Market Update 12/8/25

By Jerry Wagner

Market snapshot

•  Stocks: The major stock indexes saw moderate gains this past week. The SPX rose 0.3%, the NASDAQ climbed 0.9%, and the Russell 2000 gained 0.8%. 

•  Bonds: Bonds struggled. The U.S. Aggregate Bond ETF (AGG) fell 0.5%, and the 20-year Treasury Bond ETF (TLT) tumbled 1.9%. 

•  Gold: Gold futures closed essentially flat, despite fluctuations during the week. 

•  Market indicators and outlook: Technical indicators are mostly positive for stocks, as are the strategies. The economic environment is classified as Normal, favoring gold and stocks from a return perspective. Volatility is High and Falling, a regime also historically favorable for gold over other asset classes.

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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.

Stocks

Stocks finished the week near all-time highs. Most equity indexes broke out above their recent government-shutdown-induced declining trend lines, mirroring the S&P 500’s breakout.

Our friends at Bespoke Investment Group summed up the current economic environment well Friday evening:

From an economic perspective, inflation pressures are easing, the labor market is slowing but hanging in there, and several economically sensitive equity baskets that we track have been breaking out to new highs. If the underlying economy was on the verge of falling apart, we wouldn’t expect to see these sectors outperforming. Along with that, the three-headed monster of crude oil, the 10-year yield, and the US Dollar Index is laying out the red carpet for the bulls, and the cherry on top is that the Fed is cutting rates with stocks right near 52-week highs.

While there is a great deal of focus on the Federal Reserve’s Wednesday announcement on short-term interest rates, we continue to note that the Fed’s open-market activity continues to drain liquidity from the system. This actually puts upward pressure on interest rates, which can counteract the Fed’s public policy announcements.

In addition, the attention on short-term rates may be misplaced. The longer-duration bond market remains in a bear market.

And most long-term foreign sovereign bonds continue to fall as the interest rates of their issuing countries rise, despite the Fed’s short-term action.

This dynamic can dampen equity prices because higher long-term rates slow economic activity. A refocus on this fact of life in the hours after the Fed’s announcement may cause a “sell the news” event, even if the Fed gives investors what they say they want.

The bottom line: Stocks continue to signal higher prices by year-end. But if the Federal Reserve throws a curveball Wednesday, the weaker-than-average short-term seasonality this week (see the PSI report in the final section of this update) could spark some volatility before the still-expected year-end rally.

Bonds

Yields on the 10-year Treasury bond have returned to the level they have twice topped out at in the last month and a half. While the downward trend in yields has continued at the macro level, yields have been in a consolidation period since mid-September. This reflects the on-again, off-again conversation among the governors about future Federal Reserve moves.

Treasury Secretary Scott Bessent was correct when he said this week, “I think it’s time for the Fed to just move back into the background like it used to do, calm things down, and work for the American people, set monetary policy on a good path. … This isn’t sport, it’s people’s lives.”

While you will probably know how this resolves by the time you read this, as the Federal Reserve meets Wednesday to decide, the current betting is that the Fed will lower rates another 25 basis points.

Although yields have been bouncing above and below their shorter-term moving average since September, it is encouraging that the longer-maturity TLT bond ETF has recently held solidly above its weekly moving average. Their decline has been relatively minor since yields last bottomed, too. This bottoming-type activity could mean the bond market is getting ready to reverse direction.

Meanwhile, the high-yield bond market continues to move higher with stock prices. Tailwinds from both stocks and hopes for lower interest rates have been pushing this hybrid bond higher. The trend favors this asset class through year’s end.

Gold

Gold remains below its all-time high set in mid-October but has been trending higher since hitting a short-term low near the beginning of November. Encouraging news continues to emerge on the supply side of the supply-and-demand equation. Gold holdings in exchange-traded funds (ETFs) hit 3,932 tons at November’s end, marking six months of growth. This reflects continued investor interest, with gold set for its strongest year since 1979 as investors shift from bonds and currencies to alternative assets.

Despite this movement, Bank of America reported that gold’s rally over the last year has shown a lower correlation with other asset classes than it did throughout the entire post-COVID period. Its connection to Treasurys has also decreased.

Bank of America also noted that, although commodities typically gain when the dollar weakens, this trend has diminished this year. You can see this in the short term on our two charts so far this month, as gold is down slightly along with the dollar.

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.

The indicators

The short-term technical indicators of future stock market price changes that I watch are now positive. Our QFC S&P Pattern Recognition strategy had a 50% exposure to the S&P 500 Index as of Monday’s close.

Our QFC Political Seasonality Index (PSI) strategy has been out of the stock market since its close on December 5. It returns to a fully invested position at the close on December 11. (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.)

FPI’s intermediate-term tactical equity strategies maintain their positive bias. Classic continues 100% long equities. The Volatility Adjusted NASDAQ strategy finished the week at a 200% net long exposure to the NASDAQ 100. Systematic Advantage ended the week 60% net long. Our QFC Self-Adjusting Trend Following strategy remains 200% invested. QFC Dynamic Trends also remains 200% invested.

Because the QFC Dynamic Trends, Volatility Adjusted NASDAQ, Systematic Advantage, QFC Self-Adjusting Trend Following, and QFC S&P Pattern Recognition strategies can employ leverage, the investment positions may exceed 100%.

FPI’s Growth and Inflation measure, one of our Market Regime Indicators, 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. In a Normal climate, gold has outperformed stocks and bonds on an annualized return basis, 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 High and Falling reading. This environment favors gold over bonds and then stocks from an annualized return standpoint. Stocks still tend to produce positive returns, but they have the lowest returns and the highest drawdown risk among the three asset classes. The High and Falling combination has occurred 13% of the time since 2003.