Current market environment performance of dynamic, risk-managed investment solutions.
By Will Hubbard
Market snapshot
• Stocks: A Friday rally sparked by Fed Chair Powell’s dovish remarks helped offset earlier weakness, leaving equities mixed. The Russell 2000 small-cap index increased by 3.32%, the Dow Jones Industrial Average rose 1.59%, the S&P 500 gained 0.30%, and the NASDAQ Composite lost 0.55%.
• Bonds: 10-year Treasury yields declined from 4.32% to 4.26% as Powell’s comments boosted expectations for a September rate cut.
• Gold: Gold prices rose 1.07% last week to $3,371.86 per ounce.
• Market indicators and outlook: Strategy positioning was generally bullish. 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 Rising, which favors gold over stocks and then bonds.
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Stocks
Markets had a mixed week but ended on a stronger note Friday after Federal Reserve Chairman Jerome Powell’s dovish remarks at the Jackson Hole summit lifted sentiment.
Beyond Powell’s comments, individual stock moves also influenced the market’s results for the week. Caterpillar, Home Depot, and Goldman Sachs contributed the most to the Dow’s gains for the week. Intel also had a good week, rising more than 5% after reports that the government is considering a 10% non-controlling stake in the company.
Economic data was generally light, with most of the market’s attention focused on the Jackson Hole summit. Weekly unemployment claims came in higher than expected at 235,000. Meanwhile, both manufacturing and services PMI reports exceeded expectations, with manufacturing showing its largest monthly gain since June 2020.
Bespoke Investment Group recently highlighted research showing breakdowns in the trends for Microsoft and Nvidia, which together make up 15% of the S&P 500. Both companies have fallen below their recent trend lines and are heading toward their 50-day moving averages, developments that could influence broader market performance.
While most fundamental data points to a lag, we’re still showing fairly healthy consumer and economic backdrops. Weakness in some of tech’s largest names underscores the importance of staying alert to emerging risks and being prepared to act if market conditions shift.
Bonds
Bond markets also focused on Fed Chair Powell’s remarks last week, which helped push the 10-year Treasury yield down from 4.32% to 4.26%.
According to CME Group’s FedWatch tool, markets are currently pricing in an 86.3% probability of a September rate cut. Expectations for additional cuts extend into next year, with a 32% chance that rates could be nearly 1% lower by April 2026.
The recent decline in yields reflects investor positioning ahead of potential September cuts, while the brief rebound earlier in the week highlights ongoing uncertainty around inflation and corporate earnings. As we noted recently, bonds are making a comeback as part of a broader portfolio construction, but investors may benefit from carefully timing their purchases.
Gold
Gold received a modest bump on the heels of Powell’s statements and overall dovish tone. Spot gold settled at $3,371.86 per ounce on Friday, its highest level in about two weeks. Despite trading near recent highs, gold remains stuck in a roughly 12% sideways range but is still up over 30% year to date.
According to Kitco, some economists believe gold’s upside may be capped if future rate cuts do not materialize or if volatility remains subdued. Jeffrey Roach, chief economist at LPL Financial, noted this risk. Meanwhile, Chantelle Schieven, head of research at Capitalight Research, said, “What will get the gold market excited is a change in tone towards more future rate cuts.”
FPI is the subadvisor to the only U.S. gold mutual fund, The Gold Bullion Strategy Fund (QGLDX). Launched in 2013, the fund is designed to track the daily price changes in the precious metal and provide more tax efficiency than its ETF counterpart, GLD.
The indicators
The QFC S&P Pattern Recognition strategy started the week 160% long, increased to 180% on Wednesday’s close, and then moved to 200% on Thursday, where it finished the week. Our QFC Political Seasonality Index started the week in its risk-on posture and remained there 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 advantage these strategies offer investors is their ability to adapt to changing market environments—participating during uptrends and moving to a defensive posture during downtrends.
The Volatility Adjusted NASDAQ (VAN) strategy started the week 100% long, moved to 120% long on Monday’s close, increased to 160% long on Wednesday, and scaled back to 140% on Friday. The Systematic Advantage (SA) strategy maintained a 90% long position throughout the week. The QFC Self-adjusting Trend Following (QSTF) remained 200% long throughout the week. These strategies can employ leverage, so their exposure may exceed 100%.
Our Classic model was fully “risk-on” all week. Most Classic accounts follow a signal that can change exposure within a week, though a few remain on platforms requiring up to a month to adjust to new signals.
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 Rising reading, which favors gold over stocks and then bonds from an annualized return standpoint. The combination has occurred 27% of the time since 2003. It is a stage of relatively low risk across the asset classes.