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 gained 0.55%, the S&P 500 Index rose 0.92%, the Russell 2000 Index advanced 1.00%, and the NASDAQ Composite Index added 1.12%.
• Bonds: The 10-year Treasury yield rose from 4.31% to 4.39% last week.
• Gold: Spot gold fell 2.02% last week, closing above $4,600 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 Low and Falling, which favors stocks over gold and then bonds.
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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.
Stocks continued the rally that began at the end of March, reaching a new 52-week high last week. The move higher has occurred alongside easing tensions in the Middle East and strong earnings results from Wall Street. Excitement around AI has returned to the forefront, and share prices of many AI-related companies have soared over the past month.
FactSet’s Earnings Insight report shows that over 60% of S&P 500 companies have reported first-quarter results so far, with most posting better-than-expected results. Earnings growth has also been strong, with the blended earnings rate sitting at 27.1%, which would be the highest level of earnings growth seen in years. Valuations for the Index remain above historical averages.
Bonds
The iShares 7-10 Year Treasury Bond ETF (IEF), which tracks intermediate-term Treasury bonds, finished last week below its 50-day moving average but above its 200-day moving average.
Bonds dipped again over the past couple of weeks. While geopolitical tensions have eased, oil prices remain elevated, and bond investors are uncertain about the inflation outlook, leading to weakness in the market. Higher oil prices can feed into prices elsewhere in the economy, potentially making it harder for the Federal Reserve to lower interest rates in the near future.
Last week, the Federal Open Market Committee held its final regularly scheduled meeting before Jerome Powell’s term as Federal Reserve Chair ends May 15. As expected, the Committee left interest rate targets unchanged. Another rate hold is expected at the Fed’s next meeting in June. Kevin Warsh has been nominated to serve as the next Fed chair, but the Senate has not yet confirmed his nomination.
Gold
The SPDR Gold Shares ETF (GLD), which tracks the price of gold, finished the week below its 50-day moving average but above its 200-day moving average.
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 an 80% net long exposure to the S&P 500. Exposure changed to 70% net long on Monday, 50% net long on Tuesday, 70% net long on Wednesday, and 0% exposure on Thursday.
Our QFC Political Seasonality Index strategy was defensive at the beginning of the week, then shifted to an aggressive posture on Wednesday. (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 started the week with a 60% net long exposure to the NASDAQ 100. Exposure changed to 40% on Tuesday.
The Systematic Advantage strategy held a 60% net long exposure to the S&P 500 throughout the week.
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 the 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 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.