Current market environment performance of dynamic, risk-managed investment solutions.
By Will Hubbard
Market snapshot
• Equities: The broad-based indexes finished higher for the week. The S&P 500 gained 2.36% for the week, the Dow Jones Industrial Average rose 0.25%, the NASDAQ Composite climbed 4.52%, and the small-cap Russell 2000 added 1.73%.
• Fixed income: The benchmark 10-year Treasury yield dipped slightly last week, ending at 4.36%.
• Gold and commodities: Gold, while off its highs, performed well last week, rallying 2.19% to close above $4,700 per ounce.
• Market indicators and outlook: Our strategies were active last week, looking to establish or continue long or leveraged positions. Market regime indicators show the market is in a Normal economic environment, 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 Low and Falling, which favors stocks over gold and then bonds.
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Equities
According to Bespoke Investment Group, the shape of the recent market rally has changed from a “V” to a check mark. Its research suggests that this type of rally can become heavily overextended before leveling off, forming a new base, and eventually moving higher. The following chart highlights that pattern in the S&P 500, showing downturns and recoveries since 2023.
Bespoke noted that this pattern is important for longer-term bulls. Based on some of last week’s economic data, that still appears to be the base case. The data showed some cooling, but the broader economy continues to hold up.
The ISM Services Purchasing Managers’ Index slowed from 54 to 53.6, but any reading above 50 indicates an expansion. That suggests the services industry remains resilient despite recent inflationary pressures.
The labor market also remains strong, with nonfarm payrolls increasing by 115,000 and the unemployment rate holding steady at 4.3%.
Together, these factors may be helping investors look past some geopolitical and macroeconomic concerns. Oil prices remain a major factor and have been heavily influenced by the war in Iran. If tensions stay elevated, inflation could prove stickier, potentially affecting how the Federal Reserve approaches interest rates. The Fed has continued to hold rates steady.
For investors, it is important to keep two possible paths in mind. In the first, the war in Iran does not spill over into broader global economic or market weakness, and markets continue to advance on new technologies. That kind of environment may favor strategies designed to participate in technology-driven momentum while still using a defined, rules-based process. Flexible Plan Investments recently launched FlexDirex, a single-stock-ETF-focused strategy designed to capture momentum in companies on the cutting edge of technology. The strategy can use leverage to participate in rapidly developing shifts among some of the largest technology companies in the world.
In the second, artificial intelligence does not generate the expected economic growth, or the war in Iran drags on, keeping energy prices high and slowing the global economy.
In either environment, a rules-based investment approach can help investors reduce emotion, focus on facts and data, and stay disciplined.
Fixed income
Treasurys remained choppy with little clear direction. The 10-year Treasury yield finished the week at 4.36%, down from 4.37% the week before.
The bond market seems to be digesting a difficult mix of data. On one hand, parts of the economy seem to be cooling. Job openings were roughly unchanged in March, and the labor market is not as tight as it has been. On the other hand, hiring remains positive, and unemployment is still historically low. Meanwhile, oil prices remain a threat to inflation and to parts of the global economy that are sensitive to travel and transportation costs.
For now, fixed income should continue to have a role in investor portfolios, especially as a diversifier. But investors should remember that bonds do not always offset volatility. In 2022, for example, rates rose sharply, and bonds struggled. We think today’s environment is different, especially because rates are not coming off of zero interest rate policy. Still, the choppy movements in fixed income indicate ongoing concern about the inflation outlook.
Gold and commodities
We usually focus on gold in the Market Update, and we will provide an update here. But oil remains the main commodity story. Brent crude finished the week near $101 per barrel, while Brent and West Texas Intermediate both declined on hopes that de-escalation in Iran would ease supply issues. Those hopes faded when President Trump rejected Iran’s response to the U.S. peace proposal and referred to the ceasefire as “on life support.”
Gold remained firm, closing the week at $4,715.25 per ounce, up 2.19% from $4,614.21 the week before.
Gold and oil are sending different but related messages to the market. Oil represents an inflation risk, while gold continues to serve as a hedge against uncertainty. When the two move together, the macro backdrop becomes more complicated.
From our perspective, gold still makes sense as a diversifier, but last week was another reminder that it can benefit from uncertainty.
FPI is the subadviser to the only U.S. Gold Mutual fund, the Quantified Gold Futures Tracking Fund (QGLDX), 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.
The indicators
The QFC S&P Pattern Recognition strategy started the week in cash, then increased exposure to 50% long on Tuesday. On Friday, it dropped to 20% long to close out the week.
Our QFC Political Seasonality Index started the week risk-on but shifted to a risk-off posture at Friday’s close. (The 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).
Our intermediate-term tactical strategies have varied in their degree of defensive positioning. The key advantage these strategies offer investors is their ability to adapt to changing market environments—participating during uptrends and moving to a defensive posture during downtrends.
The Volatility Adjusted NASDAQ strategy started the week 40% long, moved to 60% long on Tuesday’s close, dropped back to 40% long on Thursday’s close, and ended the week 60% long. The Systematic Advantage strategy started the week 60% long, increased to 90% long on Monday’s close, returned to 60% long on Wednesday’s close, and moved to a 120% leveraged position on Thursday’s close, where it remained through the end of the week. Our QFC Self-adjusting Trend Following strategy remained fully long at 200% exposure throughout the week. These strategies can employ leverage, so their exposure may exceed 100% at times.
Our Classic model was fully “risk-on” all week. Most Classic accounts follow a signal that can change exposure within a week, though a few remain on platforms requiring up to a month to adjust to new signals.
FPI’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 prices and a positive monthly change in GDP). Historically, a Normal environment has occurred 75% of the time since 2003 and has been a positive regime state for stocks, bonds, and gold. Stocks have the highest rate of return in Normal periods. Gold has the second-highest return but has also experienced high drawdown in these environments.
Our S&P volatility regime is registering a Low and Falling reading, which favors stocks over gold and then bonds from an annualized return standpoint. The combination has occurred 32% of the time since 2003.