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 Will Hubbard

Market snapshot

•  Stocks continued higher, despite declining breadth in the second quarter.

•  Bond prices advanced after their recent pullback as yields fell.

•  Gold had a strong week after a slowdown in price momentum following its run-up through the first four months of the year.

•  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.


The major U.S. stock indexes were mostly up last week. The S&P 500 and NASDAQ 100 hit all-time highs, while the Russell 2000 continued to languish. The NASDAQ added 3.51%, the S&P 500 increased by 1.98%, the Dow Jones Industrial Average gained 0.69%, and the Russell 2000 small-cap index lost 1.01%. The yield of the 10-year bond decreased from 4.40% to 4.28%. Gold gained 2.81% to close at $2,392.16 per ounce.

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.


Despite the shortened holiday week, the third quarter kicked off with a flurry of economic data. The Institute for Supply Management (ISM) released its Purchasing Managers’ Index (PMI) for Manufacturing and Services. Job-related data such as the Job Openings and Labor Turnover Survey (JOLTS), unemployment claims, nonfarm employment change, and the unemployment rate were published. Meeting minutes from the Federal Open Market Committee (FOMC) were also released, and Federal Reserve Chairman Jerome Powell spoke on inflation and rate cuts.

The ISM Manufacturing PMI came in at 48.5, below the expected 49.2, continuing the recent trend of contraction (typically defined as a reading below 50). The ISM Services PMI came in at 48.8, below the projected 52.6. Before April, the sector had experienced a 15-month growth streak. Steve Miller, chair of the ISM Services Business Survey, said, “The decrease in the composite index in June is a result of notably lower business activity, a contraction in new orders for the second time since May 2020 and continued contraction in employment.”

On the jobs front, openings rose to 8.14 million last month, more than the expected 7.96 million. However, nonfarm payrolls increased by only 150,000, below the forecasted 163,000. New unemployment claims aligned with expectations at 238,000, slightly above the 234,000 forecast, resulting in a modest increase in the official unemployment rate from 4.0% to 4.1%.

Messaging from Federal Reserve Chairman Powell and the FOMC has not changed much in recent months. The Fed’s perspective is that economic activity is continuing to grow, the job outlook is strong, and inflation is easing. Powell continues to use the word “disinflation” in his press conferences—referring to a slowing of the pace of price inflation, reducing the year-over-year inflation rate and bringing it back toward the Fed’s 2% target. Disinflation is not deflation, which would be an overall reduction in the prices of goods and services. The Fed is trying to fulfill its mandate by bringing the rate of inflation back toward its target, not by undoing previously realized price increases.

Looking at equities during the second quarter, Bespoke Investment Group studied the results of the largest 1,000 companies as represented by the Russell 1000 Index. Overall, the Index was up 3.5% in the second quarter, but the gains were highly concentrated in only a few of the largest stocks.

Breaking the Index into deciles based on various factors revealed that none of the deciles reached anywhere close to the Index’s second-quarter gain. Of all of the factors reviewed, only size (market cap) had a decile that gained anything at all. The top decile, containing the largest 100 stocks, was up 0.76%.

Bespoke found that the top 25 stocks contributed 5.03% to the Russell 1000’s total return for the quarter. Microsoft, Apple, Nvidia, Google, and Amazon accounted for 88% of the gains in the Index. Excluding these top 25, the remaining 975 constituents generated a loss of roughly 1.70%, with the average stock in the Index falling 4.2% for the quarter, indicating weak market breadth.

While headline numbers for the second quarter appear positive, the narrow breadth is concerning. Investors should consider what active approaches they can implement to manage future risk and volatility.


After a challenging end to the second quarter, bond prices rallied last week as yields fell. Investors expected the Fed to continue delaying rate cuts, but Fed Chairman Powell is still signaling at least one rate cut in 2024. Consequently, the 10-year government bond yield fell from 4.40% to 4.28%

The Federal Reserve significantly impacts the economy based on its perceived actions. As a result, the Fed’s language can greatly influence market behavior. Despite the Fed’s consistent messaging about aiming for at least one rate cut by the end of the year, investors seem to be ignoring this, instead piling into short-term money-market funds. According to the Office of Financial Research, money-market holdings have surged from $3 trillion pre-pandemic to almost $7 trillion today.

For fixed income, rates continue to offer attractive yields at the short end of the curve. However, investors should consider extending duration to retain some of today’s yields if rates go down and to prevent losing purchasing power in the event of a surprise hike. Economists rarely get the timing right, but since they control the narrative, it would not be surprising for them to eventually cut rates.


Last week, gold gained 2.81%, increasing from $2,326.75 to $2,392.16 per ounce. Despite this recent gain, gold’s momentum for 2024 has slowed. Year to date, gold is up 15.57%, but those gains were set by mid-April. By April 16, the yellow metal was up 15.72%, with fluctuations since then.

With year-over-year inflation decreasing and the Fed continuing its “disinflation” narrative, the performance of precious metals, including gold, has cooled over the last year. The commodities market seems to be signaling a slowdown in upward supply-side price pressure. The S&P GSCI Precious Metals Index shows that while metals did exceptionally well in the first quarter, they have been weak since.

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 spent the week 160% long. Our QFC Political Seasonality Index was in its risk-on posture throughout the 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 160% long, increased exposure to 180% on Wednesday’s close, and remained there for the rest of the week. Our Systematic Advantage (SA) strategy started last week 150% long, reduced exposure to 120% long on Wednesday’s close, and remained there for the rest of the week. Our QFC Self-adjusting Trend Following (QSTF) strategy was 200% long all week. VAN, SA, and QSTF can all employ leverage—hence the investment positions may at times be more than 100%.

Our Classic model was long risk-on positioning all 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 more restrictive platforms and can take up to one month to generate a new signal.

Flexible Plan’s Growth and Inflation measure, one of our Market Regime Indicators, shows markets are in a Normal economic environment stage (meaning a positive monthly change in the inflation rate and a positive monthly GDP reading). 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. From a risk-adjusted perspective, Normal is one of the best stages for stocks, with limited downside.

The 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 37% of the time since 2003. It is a stage of higher returns and lower volatility for stocks relative to the other volatility regimes.

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