Market insights and analysis

By Tim Hanna

Market snapshot

•  Stocks: Equity indexes posted gains last week, snapping multiweek declines as short-term oversold conditions led to a rebound.

•  Bonds: The 10-year Treasury yield fell 6 basis points to 4.25%. The Federal Reserve held rates steady, maintaining its range of 4.25%–4.50%.

•  Gold: Gold rose 1.27% to another 52-week high, continuing to stand out amid global uncertainty and contributing positively to portfolios with gold exposure.

•  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 equities over gold and then bonds from an annualized return standpoint.

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The major U.S. stock market indexes were up last week. The S&P 500 increased by 0.53%, the NASDAQ Composite was up 0.18%, the Dow Jones Industrial Average gained 1.21%, and the Russell 2000 small-capitalization index rose 0.65%. The 10-year Treasury bond yield fell 6 basis points to 4.25%, taking Treasury bonds higher for the week. Spot gold closed the week at $3,022.15, up 1.27%.

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

Most major indexes rebounded last week, snapping multiweek losing streaks. Short-term oversold conditions helped fuel the recovery, though concerns about tariffs, economic growth, and corporate earnings are still front and center for many investors. The S&P 500 Index continues to trade below its 50-day moving average and is currently testing its 200-day moving average. Most of last week’s price action occurred below the 200-day moving average, although Monday’s (3/24) positive move pushed the Index above it.

Sector performance varied: Energy, Financials, and Health Care each gained over 1.00%. Materials lagged the most with a loss of 0.22%, followed by Utilities (-0.15%) and Consumer Staples (-0.14%).

Last week’s highlight was Wednesday’s Federal Reserve March monetary policy meeting. The Fed held interest rates steady, maintaining its range of 4.25% to 4.50%, amid heightened uncertainty. While officials still project 50 basis points of rate cuts this year—unchanged from December’s forecast—they raised their inflation expectations and lowered GDP growth expectations for the year. The post-meeting statement noted that “uncertainty around the economic outlook has increased.” 

Investor concerns over economic and political uncertainty continue to grow, capturing headlines as the weeks go by while markets struggle to break out of the downtrend that started in mid-February. A recent Global Macro Update from Bespoke Investment Group outlines three major narratives shaping the global outlook: a slowing Chinese economy, a shift in fiscal policy in Europe, and uncertainty driven by the trade war the U.S. started earlier this year.

According to Bespoke, these trends are closely connected. Excess Chinese production being dumped on American consumers is the key driver of the Trump administration’s political economy, while Europe’s pivot to increased defense spending is a direct response to the anti-trade and anti-international sentiment dominating U.S. policymaking. We’ll look at each through a multidimensional lens.

First, mortgage credit growth in China remains weak. Without new borrowing growth to leverage demand, home prices have continued to decline despite last year’s stimulus efforts. Additionally, property activity continues to fall, with new lows in both investment and sales—key components of the broader property value chain.

Regarding commodity demand in China, petroleum imports have stagnated, and demand has remained flat for the past five years. However, rapid investment in renewable energy production—including solar, batteries, and wind turbines—has driven an increase in manufacturing investment.

Tariff barriers on Chinese exports in the U.S. and Europe mean China’s ever-rising production must find an outlet. The result has been China dumping hundreds of billions of dollars of exports on emerging and frontier economies. The total trade surplus with those two categories has exceeded $450 billion over the last year. The second chart below highlights which countries saw the sharpest increase in trade deficits with China.

In the U.S., policy uncertainty has surged. The Economic Policy Uncertainty Index posted its highest reading since the peak of the COVID-19 crisis. The Beige Book, a summary of economic conditions published by the Fed eight times a year, showed a sharp rise in mentions of “uncertainty,” indicating concern over the outlook from manufacturing firms about how government layoffs and the trade war could affect their businesses.

Adding to market pressure is the momentum-led sell-off. The recent correction in U.S. large-cap stocks was driven by rotation away from momentum stocks. According to Bespoke, the best performers going into the rotation were the hardest hit, with market-neutral momentum stocks (long high-momentum stocks, short low-momentum stocks) falling 21% in less than one month.

In Europe, the move toward increased defense spending is widely viewed as a response to the anti-trade and anti-international tone of recent U.S. policies—an issue that has received significant attention in European financial news. Much of the increase stems from growing concern that the U.S. may become a less consistent strategic partner. Poland currently spends the most on defense as a percentage of GDP. The second chart below highlights Germany, France, Italy, and Canada, which are expected to see some of the largest increases in defense spending relative to GDP.

Markets dipped into correction territory in mid-March and are now attempting to recover and reestablish an uptrend. While reviewing past corrections (defined as a decline of 10% or more in the S&P 500) versus bear markets (a decline of 20% or more), our Research department observed an interesting pattern: If the S&P 500 is higher one week after reaching correction territory, it has historically not gone on to enter a bear market. That threshold was met at last Thursday’s close. Based on the historical analysis, the data suggests the market is biased to the upside during this recent correction.

With so many global crosscurrents and an uncertain path forward after the recent dip into correction territory, incorporating dynamic investment strategies that can adjust to changing market conditions is critical for managing risk—especially during prolonged bear markets and periods of heightened volatility. When market momentum is positive, many of our momentum-based strategies adjust to a more risk-on positioning. If prices continue to rise, systematic trend-following algorithms are designed to identify and participate in the upward price momentum. Conversely, if volatility arises and prices decline, systematic momentum strategies are designed to identify the change and move to more defensive positioning. Mean-reversion strategies attempt to recognize and navigate sideways market conditions, offering an uncorrelated complement to momentum-based programs, which face challenges during trend-reversal inflection points.

One such systematic momentum methodology is the Quantified Evolution Plus Fund (QEVOX). The Fund dynamically trades between global equities, bonds, and alternatives, identifying trends in assets within its universe, with the flexibility to adjust its positions weekly. The Fund is used within some of our QFC strategies, including our QFC Evolution Plus strategy, and can be used in our turnkey solutions. The following chart shows the one-year performance of the Quantified Evolution Plus Fund (QEVOX, 20.34%) compared to one of the world’s largest multi-asset global allocation mutual funds, the BlackRock Global Allocation Fund (MALOX, 4.94%).

Bonds

The 10-year U.S. Treasury yield fell 6 basis points last week, closing at 4.25%. Yields have been stabilizing and possibly attempting to reverse course after a steady decline that began in mid-January (diagonal black line at the far right in the following chart). The current level sits roughly midway between its September low (when yields began rising after the rate cut—the vertical black line on the following chart) and its January peak.

T. Rowe Price traders noted, “U.S. Treasuries generated positive returns heading into Friday as yields across most maturities declined following the Fed’s policy meeting. … Municipal bonds also posted positive returns, despite heavy issuance during the week. Investment-grade bond spreads tightened, and new issuance in the market was generally in line with expectations. … High yield bond market volumes were muted early in the week, and the asset class gained momentum alongside equities following the Fed meeting.”

Gold

Gold rose 1.27% last week, setting another new 52-week high. Since breaking out of its consolidation pattern in mid-January (black lines on the following chart), gold’s brief pullbacks have been short-lived, with bullish momentum continuing to drive the upward trend. Ongoing uncertainty across global markets has made the metal a go-to asset for many, contributing positively to portfolios with gold allocations.

The “golden cross” (when the 50-day moving average crosses above the 200-day moving average) remains in play. This formation is typically seen by technicians as a bullish longer-term trend signal. Gold remains above the moving averages, both of which are still positively sloped.

Flexible Plan Investments is the subadviser to the only U.S. gold mutual fund, The Gold Bullion Strategy Fund (QGLDX), designed at its introduction 11 years ago to track the daily price changes in the precious metal in a more tax-efficient manner than its ETF counterpart, GLD. The Fund is used within some of our QFC strategies (such as our QFC TVA Gold) and can be used within our more customizable turnkey solutions, such as our QFC Multi-Strategy Core and Explore offerings.

The indicators

The very short-term-oriented QFC S&P Pattern Recognition strategy started last week with 50% long exposure. Exposure changed to 30% long at Monday’s close, 10% long at Tuesday’s close, and 20% long on Wednesday’s close. Our QFC Political Seasonality Index favored stocks until Thursday’s close, when it moved into defensive positioning for the remainder of the week. (Our QFC Political Seasonality Index is available—with all of the daily signals—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 maintained 20% short exposure to the NASDAQ throughout last week. The Systematic Advantage (SA) strategy is 60% exposed to the S&P 500. Our QFC Self-adjusting Trend Following (QSTF) strategy signal started last week with 160% long exposure and changed to 80% long exposure at Friday’s close. The QFC Dynamic Trends (QDT) strategy was invested in the Quantified STF Fund (QSTFX) throughout last week. FlexPlan Strategic, our new A shares offering available in self-directed brokerage accounts (SDBAs), maintained overweight allocations to the Quantified STF Fund (QSTAX) and Quantified Eckhardt Managed Futures Fund (QETAX) for the aggressive risk profile. For the conservative risk profile, the strategy was overweight to the Quantified Managed Income Fund (QBDAX) and Quantified Eckhardt Managed Futures Fund (QETAX). The strategy offers five risk profiles to meet different investor needs. Note that VAN, SA, QSTF, and QDT can use leverage, which can result in investment positions exceeding 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.

Flexible Plan’s Growth and Inflation measure is one of our Market Regime Indicators. It shows that we are in a Normal economic environment stage (meaning a positive monthly change in the inflation rate and a positive monthly GDP reading). Historically, a Normal environment has occurred 60% of the time since 2003 and has been a positive regime state for stocks, bonds, and gold. Gold tends to outpace both stocks and bonds on an annualized return basis in a Normal environment but carries a substantial risk of a downturn in this stage. From a risk-adjusted perspective, Normal is one of the best stages for stocks, with limited downside.

Our S&P volatility regime is registering a High and Rising reading, which favors equities over gold and then bonds from an annualized return standpoint. The combination has occurred 23% of the time since 2003. It is a stage of lower returns and higher volatility for all three major asset classes.