. Still, the QFC S&P Pattern Recognition strategy is currently at a -90% level of exposure to the S&P 500 Index.

Our QFC Political Seasonality Index (PSI) strategy has been in the stock market since Monday, October 30. It will sell again on December 6. It will return to being fully invested in stocks on December 21, 2023, for the traditional Santa Claus rally through the end of the year and into the new year.

Our QFC Political Seasonality Index strategy was one of our top-performing strategies for 2022. The strategy is available separately and included in our QFC Multi-Strategy Explore: Special Equities, QFC Multi-Strategy Portfolios, and QFC Fusion 2.0 strategies. (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. The 2024 version will be posted in the first week of the new year.)

FPI’s intermediate-term tactical strategies remain primarily invested in stocks. Classic continues 100% long equities. The Volatility Adjusted NASDAQ (VAN) strategy is 120% exposed to the NASDAQ 100, the Systematic Advantage (SA) strategy is 30% in equities, and our QFC Self-Adjusting Trend Following (QSTF) strategy is positioned 200% in the NASDAQ 100. VAN, SA, and QSTF can all employ leverage—hence, the investment positions may sometimes be more than 100%.

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

Historically, a Normal environment has occurred 60% of the time since 2003. Gold tends to outperform stocks and bonds on an annualized return basis in a Normal climate, but it 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 Low and Falling reading. This environment favors equities over bonds and then gold from an annualized return standpoint. The combination has occurred 37% of the time since 2003.

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