Market insights and analysis

By Jerry Wagner

Market snapshot

•  Stocks: U.S. equity markets paused last week but surged higher on Monday, buoyed by strong earnings, diplomatic developments, and easing inflation data. The S&P 500 fell 0.47%, the NASDAQ slipped 0.27%, and the Dow Jones lost 0.16%. The Russell 2000 rose 0.12%. Momentum remains positive amid economic optimism and global outperformance by international equities.

•  Bonds: The 10-year Treasury yield climbed 7 basis points to 4.385%. Longer-term bond prices declined due to the Fed’s “wait and see” policy, though high-yield bonds tracked equity gains and moved higher. Expectations for a rate cut later this year are rising as inflation moderates.

•  Gold: Gold gained 3.11% on the week, closing at $3,344.10. Central bank accumulation, regulatory changes, and increasing investor preference have driven strong performance. Despite a recent dip, sentiment toward gold remains bullish.

•  Market indicators and outlook: Technical indicators are mostly positive, with several strategies increasing market exposure. The economic environment is classified as Normal, favoring gold and bonds from a risk-adjusted perspective. Volatility is High and Falling, a regime historically favorable for gold over other asset classes.

Index summary

The major market indexes finished mostly down last week. The Dow Jones Industrial Average lost 0.16%, the NASDAQ Composite fell 0.27%, and the S&P 500 Index declined by 0.47%. The Russell 2000 small-capitalization index gained 0.12%. The 10-year Treasury bond yield rose 7 basis points to 4.385%. Gold futures closed at $3,344.10, up $100.80 per ounce, or 3.11%.

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 stock market paused last week as it digested the recent rally that had the S&P 500 break solidly above its declining 50-day moving average. The pause may have been just what the market needed—the Index climbed more than 3% on Monday (May 12).

That rally followed a particularly active weekend for the new administration, which included brokering an India-Pakistan ceasefire, securing a U.K. trade deal, launching a new initiative to lower prescription drug costs, welcoming the release of the last U.S. captive from the October 7 attack on Israel, and announcing a new trade agreement with China that included a 90-day pause on 100%-plus tariffs.

Despite limited movement in stock prices last week, fresh economic and market data seem to support higher prices ahead.

This aligns with what we previously noted about the message the market was sending when it first crossed into 10% correction territory. The fact that it didn’t move lower the following week was an early sign that a drop into official bear market territory—down 20% from recent highs—was unlikely. As we pointed out at the time, in similar setups, the S&P 500 has never entered bear market territory in its 97-year history.

Earnings season has added to the optimism. Despite concerns about economic uncertainty and tariff volatility, first-quarter reports have been terrific. Of the more than 1,500 companies that have reported so far, more than 70% beat analysts’ forecasts, and 64% topped sales expectations. What is perhaps most surprising is that companies offering positive forward guidance outnumber those with negative guidance.

Global stocks have also gained attention. So far this year, more than 90% of international indexes have outperformed the S&P 500. Historically, when this has occurred on a rolling six-month lookback, it has led to continued gains not only for international indexes on average but also for the S&P 500, according to Senior Analyst Dean Christians at SentimenTrader, which examined the results five, six, and 12 months into the future.

Flexible Plan Investments’ QFC Global Managed Equity strategy is designed to take advantage of these opportunities. It trades developed and emerging country issues. It’s available for mutual funds and ETFs. The mutual fund version uses the FPI-subadvised Quantified Global Fund (QGLBX), with full fund fee credits in our QFC series.

On the policy front, the Federal Reserve spoke last week. Chairman Powell indicated that the body was taking a “wait and see” approach. He acknowledged that risk was heightened but reminded investors of the Fed’s dual mandate of focusing on both employment and inflation.

There was some encouraging news on the employment side last week. Jobless claims came in lower than expected, including among federal workers, where claims were below levels seen during past government management crises. This may be due to retirement packages offered under the current reorganization efforts.

Inflation data is also encouraging, suggesting that inflation continues at a mild rate. The Truflation U.S. Inflation Index—which conducts daily surveys of a broader selection of goods than even the consumer price index (CPI), using over 30 data sources and more than 13 million data points—showed inflation rising at only a 1.58% rate, below the Fed’s 2% target.

As I write this, the CPI rate of inflation was just released, showing a 2.3% rate of increase—which is below estimates. This included a 12% decrease in the price of eggs, if you are keeping track.

With inflation moderating, the market continues to suggest that the Fed will be lowering its lending rate sometime this year—likely before September, based on the numbers.

If that happens, rates could move low enough to join falling oil prices and a declining dollar at the low end of their 52-week ranges. In the past, these conditions have been positive for future stock prices. Even with just two out of three in that position, history shows that stock prices have been on average higher 61% of the time one month later and 94% of the time a year later.

Also worth noting: The CBOE Volatility Index (VIX) is back in that same low end of the range, dropping from above 60 to below 20 in less than a month.

Bottom line: It should not be surprising that an administration elected to disrupt the old guard is following through. That will likely cause some further market volatility. Still, most indicators suggest higher stock prices in the long run. As always, we believe the best approach is a portfolio of actively managed strategies that seek true diversification and aim to protect against the market’s inevitable ups and downs.

Bonds

Speaking of ups and downs, we’re seeing plenty in the path of interest rates this year. At the moment, rates are above both their short- and long-term moving averages. In the past, that has generally led to higher rates to come, as it did from December through mid-January. But recent price action suggests we may remain locked in the 4%–4.5% price range in the near term. Approaching either end of the range seems to send rates moving quickly in the opposite direction.

Rising rates last week drove the longer-term bond prices lower. This was both in anticipation of, and in response to, the Fed sticking to its “wait and see” attitude on rate cuts.

Meanwhile, the high-yield bond market played catch-up with the stock market rally and moved higher during the week. Because of their high credit risk, high-yield bonds tend to follow stock price direction more closely than those of traditional bonds. But they do have higher yields to provide some protection on the downside, which a pure stock play usually does not have.

Gold

As Frank Holmes reported Friday:

Basel III Makes It Official: Gold Is Money Again

… As of July 1, 2025, gold will officially be classified as a Tier1, high-quality liquid asset (HQLA) under the Basel III banking regulations. That means U.S. banks can count physical gold, at 100% of its market value, toward their core capital reserves. No longer will it be marked down by 50% as a “Tier 3” asset, as it was under the old rules.

This is a seismic shift in how regulators perceive gold, and it’s a long-overdue recognition of what many of us have known for decades: Gold is money. And it’s the kind of money you want to own when the world is on fire.

While this is great news, as we have been reporting for some time, central banks have already been pushing gold prices higher through their accumulation policies. This regulatory change will support that trend. The World Gold Council reports that 30% of central banks say they plan to increase their gold holdings in the next 12 months—the highest level ever recorded in the council’s survey.

Investors seem to be awakening to the advantages of gold as well. Gallup’s annual poll, conducted in the first half of April 2025, found that approximately 23%–24% of U.S. adults now prefer gold as their primary long-term investment—up five percentage points from the previous year. Gold has now surpassed stocks (which dropped to 16%) and bonds (at 5%) in popularity, with only real estate ranking higher at 37%. This notable change in sentiment is attributed to recent economic uncertainty, market volatility, and gold’s strong price rally to record highs this year.

Even with all the good news, gold showed some price weakness midweek. Although it finished the week with a gain, the metal has pulled back slightly from recent highs as uncertainty around trade and tariffs begins to ease. The same positive news has, in its usual contrary fashion versus gold, also buoyed the U.S. dollar, which had been in a pronounced decline.

FPI is the subadvisor to the only U.S. gold mutual fund, The Gold Bullion Strategy Fund (QGLDX). Introduced 11 years ago, the fund is designed to track the daily price changes in the precious metal and provide more tax efficiency than its ETF counterpart, GLD.

The indicators

The short-term technical indicators I watch for future stock market price changes are now all positive. The QFC S&P Pattern Recognition strategy currently holds 20% exposure to the S&P 500 Index, supporting this outlook.

Our QFC Political Seasonality Index (PSI) strategy has been in the stock market since its close on March 24. It exited stocks at the close on May 12 and will reenter at the close on May 21. (The PSI calendar—with all of the 2025 daily signals—can be found post-login in our Weekly Performance Report section under the Domestic Tactical Equity category.)

FPI’s intermediate-term tactical equity strategies are a mixed bag. Classic continues 100% long equities. The Volatility Adjusted NASDAQ (VAN) strategy was 0% net long the NASDAQ 100 last week. The Systematic Advantage (SA) strategy finished the week 90% net long. Our QFC Self-adjusting Trend Following (QSTF) strategy exited stocks last Monday and moved back to a 2X position at the close on May 13. Our newest strategy, QFC Dynamic Trends (DT), began and ended last week invested in the Quantified STF Fund (QSTFX). VAN, SA, QSTF, and DT can use leverage, so their investment positions may exceed 100%.

Our other new strategy, QFC Managed Futures, is 90% invested in our newest subadvised fund, the Quantified Eckhardt Managed Futures Fund (QETCX). As of May 12, QETCX was in a very mixed portfolio, holding net long positions in equity indexes, currencies, and bond rate indexes, and net short positions in metals, energy, and commodities. Daily asset class holdings for QETCX since inception can be viewed here.

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 outperforms 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 stocks and bonds from an annualized return standpoint. Volatility, of course, favors bonds. But gold is the next best, followed by stocks. The High and Falling combination has occurred 13% since 2003.