Current market environment performance of dynamic, risk-managed investment solutions.
By Daniel Poppe
Market snapshot
• Stocks: The major U.S. stock market indexes were higher last week. The Dow Jones Industrial Average rose 0.29%, the Russell 2000 gained 0.67%, the S&P 500 advanced 1.11%, and the NASDAQ Composite increased by 1.53%.
• Bonds: The 10-year Treasury bond yield rose from 4.04% to 4.08%.
• Gold: Spot gold rose 1.30% last week, closing above $5,100 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.
***
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
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 market remains in the sideways range that has been in place since the fall. That has occurred even as fourth-quarter earnings have largely been reported and following last Friday’s Supreme Court decision striking down tariffs that President Trump had focused on throughout last year. Markets moved slightly higher on the news.
According to FactSet’s Earnings Insight report, revenue and earnings-per-share surprises have skewed to the upside. Blended earnings growth stands at 13.2%, a very healthy number. Valuations sit above both the five-year and 10-year averages, reflecting that strength.
Bonds
The iShares 7-10 Year Treasury Bond ETF (IEF), which tracks intermediate-term Treasury bonds, finished last week above both its 50-day and 200-day moving averages.
Bonds have moved higher over the past month. January inflation levels were in line with previous months, and 12-month inflation was in the mid-2% range. With inflation appearing to stabilize slightly above the Federal Reserve’s long-term 2% target, investors may be more comfortable moving into longer-dated bonds.
The Federal Reserve left interest rates unchanged at its January meeting. Two meetings remain before Chair Jerome Powell’s term expires, with the next scheduled for mid-March. CME Group’s FedWatch tool shows the market is assigning a high probability to no rate change at that 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 Quantified Gold Futures Tracking Fund, formerly The Gold Bullion Strategy Fund. 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 190% net long exposure to the S&P 500. That changed to 200% net long on Tuesday.
Our QFC Political Seasonality Index strategy was aggressive at the beginning of the week but shifted to a defensive posture on Tuesday. (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 40% net long exposure to the NASDAQ 100 throughout the week.
The Systematic Advantage strategy started the week with a 60% net long exposure to the S&P 500. Exposure changed to 90% net long on Thursday.
Our QFC Self-adjusting Trend Following strategy’s primary signal was 200% net long the NASDAQ 100 throughout the week.
The Volatility Adjusted NASDAQ, Systematic Advantage, QFC Self-adjusting Trend Following, and QFC S&P Pattern Recognition strategies can all employ leverage, so 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—one of our Market Regime Indicators—shows that we are in a Normal economic environment, defined by positive monthly changes in both prices and GDP. A Normal environment has occurred 75% of the time since 2003 and has been positive for stocks, bonds, and gold. Stocks have delivered the highest rate of return in Normal periods, while gold has ranked second but has also experienced high drawdowns.
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 28% of the time since 2003.