Current market environment performance of dynamic, risk-managed investment solutions.
By Daniel Poppe
Market snapshot
• Stocks: Stocks were mixed last week. The NASDAQ Composite fell 4.59%, the S&P 500 declined 1.94%, the Dow Jones Industrial Average gained 0.60%, and the Russell 2000 advanced 1.03%.
• Bonds: The 10-year Treasury yield fell from 4.46% to 4.38% last week.
• Gold: Spot gold fell 2.88% for the week, closing above $4,000 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, though gold has also experienced meaningful drawdowns in this environment. Normal is one of the best stages for stocks, with limited downside. Volatility is High and Rising, 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 below its 50-day moving average but above its 200-day moving average.
The S&P 500 gave back a small portion of the market’s substantial year-to-date gains last week as the AI rally paused.
The pullback comes as investors turn their attention to second-quarter earnings season. Companies reported robust earnings growth in the first quarter, and investors will be looking to see if that strength continues.
Oil prices fell sharply through most of June as negotiations helped ease tensions in the Middle East. The decline could help temper inflation concerns that had reemerged after recent higher readings.
Bonds
The iShares 7-10 Year Treasury Bond ETF (IEF), which tracks intermediate-term Treasury bonds, finished last week above both its 50-day and 200-day moving averages.
The recent decline in oil prices has helped bonds recover. Potentially lower inflation gives the Federal Reserve more room to keep rates at less restrictive levels than it might otherwise need to set them.
The Federal Open Market Committee met this month for the first time with Kevin Warsh serving as the new Fed chair. As expected, the Fed kept its target rate unchanged. However, the outlook may be more hawkish. According to CME FedWatch, the market currently sees a meaningful chance of a 25-basis-point hike at the Fed’s July meeting.
Gold
The SPDR Gold Shares ETF (GLD), which tracks the price of gold, finished the week below both its 50-day and 200-day moving averages.
Flexible Plan Investments (FPI) is the subadviser to the only U.S. gold mutual fund, The Quantified Gold Futures Tracking 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 a 110% net long exposure to the S&P 500. Exposure changed to 80% net long on Monday, 120% net long on Wednesday, and 200% net long on Thursday.
Our QFC Political Seasonality Index strategy was defensive at the beginning of the week, then shifted to an aggressive posture on Friday. (Our QFC Political Seasonality Index—with all of the daily signals—is available after login in our Weekly Performance Report section under the Domestic Tactical Equity category.)
The Volatility Adjusted NASDAQ strategy started the week with a 20% net long exposure to the NASDAQ 100. Exposure changed to 0% net long on Monday, 40% net long on Tuesday, 20% net long on Wednesday, and 40% net long on Thursday.
The Systematic Advantage strategy held a 90% net long exposure to the S&P 500 throughout the week.
Our QFC Self-adjusting Trend Following strategy’s primary signal was 0% net long the NASDAQ 100 throughout the week.
The Volatility Adjusted NASDAQ, Systematic Advantage, QFC Self-adjusting Trend Following, and the 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, one of our Market Regime Indicators, 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 drawdowns in these environments.
Our S&P volatility regime is registering a High and Rising reading, which favors stocks over gold and then bonds from an annualized return standpoint. The combination has occurred 28% of the time since 2003.