Market insights and analysis

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

1st Quarter | 2024

Quarterly recap



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

By Tim Hanna

The major U.S. stock market indexes were down last week. The S&P 500 decreased by 1.16%, the Dow Jones Industrial Average lost 1.96%, the NASDAQ Composite was down 0.92%, and the Russell 2000 small-capitalization index dropped 1.27%. The 10-year Treasury bond yield rose 22 basis points to 4.06%, taking Treasury bonds lower for the week. Spot gold closed the week at $1,925.05, up 0.30%.


Equity markets finished the holiday-shortened week down. The S&P 500 has struggled to continue its upward trend, which peaked in mid-June. The outperformance following May’s breakout has stalled, leading prices to stagnate in the short term. Rising interest rates and concerns about global growth and geopolitics fueled some of the losses last week. Mega-cap stocks, which have been a major contributor to recent gains, underperformed relative to the rest of the market last week.

The S&P 500 Index has traded above its 50-day moving average since the start of April. Despite last week’s pullback, it still maintains a significant positive gap with both its 50-day and 200-day moving averages.

The majority of year-to-date price action has remained above the 200-day moving average, and the golden cross (when the 50-day moving average crosses above the 200-day moving average) from late January remains in play. Market technicians consider price action above the 50-day and 200-day moving averages to be a bullish signal. A sustained breakout above 4,200 could indicate a continuation of the upward trend over the intermediate term. Key support levels to watch are the 4,200 price level and the 50-day moving average.

The S&P 500 recently hit a 52-week high and has gained more than 20% since its October low, putting it into bull market territory. Bullish investor sentiment, as measured by the American Association of Individual Investors (AAII), reached its highest level in over a year last week.

Given the market’s recent wild ride, Bespoke Investment Group examined market volatility over the last 12 months, comparing it with long-term history. The team found that the volatility index closed at a 52-week low on just over 36% of the month’s trading days, a record for a single month.

The only month with near as many 52-week lows was December 2004. During April of this year, the VIX closed at 52-week lows on nearly a third of all trading days. Bespoke notes that there may be a bit of complacency in the market right now. However, new inflation data, Federal Reserve remarks, and earnings season reports could potentially rattle the market this week.

The S&P 500 and NASDAQ, the most commonly referenced equity benchmarks by investors, experienced a steady uptrend in Q2.

Interestingly, size and geography factors have resulted in quite different price action. The Russell 2000 has been stuck in a downtrend. The small-cap index is nowhere near its 52-week high and is more than 6% below its year-to-date high. European equities have also struggled in recent months. The STOXX 600 has started to form a short-term downtrend and has broken below its 50-day moving average. However, the index did pause at the 200-day moving average, a level that has provided support twice this year.

Last week, nonfarm payrolls came in lower than anticipated, ending its 14-month record streak of better-than-expected readings. The monthly change in nonfarm payrolls has been declining, as evidenced by the three-month average shown in the top left chart below. The payroll numbers have declined relative to the prior month’s reading in eight months over the past year.

The labor force participation rate has mostly recovered from its pandemic-induced decline, but it is still below the 10-year average of 63%. Meanwhile, the average workweek is slightly below the average since 2010, registering at 34.4 hours. However, the growth in average hourly earnings remains above its historical average.

This week’s inflation release is at the top of investors’ minds. Among other factors, this data will guide potential future interest-rate hikes by the Federal Reserve. The following table shows inflation components in Bespoke’s monthly Matrix of Economic Indicators. Collectively, the six-month average of the net number of indicators showing positive momentum is near its lowest level over the past 25 years. Overall inflation is down, but core readings for the consumer price index (CPI), producer price index (PPI), and personal consumption expenditures (PCE) rose more than headline readings in May and have been much slower to roll over. Although the readings are relatively high, the core numbers are moving in the right direction.

As market direction begins to show more uncertainty, it is important to incorporate dynamically risk-managed investment strategies that can adapt to changing market conditions as the changes are reflected in asset prices.

For example, as markets reached new highs and prices exhibited positive momentum, many of our momentum-based strategies adjusted their positioning to be more risk-on. If prices continue to rise and the pullback is merely a standard shallow correction, systematic trend-following algorithms are designed to identify and participate in the upward price momentum. Conversely, if volatility resurfaces and prices decline, systematic momentum strategies are designed to identify the change and move to more defensive positioning. Mean-reversion strategies attempt to recognize and navigate sideways market conditions, offering an uncorrelated complement to momentum-based programs, which face challenges in trendless periods.

The following chart shows the one-year performance of the Quantified Pattern Recognition Fund (QSPMX, 32.46%) compared to the SPDR S&P 500 ETF (SPY, 16.31%). The Quantified Pattern Recognition Fund dynamically trades the S&P 500, identifying and using mathematical patterns within the market to determine exposure. It has the flexibility to adjust its position daily, ranging from 100% inverse to 200% long. The Fund is used within some of our QFC strategies and can be used in our turnkey solution, QFC Fusion. Within our more customizable turnkey solution, QFC Multi-Strategy Core and Explore solution, QFC Multi-Strategy Explore: Special Equity is currently overweighted to QFC S&P Pattern Recognition.


The yield on the 10-year Treasury rose 22 basis points last week, ending at 4.06%.

Last week’s rally in interest rates pushed the 10-year Treasury beyond the upper trend line of its bearish price channel, with Federal Reserve meeting minutes projecting a hawkish outlook. Many potential drivers of the fixed-income market will surface this week, including inflation figures on Wednesday, unemployment claims on Thursday, and remarks from several Federal Reserve members throughout the week.

The 10-year Treasury has been trading above its 50-day moving average (green line on the following chart) since mid-May. If the breakout of the bearish price channel (black lines on the following chart) continues to see momentum, a breakout of 10-year highs around 4.23% is possible, given the proximity of current levels.

T. Rowe Price traders reported, “The yield on the benchmark 10-year U.S. Treasury note fluctuated following the release of Friday’s payroll report but closed higher for the week and firmly above 4% for the first time in eight months. … Munis held up better, helped by the reinvestment of July coupon payments and no new supply reaching the market. Credit-sensitive corporate bond markets were also quiet over the holiday-shortened week.”


Gold rose 0.30% last week. The metal is still experiencing a mild pullback since its peak and 52-week high set in mid-April. After seeing little support at and now trading below its 50-day moving average, the metal looks to be on its way to its 200-day moving average, the next major level of technical support. Currently, price is hovering right between the 200-day moving average and the 50-day moving average, with the 50-day moving average sloping downward.

Flexible Plan Investments 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.

The indicators

The very short-term-oriented QFC S&P Pattern Recognition strategy started last week with 140% short exposure. Exposure changed to 190% short at Monday’s close, moved to 180% short at Wednesday’s close, and changed to 80% long at Thursday’s close. Our QFC Political Seasonality Index favored stocks throughout last week. (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.)

Our intermediate-term tactical strategies have been varied in their degree of defensive positioning. The key advantages these strategies offer to investors are their ability to adapt to changing market environments, participate during uptrends, and adjust exposure to more defensive posturing during downtrends.

The Volatility Adjusted NASDAQ (VAN) strategy started the week with 140% long exposure to the NASDAQ and changed to 160% long at Thursday’s close. The Systematic Advantage (SA) strategy is 30% exposed to the S&P 500. Our QFC Self-adjusting Trend Following (QSTF) strategy was 200% long throughout last week. VAN, SA, and QSTF 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.

Flexible Plan’s Growth and Inflation measure is one of our Market Regime Indicators. It shows markets are in an Ideal economic environment stage (meaning inflation is falling and GDP is growing). Historically, an Ideal environment has occurred 28% of the time since 2003 and has been a positive regime state for stocks and bonds. Gold tends to underperform both stocks and bonds on an annualized return basis in an Ideal environment and carries a substantial risk of a downturn in this stage. From a risk-adjusted perspective, Ideal is one of the best stages for stocks, with limited downside.

The S&P volatility regime is registering a Low and Falling reading. From an annualized return standpoint, low and falling volatility favors stocks over gold, and gold over bonds. The combination has occurred 37% of the time since 2003. Typically, this stage is associated with higher returns and less volatility from equities and bonds.

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