Current market environment performance of dynamic, risk-managed investment solutions.
By Daniel Poppe
Market snapshot
• Stocks: Stocks were up last week.
• Bonds: The 10-year Treasury yield rose last week.
• Gold: Spot gold rose last week, closing above $2,600 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 Falling, which favors gold over bonds and then stocks.
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The major U.S. stock market indexes moved higher last week. The Russell 2000 returned 2.10%, the Dow returned 1.67%, the NASDAQ Composite returned 1.51%, and the S&P 500 returned 1.39%. The 10-year Treasury bond yield rose from 3.66% to 3.73%. Spot gold closed the week up 1.71%.
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
The SPDR S&P 500 ETF (SPY), which tracks the performance of the S&P 500, finished the week above both its 50-day and 200-day moving averages.
Stocks rose last week following the Federal Reserve’s interest rate cut. On September 18, the Federal Open Market Committee (FOMC) announced a 50-basis-point decrease in the target federal funds range. This is the first rate cut since March 2020, when the FOMC lowered rates in response to the COVID-19 pandemic.
The rate cut ends the hiking campaign that ran from March 2022 to July 2023, during which the federal funds rate increased by 525 basis points to combat high inflation. The rate of inflation fell significantly during the hiking cycle, peaking at 9.06% year over year in June 2022 and falling to 2.53% as of August 2024.
With inflation near the Fed’s 2% target, the central bank has shifted its focus from raising rates to cool inflation to cutting rates to keep unemployment low and avoid a recession.
The market expects more rate cuts to come. According to CME Group’s Fed Watch Tool, market participants are conveying about a 50-50 probability of either a 50-basis-point cut or a 25-basis-point cut at the next meeting in November.
The market anticipates a greater than even chance of at least 200 basis points in rate cuts over the next year, which is a significant decrease. The Fed will continue to monitor inflation and unemployment trends to determine future rate adjustments.
Bonds
The iShares 7-10 Year Treasury Bond ETF (IEF), which tracks intermediate-term Treasury bonds, finished last week above both its 50-day and 200-day moving averages.
Despite the cut to the federal funds rate last week, yields on longer-term Treasurys rose for the week. Supply and demand for longer-term bonds is driven by more than the current federal funds rate. Yields may have risen because market participants did not think the Fed’s outlook on future monetary actions was dovish enough.
Gold
The SPDR Gold Shares ETF (GLD), which tracks the price of gold, finished the week above both its 50-day and 200-day moving averages.
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 11 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 90% exposure to the S&P 500, changed to 80% net long exposure on Monday, decreased to 70% net long on Tuesday, and reduced to 50% net short on Thursday.
Our QFC Political Seasonality Index strategy was defensive 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.)
The Volatility Adjusted NASDAQ strategy started the week 20% net long to the NASDAQ 100, decreased exposure to 0% on Monday, increased it to 40% net long on Wednesday, and adjusted it down to 20% net long on Friday.
The Systematic Advantage strategy held a 120% allocation to the S&P 500 throughout the week.
Our QFC Self-Adjusting Trend Following Strategy’s primary signal was 200% net long the NASDAQ 100 throughout the week.
The Volatility Adjusted NASDAQ, Systematic Advantage, QFC Self-Adjusting Trend Following, and 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 Falling reading, which favors gold over bonds and then stocks from an annualized return standpoint. The combination has occurred 13% of the time since 2003. It is a stage of higher returns and lower volatility for bonds relative to the other volatility regimes.