Market insights and analysis

How dynamic, risk-managed investment solutions are performing in the current market environment

1st Quarter | 2024

Quarterly recap

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Current market environment performance of dynamic, risk-managed investment solutions.

By Daniel Poppe

Market snapshot

• Stocks: Stock performance was mixed last week.

• Bonds: The 10-year Treasury yield fell last week.

• Gold: Gold rose last week, finishing above $2,300 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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The major U.S. stock market indexes were mixed last week. The NASDAQ Composite returned 3.27%, the S&P 500 returned 1.62%, and the Dow returned -0.51%, and the Russell 2000 returned -0.95%. The 10-year Treasury bond yield fell from 4.43% to 4.20%. Spot gold closed the week up 1.71%.

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 well above both its 50-day and 200-day moving averages.

After a down month in April, stocks have moved higher in May and June, reaching record highs. The optimism may stem from strong earnings growth in the first quarter and a much lower inflation reading for May.

On May 30, the second estimate of Q1 2024 U.S. GDP growth was released, showing a 1.3% increase, 0.3% lower than the initial estimate. This was not enough to turn investors away from stocks.

Bonds

The iShares 7-10 Year Treasury Bond ETF (IEF), which tracks intermediate-term Treasury bonds, finished above both its 50-day and 200-day moving averages. The ETF returned 1.78% last week, trimming its 2024 year-to-date losses to less than 50 basis points.

The decrease in bond yields last week was likely due to the promising inflation report released on June 12. The report showed no change in prices from the previous month on a “headline” basis and only a 2% rise on a “core” basis, a massive improvement from April’s nearly 4% rate of increase.

Likely as a result of this inflation reading, rates fell across the board for maturities greater than two months in the Treasury market. Rates declined by up to 25 basis points in one week, a substantial move for such as short period. This bolstered bond prices for the week and aided in the recovery of year-to-date losses.

The Federal Open Market Committee (FOMC) met the same day the inflation report was released and kept the fed funds target rate unchanged. Following the inflation report and the FOMC meeting, market participants now expect a decrease in the fed funds target rate during the Federal Reserve’s September meeting.

Gold

The SPDR Gold Shares ETF (GLD), which tracks the price of gold, retreated from its recent highs, falling below its 50-day moving average. However, it remains well above its 200-day moving average.

Flexible Plan Investments (FPI) is the subadviser to the only U.S. gold mutual fund, The Gold Bullion Strategy Fund (QGLDX), designed at its introduction 10 years ago 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 started last week with an 80% net long exposure to the S&P 500. Exposure changed to a 40% net long exposure on Wednesday. On Thursday, exposure changed to 0%. On Friday, exposure changed to 60% net short.

Our QFC Political Seasonality Index strategy was defensive at the start of the week, shifted to a more aggressive stance on Tuesday, and returned to a defensive position on Thursday. (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.)

The Volatility Adjusted NASDAQ strategy started the week with an exposure of 140% to the NASDAQ 100 and increased exposure to 180% on Friday.

The Systematic Advantage strategy held a 120% allocation to the S&P 500 throughout the week.

Our QFC Self-adjusting Trend Following strategy was 200% long throughout last week.

The Volatility Adjusted NASDAQ, Systematic Advantage, QFC Self-adjusting Trend Following, and QFC S&P Pattern Recognition strategies can all employ leverage—hence the investment positions may at times be more than 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 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.

Our S&P volatility regime is registering a Low and Falling reading, which favors equities over gold and then bonds from an annualized return standpoint. The combination has occurred 37% of the time since 2003. It is a stage of both high returns and low risk for equities.



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