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.

Market Update 12/27/22

By Jason Teed

The major U.S. equity indexes were mixed last week. The Dow Jones Industrial Average was the only index with gains, rising 0.86%. The tech-heavy NASDAQ Composite lost the most, falling 1.94%. The S&P 500 and Russell 2000 Indexes fell 0.2% and 0.14%, respectively.

Six of the 11 sectors were up for the week. Energy gained the most, up 4.38%. Technology and Consumer Discretionary lost the most, down 2.04% and 3.10%, respectively. In general, defensive sectors fared better than cyclical ones for the week.


The last full week of 2022 was mixed for equities. Though stocks rose in October and November, much of those gains were given back this month.

December is typically the strongest month of the last quarter for the market. The market anticipates that many retail companies will go into the black for the year just after Thanksgiving, during the so-called Santa rally. Unfortunately, it appears Santa did not come this year, despite record holiday spending.

The weakness in equities is largely due to expectations of a recession going into 2023. The Federal Reserve has been steadily increasing interest rates in an effort to fight inflation. While inflation does appear to be slowing, the Federal Reserve may need to keep interest rates elevated for a significant period to get inflation back into the desired range. Rates are as high as they’ve been in about 18 years after a long period of extremely low interest rates. Increasing rates off these lows has impacted the market more than periods when baseline rates were higher.

Currently, the market is down about 25%, which is more than most bear markets have experienced in the same amount of time. And if the bear market continues, significantly more downside is possible.

Why? The U.S. has not yet moved into recession territory, and though the stock market tends to bottom out ahead of the U.S. economy, bear market bottoms are typically seen in the first half of recessions. It’s not yet clear that we’ve entered one at this point, so it is reasonable to think that more downside is likely.

Given that the Fed has more work to do, markets have been predicting that rates have not yet peaked. Currently, expectations are for a May 2023 peak at just under 5%, given market-implied rates. From there, rates would remain relatively high, without any significant easing for the remainder of 2023.

The longer rates remain elevated, the longer companies and individuals will face higher financing costs, and the more significant the impact will be on the overall economy. Though it remains to be seen whether the Fed can reduce inflation without causing a recession, most market participants are skeptical.

That being said, there is some positive inflation-related news. The most recent readings came in lower than expected, and easing is being seen in multiple indicators. While the consumer price index (CPI) has been noisy, the last two readings have been down. Additionally, oil and gas prices are falling despite predictions of increases in these commodities earlier in the year due to anticipated shortages.

It appears that inflation has likely peaked. Now the Fed needs to figure out how long to stay the course to bring inflation under control while minimizing the impact on the global economy. A recession will likely occur. Most market analysts anticipate that it won’t be deep, but it could be persistent. Equity market returns might be lower than we’ve been used to over the previous decade; however, appropriate timing and investment in certain geographical regions or sectors may provide growth opportunities.


Treasury yields were mixed for the week: The one-month yield fell while all others rose. Long-term yields rose the most, suggesting higher-than-anticipated growth in the future.

However, the yield curve continues to be deeply inverted. While the two-year/10-year ratio has not been this deeply inverted since before the mid-1980s, it is off recent lows. Last week, both the term yield and the credit spread increased, sending mixed signals on economic expectations. Overall, long-term Treasurys underperformed high-yield bonds, and longer-term bonds underperformed shorter-term bonds.


Spot gold rose 0.29% for the week. The metal has risen about 11% since the end of October.

Expectations that the Federal Reserve is getting inflation under control are rising. In response, the U.S. dollar has fallen from recent highs, which provides support for the metal. Going forward, gold will likely see more tailwinds than earlier this year.

Non-currency safe-haven assets, such as long-term Treasurys, were strongly down for the week, as longer-term rates rose for the period. Higher-than-average correlation among bonds, equities, and gold this year due to rising rates has made investing across the spectrum more difficult for investors.

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 nine years ago to track the daily price changes in the precious metal.

The indicators

Our Political Seasonality Index was fully invested for the week. (Our QFC Political Seasonality Index is available post-login in our Weekly Performance Report section under the Domestic Tactical Equity category.) The very short-term-oriented QFC S&P Pattern Recognition strategy’s equity exposure began the week 1.5X long. It changed to 1.9X long on Monday’s close, 0.4X long on Tuesday’s close, 0.5X long on Wednesday’s close, 0.1X long on Thursday’s close, and 0.3X long on Friday’s close. The strategy was very active on a relative basis as it doesn’t often trade each day of the week.

Our intermediate-term tactical strategies are mixed in exposure. The Volatility Adjusted NASDAQ (VAN) was 20% inverse for the week. The Systematic Advantage (SA) strategy began the week 30% exposed to the market. It changed to 0% exposed on Tuesday’s close, back to 30% exposed on Wednesday, and to 60% exposed on Thursday, remaining there for the rest of the week. Our QFC Self-adjusting Trend Following (QSTF) strategy was out of the market for the week but changed to 100% short on Friday’s close. VAN, SA, and QSTF can all employ leverage—hence the investment positions may at times be more than 100%.

Our Classic strategy was fully invested for the week. The strategy can trade as frequently as weekly.

Flexible Plan’s Growth and Inflation measure, one of our Market Regime Indicators, currently indicates a Normal economic environment stage (meaning a positive monthly change in the inflation rate and positive quarterly GDP reading). Historically, a Normal environment has occurred 60% of the time since 2003 and has been a positive regime state for equities, gold, and bonds. Gold tends to outpace both stocks and bonds on an annualized return basis in a Normal environment, albeit with higher risk.

Our S&P volatility regime is registering a High and Falling reading, which favors gold over bonds and then equities from an annualized return standpoint. The combination has occurred 13% of the time since 2000. It is a stage of relatively high returns and lower volatility for the three major asset classes.

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