Market insights and analysis

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

4th Quarter | 2023

Quarterly recap



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

By Jason Teed

The major U.S. stock market indexes were up last week. The Russell 2000 rose 3.26%, the NASDAQ Composite gained 2.04%, the Dow Jones Industrial Average increased by 2.02%, and the S&P 500 was up 1.83%.

All 11 market sectors rose for the week. Consumer Discretionary and Real Estate were the top-performing sectors, rising 3.27% and 3.07%, respectively. Consumer Staples and Utilities were the worst-performing sectors, gaining 0.28% and 0.78%, respectively. This pattern of gains is typical when the market is in a risk-on regime and investors are feeling good about economic prospects.


The economic landscape is sending the market mixed signals. May saw an increase of 339,000 new payrolls, up from April and nearly double what was expected. This was the best reading since January, despite a slowing economic backdrop.

Better-than-expected payroll and unemployment data have sparked concerns that the Federal Reserve may need to keep interest rates higher for longer than originally anticipated. However, this often correlates with declining values in other economic indicators.

Although headline jobs figures look positive, a deeper examination of the data reveals that the Fed’s rate hikes are having an effect, which we will eventually see reflected in the overall jobs numbers. While the number of new jobs has been quite robust, wage growth has been decreasing. This decrease in wages is at least equivalent to, if not slightly higher than, the rate of inflation.

Additionally, while many jobs have been added in the last year, the number of new openings has dropped dramatically in most industries. Information-based jobs have decreased the most, down over 30%.

Lastly, the job quit rate has fallen from a peak of 3% in 2021 to around 2.5%. While still historically high, the falling rate signals that employees are less willing to quit their current jobs—whether because they are less confident about finding a new job or one worth relocating for.

Taken together, these data points signal a weakening of the overall jobs markets, even though the aggregate jobs numbers have not yet caught up.

Real estate also contributes to inflation readings, although its influence tends to be delayed. Most real estate markets are off their post-COVID highs, with metropolitan regions like Seattle experiencing nearly 20% losses.

However, in March, many of these areas showed a slight reversal of that trend, suggesting that these declines may be slowing down or coming to an end. It can take as long as 18 months for real estate changes to affect the consumer price index (CPI). Therefore, these shifts could further moderate inflation readings in the future.

These mixed signals are leading to some uncertainty about the Federal Reserve’s next course of action. Currently, the market is pricing in a 75% probability that the Fed will refrain from increasing rates at its next meeting. This seems likely given the recent jobs report. This pause is providing the stock market some breathing room, potentially allowing for some additional upside. However, the fundamentals of the economy might increase the likelihood of further volatility going forward.


Treasury yields fell slightly last week, with the most significant drop observed in the three-year to four-year maturities. The three-month yield was the only one to rise.

The steepness of the two-year/10-year yield-curve inversion was virtually unchanged from the previous week. The fed funds rate remained the highest-yielding maturity. Historically, this tends to occur just before the Federal Reserve pauses rate increases, and signals a likely recession.

Both term and credit yields decreased last week, giving conflicting signals about bond market expectations of the economy. Overall, long-term Treasurys underperformed high-yield bonds (though the performance was close), and longer-term bonds outperformed shorter-term bonds.


Spot gold rose 0.08% last week as markets enjoyed a reprieve from recent political volatility around the debt ceiling.

Despite enjoying some recent tailwinds, the metal is still off the highs it reached at the beginning of May. Prospects are uncertain. The extent to which the Fed will have to continue fighting inflation remains to be seen. Rising rates tend to hinder gold performance. As gold doesn’t offer income returns, it becomes less attractive when other assets have high yields.

Non-currency safe-haven assets, such as long-term Treasurys, were up for the week. However, their performance was more related to interest-rate movements than their safe-haven status.

Flexible Plan Investments (FPI) is the subadvisor to the only U.S. gold mutual fund, The Gold Bullion Strategy Fund (QGLDX), designed at its introduction nine years ago to track the daily price changes in the precious metal.

The indicators

Our Political Seasonality Index was fully invested for the week. (Our QFC Political Seasonality Index is available post-login in our Weekly Performance Report section under the Domestic Tactical Equity category.) The very short-term-oriented QFC S&P Pattern Recognition strategy’s equity exposure varied significantly last week. Unusually, all of the positions were short to various degrees. The strategy has been much more active lately than in the earlier parts of 2022. Except for last week, it has consistently profited from recent patterns.

Our intermediate-term tactical strategies are mixed in exposure. The Volatility Adjusted NASDAQ (VAN) strategy began the week 120% long, changed to 100% long on Tuesday’s close, and remained there for the rest of the week. The Systematic Advantage (SA) strategy was very active, trading every day of the week. Exposures for Monday through Friday, respectively, were 30%, 90%, 60%, 30%, and 90%.

Our Classic strategy was fully invested for the week. The strategy can trade as frequently as weekly.

Flexible Plan’s Growth and Inflation measure, one of our Market Regime Indicators, currently indicates a Normal economic environment stage (meaning a positive monthly change in the inflation rate and positive quarterly GDP reading). Historically, a Normal environment has occurred 60% of the time since 2003 and has been a positive regime state for equities, gold, and bonds. Gold tends to outpace both stocks and bonds on an annualized return basis in a Normal environment, albeit with higher risk.

Our S&P volatility regime is registering a High and Rising reading, which favors equities over gold and then bonds from an annualized return standpoint. The combination has occurred 23% of the time since 2000. It is a stage of relatively low returns and higher volatility for the three major asset classes.

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