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 rose last week.

•  Gold: Spot gold rose last week, closing 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 Russell 2000 returned 1.33%, the NASDAQ Composite returned 0.26%, the S&P 500 returned -0.06%, and the Dow returned -0.08%. The 10-year Treasury bond yield rose from 4.25% to 4.36%. Spot gold closed the week up 0.21%.

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 much higher than both its 50-day and 200-day moving averages.

Stocks soared in the first half of 2024. The NASDAQ Composite returned 18.57%, the S&P 500 returned 15.29%, the Dow returned 4.79%, and the Russell 2000 returned 1.73%.

These strong returns coincide with a falling GDP growth rate. It remains to be seen if future earnings growth will support the rising share prices. If earnings growth slows to match the GDP decline, the second half of the year might not be as favorable for stocks.

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.

IEF was down for the first half of the year, returning -1.48%. Bonds fell as inflation persisted above the Federal Reserve’s long-term target of 2%. Inflation did come down significantly in May, however. If inflation is low in the second half of this year, that could help bond prices move higher.

Market participants expect the Federal Reserve to lower the fed funds target rate during its September meeting. Since bond prices and interest rates are inversely related, such a rate cut could kick off a rally in bond prices.

Gold

The SPDR Gold Shares ETF (GLD), which tracks the price of gold, has stagnated recently and is hovering below its 50-day moving average. However, it remains far above its 200-day moving average. For the first half of the year, GLD returned 12.47%, higher than some but not all of the major equity indexes.

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’s primary signal started last week with a 30% net short exposure to the S&P 500. Exposure changed to a 160% net long exposure on Monday. On Tuesday, exposure changed to 170%. Exposure changed back to 160% net long on Wednesday and remained there for the rest of the week.

Our QFC Political Seasonality Index strategy was defensive at the start of the week and shifted to a more aggressive stance on Friday. (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 200% to the NASDAQ 100. It lowered this to an exposure of 170% on Tuesday, lowered it again to 140% on Wednesday, and increased it to 160% on Thursday.

The Systematic Advantage strategy held a 150% allocation 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 last week.

Volatility Adjusted NASDAQ, Systematic Advantage, QFC Self-Adjusting Trend Following, and the 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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