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 fell last week.
• Gold: Spot gold fell last week, closing just below $2,400 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 High and Rising, 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 3.47%, the Dow returned 0.77%, the S&P 500 returned -0.82%, and the NASDAQ Composite returned -2.08%. The 10-year Treasury bond yield fell from 4.25% to 4.20%. Spot gold closed the week down 0.57%.
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
Despite a recent pullback, the SPDR S&P 500 ETF (SPY), which tracks the performance of the S&P 500, finished the week above its 50-day moving average and well above its 200-day moving average.
The S&P 500 is up significantly year to date despite its recent weakness. Declining inflation and weak economic data have raised hopes for Federal Reserve rate cuts. A weakening economy and tame inflation may prompt the Fed to adopt a more dovish stance and ease the cost of capital for businesses nationwide.
According to FactSet’s Earnings Insight report from July 26, second-quarter earnings reports have been strong so far. However, less than half of the companies have reported, so the data could change significantly as more results come in.
Reporting companies have experienced blended earnings growth of 9.8%, the highest rate since the fourth quarter of 2021. Most companies are reporting positive earnings and revenue surprises. Valuations remain high, with the forward price-to-earnings (P/E) ratio above the five-year and 10-year averages.
Gross domestic product (GDP) growth also rebounded in the second quarter. The Bureau of Economic Analysis reported a GDP growth rate of 2.8% for the second quarter, higher than the 1.4% reported for the first quarter.
Bonds
The iShares 7-10 Year Treasury Bond ETF (IEF), which tracks intermediate-term Treasury bonds, has trended up in recent weeks, finishing last week above both its 50-day and 200-day moving averages.
This uptrend may be due to expectations that the Federal Reserve will start decreasing interest rates. The CME Group’s FedWatch Tool indicates that a rate cut is anticipated at the Federal Open Market Committee’s September meeting. Declining interest rates generally benefit bondholders.
Expectations for declining rates follow two very interesting inflation reports. While the first quarter of the year saw higher-than-desirable inflation, May experienced no inflation, and June saw deflation.
Unemployment, the other half of the Federal Reserve’s dual mandate, has been inching up in recent months. According to the Bureau of Labor Statistics, the unemployment rate was 3.9% in April, 4.0% in May, and 4.1% in June. The Fed wants unemployment to remain low, so a rising unemployment rate could prompt it to lower interest rates.
Gold
The SPDR Gold Shares ETF (GLD), which tracks the price of gold, experienced a meteoric rise early in the year, though its price has become much choppier since then. Even so, it finished last week above its 50-day moving average and well above its 200-day moving average.
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 160% net long exposure to the S&P 500. Exposure changed to 190% net long on Monday, to 180% net long on Tuesday, to 40% net long on Wednesday, to 110% net long on Thursday, and to 140% on Friday.
Our QFC Political Seasonality Index strategy was defensive at the start of the week and shifted to a more aggressive stance on Tuesday. (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 120% to the NASDAQ 100. Exposure changed to 100% on Tuesday and to 80% on Thursday.
The Systematic Advantage strategy started last week with a 120% allocation to the S&P 500. Exposure changed to 90% on Monday, to 120% on Wednesday, and to 90% on Thursday.
Our QFC Self-Adjusting Trend Following Strategy’s primary signal started the week with a 160% net long exposure to the NASDAQ 100. Exposure changed to 80% net long on Thursday.
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 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 2003. It is a stage of high risk for both equities and gold.