Current market environment performance of dynamic, risk-managed investment solutions.
By Daniel Poppe
Market snapshot
• Stocks: Stocks moved lower last week. The Dow Jones Industrial Average fell 0.21%, the S&P 500 declined 2.55%, the Russell 2000 lost 2.91%, and the NASDAQ Composite decreased by 4.65%.
• Bonds: The 10-year Treasury bond yield rose from 4.45% to 4.55% last week.
• Gold: Spot gold fell 4.67% for the week but remained above $4,300 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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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 pulled back, led lower by semiconductor stocks, which had been on a strong run for the year until last week. The industry had seen high demand tied to AI, which helped lift share prices, leading the market to new highs this year. With valuations elevated, however, semiconductor shares came under pressure last week, weighing on the major indexes.
Companies reported robust earnings growth in the first quarter. Second-quarter earnings season is still several weeks away, but investors will be watching to see whether that strength continues. Investors are also still looking for further resolution in the Middle East, where concerns about regional stability and the potential impact on inflation remain part of the backdrop.
Bonds
The iShares 7-10 Year Treasury Bond ETF (IEF), which tracks intermediate-term Treasury bonds, finished last week below both its 50-day and 200-day moving averages.
Bond prices remained subdued as geopolitical tensions lingered and oil prices stay elevated, adding to concerns about inflation. Inflation has already moved higher in recent months, and readings could rise further if oil prices remain elevated or climb from current levels. That would make it more difficult for the Federal Reserve to lower rates, which could keep pressure on bond prices.
The Federal Open Market Committee (FOMC) meets later this month. CME FedWatch currently shows that markets expect no rate change at the meeting. With inflation ticking up in recent months, the Fed may wait to see whether price pressures stabilize before adjusting rates.
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 30% net long exposure to the S&P 500. Exposure changed to 50% net long on Tuesday, 60% net long on Wednesday, 10% net long on Thursday, and 20% net long on Friday.
Our QFC Political Seasonality Index strategy was aggressive at the beginning of the week, then shifted to a defensive 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 60% net long exposure to the NASDAQ 100. Exposure changed to 80% net long on Monday, 120% net long on Tuesday, 140% net long on Thursday, and 160% net long on Friday.
The Systematic Advantage strategy started the week with 120% net long exposure to the S&P 500. Exposure changed to 150% net long on Monday and to 120% net long on Tuesday.
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 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 drawdowns 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.