Market insights and analysis

By Will Hubbard

Market snapshot

•  Stocks: The major indexes hit multiple record highs last week. The S&P 500 gained 1.60%, the NASDAQ advanced 2.05%, the Dow Jones Industrial Average rose 0.97%, and the Russell 2000 small-cap index added 0.27%.

•  Bonds: Treasury yields fell last week, with the 10-year dropping to 4.07% as softer labor and inflation data fueled expectations of a Fed rate cut.

•  Gold: Gold prices rose 1.57% last week, closing at $3,643.14 per ounce.

•  Market indicators and outlook: Strategy positioning was bullish. Many of our tactical strategies that use leverage were invested over 100% for the week. The economic environment is classified as Normal, favoring gold and stocks from a return perspective. Volatility is Low and Falling, a regime historically favorable for stocks over other asset classes.

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

Markets had a strong week, with major indexes reaching record highs as the Federal Reserve continued to reinforce its case for cutting rates.

The rally peaked on Thursday when the S&P 500, Dow Jones Industrial Average, and NASDAQ hit new all-time highs, boosted by softer-than-expected inflation data.

Much of the move came from technology leadership. Oracle posted impressive earnings, and its stock jumped 36% in a single day—its best performance since 1992. Investors then continued to move into AI-related names such as Nvidia and AMD.

The surge in equities pushed the S&P 500 into overbought territory, climbing more than two standard deviations above its 50-day moving average. According to Bespoke Investment Group, when markets reach extreme overbought levels following a strong three-month period, forward market returns tend to be strong. Since 1929, the one-year forward returns under similar conditions have averaged nearly 36%.

On the economic front, the consumer price index rose 0.4% in August on a seasonally adjusted basis, following a 0.2% increase in July. Year over year, the index was up 2.9%, slightly hotter than expected, suggesting that both the economy and demand remain strong. The producer price index fell 0.1% in August, compared with forecasts for a 0.3% rise.

Overall, the stock market continues to reflect economic resilience. Even with moderating inflation pressures and a robust job market, the Fed appears set on lowering rates. This could support spending on big-ticket items that rely on financing and further bolster market momentum. We will continue to monitor incoming data for any shifts in this outlook.

Bonds

Bond markets were responsive last week, with the yield on the 10-year Treasury dropping to 4.07%. Softer labor market data and inflation readings contributed to the decline in yields.

The week’s inflation data, especially the producer price index report, gave the clearest signal yet that the Fed will likely cut rates at its upcoming meeting. The index fell 0.1% in August, versus expectations for a 0.3% increase. According to the CME FedWatch tool, markets are now pricing in a 96% probability of a 25-basis-point cut and a 4% chance of a 50-basis-point cut. One month ago, 14.6% of investors expected no cut; today, no one does.

For fixed-income investors, the current environment presents both opportunities and challenges. Longer-duration bonds may look attractive if rates decline, locking in today’s yields. On the other hand, lower yields would reduce the income benefits of bonds and increase reinvestment risk for future investors.

Gold

Gold rose 1.57% last week, closing at $3,643.14 per ounce.

The Fed’s dovish stance has helped fuel gold’s recent climb, supported by moderating inflation and weakening jobs data. Geopolitical tensions and longer-term uncertainty about the global economy may also be adding tailwinds. Still, the main theme is that investors are looking for ways to protect their purchasing power. Year to date, gold ranks among the best-performing asset classes, behind only silver and a few international equity markets, including Spain, Mexico, and Italy.

Flexible Plan Investments 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 140% long, decreased to 10% long on Wednesday, moved to cash on Thursday’s close, and finished the week there. Our QFC Political Seasonality Index remained in its risk-off 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 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 140% long, increased exposure to 160% long on Monday’s close, then to 180% on Tuesday’s close. On Wednesday, it reached a fully invested position of 200% long. On Friday, it reduced exposure back to 180% long to close the week. The Systematic Advantage (SA) strategy held a 90% long position in the S&P 500 throughout the week. Our QFC Self-adjusting Trend Following (QSTF) strategy held steady at 200% long for 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 Falling reading, which favors stocks over gold and bonds from an annualized return standpoint. The Low and Falling combination has occurred 37% of the time since 2003.