Current market environment performance of dynamic, risk-managed investment solutions.
By Will Hubbard
In today’s financial landscape, identifying clear market trends has become increasingly challenging. The recent performance of the “Magnificent Seven” stocks—Apple, Microsoft, Alphabet (Google), Amazon, Nvidia, Tesla, and Meta (Facebook)—illustrates this complexity. Once dominant, these former market leaders have seen steep declines this year. Combined with political tensions and policy debates, such as those around tariffs, this environment has left many investors struggling to find direction.
Market shifts and the challenge of finding stable trends
The current market presents a fragmented picture of performance across different sectors. So far this year, momentum-value, large-cap-value, low-volatility, and high-dividend-yield factors have performed relatively well. Meanwhile, mid-cap and large-cap growth stocks—which represent the largest portion of the market by capitalization—have struggled. Large-cap growth stocks are down 2.5% relative to the S&P 500, with tech giants showing notable weakness: Nvidia is down 15%, Apple has declined 5%, and Tesla is approaching a 30% loss.
These rapid shifts between market segments create significant challenges for trend followers and systematic managers. When market leadership rotates quickly, it becomes harder to identify and capitalize on trends before they change again. The ongoing shift of assets is why true diversification is more important than ever.
Diversification beyond traditional asset classes
While owning a mix of domestic and international equities can provide some diversification benefits, true portfolio resilience comes from owning fundamentally different asset classes—investments driven by different economic factors and that exhibit their own trading patterns.
A well-diversified portfolio should go beyond stocks and bonds to include hard and soft commodities such as gold, copper, palladium, platinum, corn, wheat, cocoa, and coffee. Foreign exchange exposure, through currency pairs like EUR/USD or USD/JPY, can further enhance diversification, as these markets respond to different economic drivers than equities.
The primary advantage of this approach is that when equity markets stagnate or decline, other asset classes may still present clear trends. This multi-asset exposure increases the chances of capturing profitable opportunities, regardless of market conditions.
Time horizons and trend analysis
Analyzing market movements across different time frames, the way quantitative investors typically do, helps investors adapt to various market conditions and identify emerging trends. Long-term perspectives, such as a 10-year lookback, tend to capture the equity risk premium—the historical tendency of markets to rise over time. Short-term lookbacks—such as one-, two-, or three-month periods—allow investors to respond more quickly to crisis events and emerging trends.
Our research shows that shorter lookbacks tend to have lower correlations with broad market indexes compared to a one-year lookback. Yet, they maintain similar Sharpe ratios and have historically reduced drawdowns by approximately 50%.
The 2008–2009 financial crisis provides a compelling example. A strategy using a one-year lookback to switch between being long the S&P 500 or investing in cash via a money-market mutual fund would have moved to cash during most of the crisis (down 12% in 2008, up 2% in 2009). However, it would have missed the initial recovery, remaining in cash for two months after the market bottom.
By contrast, a more dynamic 20-day lookback strategy saw slightly deeper losses in 2008 (down 14%) but captured a 29% gain in 2009, including 9% in April and 5% in May, immediately following the market bottom.
Embracing the benefits of diverse lookbacks to seek out opportunities in various market environments is what allows quantitative investors to manage risk and identify market opportunities.
Preparing for any market outcome
The current market appears to be in transition, but its direction remains unclear. As always, we face three potential scenarios for equities:
Building a diversified portfolio that goes beyond stocks and bonds—while incorporating exposure to multiple time horizons—can help investors ensure they’re prepared for any of these outcomes.
Fortunately, today’s investors have access to tools that weren’t widely available even five years ago:
• Commodity trading advisors (CTAs) that specialize in managing diversified portfolios across futures, commodities, and currencies. (For more on how CTAs work and their role in navigating uncertainty, check out my recent articles: “Will investors make 2025 the year of the CTA?” and “From sticky notes to CTAs: Finding opportunity in the unexpected.”)
• Specialized mutual funds offering exposure to alternative asset classes. (To see how Flexible Plan Investments (FPI) incorporates these strategies into accessible investment solutions, read Jerry Wagner’s piece: “FPI brings Eckhardt’s elite trading strategies to your portfolio.”)
• Replicator ETFs, which aim to deliver hedge-fund-like investment strategies at lower costs.
These options provide efficient access to global markets and allow investors to use this period of market uncertainty as an opportunity to reassess and strengthen their portfolios.
FPI specializes in actively managed, risk-conscious investment solutions designed to help investors adapt to market changes, manage volatility, and capitalize on emerging opportunities. FPI’s approach incorporates diversified asset classes, quantitative strategies, and dynamic risk management to help investors stay on track—no matter where the market goes next.
Don’t wait to find out if your portfolio is built for the road ahead. Talk to your financial adviser about how FPI’s actively managed strategies can help you create a game plan.