Current market environment performance of dynamic, risk-managed investment solutions.
By Daniel Poppe
Market snapshot
• Stocks: Stocks fell significantly last week.
• Bonds: The 10-year Treasury yield fell last week.
• Gold: Spot gold fell last week, closing just below $2,500 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.
***
The major U.S. stock market indexes fell significantly last week. The Dow Jones Industrial Average returned -2.90%, the S&P 500 returned -4.22%, the Russell 2000 returned -5.67%, and the NASDAQ Composite returned -5.75%. The 10-year Treasury bond yield fell from 3.91% to 3.72%. Spot gold closed the week down 0.24%.
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 its 200-day moving average but below its 50-day moving average.
The stock market has experienced a very rough start to what has historically been its worst month. After showing solid gains for the year, the market gave back a decent chunk of those returns during the first week of September.
This pullback occurred despite expectations for an expansionary shift in monetary policy at this month’s Federal Open Market Committee (FOMC) meeting. Markets anticipate a decrease in the federal funds target rate by at least 25 basis points, with a 50-basis-point cut possible. Lower interest rates could reduce the cost of capital for businesses.
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.
Bonds have continued to rally as yields have fallen in response to expectations for a more dovish Federal Reserve. Investors may be rotating out of stocks and into bonds as inflation falls, unemployment rises, and election uncertainty looms. Bonds are typically seen as safer investments than equities in such environments.
Gold
The SPDR Gold Shares ETF (GLD), which tracks the price of gold, is near its 52-week high and 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 20% exposure to the S&P 500. Exposure increased to a 50% net long on Tuesday, returned to 20% net long on Wednesday, and rose to 30% net long on Friday.
Our QFC Political Seasonality Index strategy remained 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 120% net long to the NASDAQ 100. It reduced exposure to 100% net long on Tuesday and further to 60% net long on Wednesday.
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 at the beginning of the week. It lowered exposure to 160% net long on Wednesday and to 0% on Thursday.
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 Rising 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 high risk for equities.