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How dynamic, risk-managed investment solutions are performing in the current market environment

1st Quarter | 2024

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Current market environment performance of dynamic, risk-managed investment solutions.

Market Update 11/28/22

By William Hubbard

The major U.S. stock indexes finished the holiday-shortened week with gains. The S&P 500 jumped 1.53%, the Dow Jones Industrial Average gained 1.78%, the NASDAQ Composite increased by 0.72%, and the Russell 2000 small-capitalization index rose 1.05%. The 10-year Treasury bond yield fell 15 basis points to 3.68%, sending bond prices higher for the week. Spot gold closed the week at $1,754.93, up 0.24%.


Thanksgiving is a wonderful holiday. It’s one of the few times a year that scheduled market news is almost nil. Investors’ minds tend to be focused on family, food, football, rest, or (if you’re one of the ambitious ones) a midnight trip to the mall (or your phone) for one of the largest retail spending days of the year.

Like most others, I appreciate the holiday season because the market is usually sleepy and I can truly unwind, enjoy time with family, catch up with friends, and recharge for the final month of the year. In a year like 2022, that especially rings true.

My visions of turkey, a nap, and some deals for Christmas shopping had me thinking about what December might look like. How can the Lions, Black Friday, and history guide us through the final month of the year?

The Detroit Lions first played the Chicago Bears on Thanksgiving in 1934. Since then, they’ve played on Thanksgiving Day at home every year except for 1939–1944 (due to World War II). They’ve won 37 times and lost 43 times, with the most recent being the 28-25 loss to Buffalo thanks to a field goal and some rough clock management. I digress. This update is about what’s going on in the markets, not my disappointment about what happened last Thursday.

Here’s something for those that enjoy a good statistic. Since 1934, the average December return of the S&P 500 according to is 1.50%. The average return when the Lions win is an astonishing 2.61%. On the other hand, if the Lions lose on Thanksgiving Day, the average return in December is a paltry 0.50%. With a t-statistic of 3.06, this means that the Lions’ performance on Thanksgiving Day is statistically significant for determining market performance. Apparently, it’s the Lions that actually bring the year-end rally, not Santa.

Sources: Flexible Plan Investments, wins/losses from WDIV

This is an important time to bring up the old idea that correlation does not equal causation and that things can be correlated by happenstance. The Lions analysis is fun, but it’s not something that would be tradable since there’s no real economic rationale for buying or selling stocks based on the outcome of a football game.

Moving on to Black Friday. It would be great if we had data going back as far as we do for the Lions. The data I was able to find goes back to 2005 and is from the National Retail Federation (NRF). It covers Thanksgiving Day weekend retail sales and is a little bit hit or miss. I looked at the year-over-year change in spending to see if there was some predictability to December returns based on what happened on Black Friday.

Turns out, Black Friday is meaningless when it comes to forecasting December’s returns. The returns in December since 2005 have been positive 70% of the time, averaging about 1.5%. The magnitude of the change in sales can vary wildly and is irrelevant to the strength of December’s performance.

Despite the lack of correlation between returns and year-over-year retail sales changes, it can’t hurt that the expectation this December is for strong retail sales. The NRF expects sales to grow between 6% and 8% compared to 2021, which would be the highest on record.

Maybe Santa, not a Lions’ victory, is bringing the rally?

As data-driven active managers, we love historical data—the more the better, and it’s an excellent risk-management guide. Every year, Bespoke Investment Group publishes an update on the seasonality effects the market experiences in December. Even though we might not see a push into December based on Black Friday sales, we could see a merry (though somewhat muted) afterglow of the Thanksgiving weekend stay alive into the December holidays.

In a 2019 report, Bespoke noted that if the market was strong through November, then the knock-on effects into December were typically very strong. Likewise, if year-to-date performance through November was negative, then the average December return was 1.21%.

As active managers, our goal is to dynamically adapt to the market environment—to respond to the data the world provides. We still see strong seasonal trends, and last week’s gain may be a hint that a Santa rally is warming up.

The Lions may have lost, a bad omen, but our turkey leftovers were a big win, so I’ll count that as a “W” for the sake of the market. Let’s put on some Christmas cheer and hope Santa brings us at least another 1.5% gain before we put a bow on 2022.

Would it be selfish to ask for more? There are headwinds out there that we don’t need to rehash in this update, but it’s certainly worth revisiting your risk-management procedures, re-underwriting any underperforming investment, and—most of all—remaining vigilant.


The 10-year Treasury bond yield dipped 15 basis points (0.15%) from 3.83% to 3.68% last week. The decrease in rates led to a price rally in long-term Treasurys, which jumped 3.27% in price terms last week, as represented by iShares 20+ year Treasury Bond ETF (ticker: TLT).

During the last two weeks of trading, stocks and bonds both appreciated. During the holiday week, long-duration bonds advanced 2.8% in price terms and more than 5% over the last two weeks. Over the same period, the S&P 500 advanced by nearly 2%.

The upward march is setting up an interesting narrative for the bulls and the bears.

The bulls will argue that a combination of a strong holiday shopping season and historical seasonal trends should produce a market tailwind into the end of the year. The National Association of Active Investment Managers (NAAIM) tracks an index of exposure to equities, as reported by members. The levels of equity ownership have crept up over the last month, indicating some positioning to benefit from these historical trends.

On the other hand, bears will argue that a “flight to safety” is underway. Before quantitative tightening, the rationale for owning stocks was “There is no alternative,” or TINA. Billionaire hedge fund investor Ray Dalio would say, “Cash is trash.” That does not appear to be the case now. Yields earned for holding cash or equivalents, such as short-dated Treasurys, are acceptable for investors expecting a major downturn.

In fact, the case for a “flight to safety” is so strong that, in an article in Bloomberg from October, Ray Dalio said, “cash is not trash.”

There is an appeal for owning bonds: 4% yields on 1-year Treasurys create a lot of appetite, especially since analysts downgraded stocks at a rate of 2-to-1 over the last week, according to financial media outlet


Last week, gold was up 0.24%. As of Friday (11/25), it’s down 4.53% year to date. Most of the recent pickup in the price of the yellow metal is the result of a weakening U.S. dollar. As we’ve been reporting throughout the year, the seemingly perfect inverse correlation between the dollar and gold is the main cause of gold’s underperformance in dollar terms. With the dollar’s weakness in November, gold has rallied almost an equivalent amount of the dollar’s decline.

For U.S. investors with strategic, long-term allocations to gold, this year continues to be irritating; however, if the U.S. dollar continues to revert and weaken relative to other global currencies, we could see a turnaround in gold spot priced in dollars, a benefit to U.S. investors.

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

The indicators

The very short-term-oriented QFC S&P Pattern Recognition strategy entered the week 30% short and switched the 70% long on Monday’s close. After taking some profit Tuesday, it reduced its exposure by 10% to 60% long on Tuesday’s close. On Wednesday, it swung to 30% short before further shorting to 70% on Friday’s close. Our QFC Political Seasonality Index was invested in stocks all week. (Our QFC Political Seasonality Index—with all of the 2022 daily signals—is available post-login in our Weekly Performance Report section under the Domestic Tactical Equity category.)

Our intermediate-term tactical strategies have been varied in their degree of defensive positioning. The key advantages these strategies offer to investors are their ability to adapt to changing market environments, participate during uptrends, and adjust exposure to more defensive posturing during downtrends.

The Volatility Adjusted NASDAQ (VAN) strategy was 60% short the NASDAQ all week. The Systematic Advantage (SA) strategy started last week 30% exposed to the S&P 500 before moving to 90% exposed at Wednesday’s close where it ended the week. Our QFC Self-adjusting Trend Following (QSTF) strategy was in cash all last week. VAN, SA, and QSTF can all employ leverage—hence the investment positions may at times be more than 100%.

Our Classic model was long equity exposure all 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 more restrictive platforms and can take up to one month to generate a new signal.

Flexible Plan’s Growth and Inflation measure, one of our Market Regime Indicators, shows markets are in a Normal economic environment stage (meaning inflation is rising and GDP is growing). This environment is the most common. It accounts for 60% of the investable days since 2003 and favors stocks and gold. On average, gold has performed best during Normal market environments, but it comes with additional drawdown risk. During Normal environments, the worst drawdown experienced by the S&P 500 and bonds was 17.18% and 4.91%, respectively. Gold, on the other hand, had a 31.92% maximum drawdown.

The S&P volatility regime is registering a High and Falling reading. From an annualized return standpoint, high and falling volatility favors gold and bonds, but all assets tend to benefit from falling volatility. The combination has occurred 13% of the time since 2003. On average, stocks return 9.32%, gold returns 17.35%, and bonds return 9.56%.

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