By Jason Teed The markets were up last week as we closed out the first quarter of the year. The tech-dominated NASDAQ Composite gained 2.60%, the Russell 2000 was up 1.49%, the S&P 500 gained 1.41%, and the Dow Jones Industrial Average rose 0.24%. The 10-year Treasury bond yield rose 5 basis points to 1.72%, though bonds as an asset class were largely up for the week. Spot gold closed at $1,728.87 for the week, down 0.19%. All major sectors were up for the quarter, though the spread between best- and worst-performing sectors was quite large. Stocks The equity markets kept climbing last week as the S&P 500 Index continues to reach toward all-time highs. During the shortened trading week, the ISM manufacturing purchasing manager’s index (PMI)—considered a key indicator of the state of the U.S. economy—beat its forecast and posted its highest readout since 1983, according to DailyFX . Manufacturing strength was not limited to the U.S. Many countries enjoyed rising manufacturing PMI numbers, though the largest gains occurred within the eurozone. The recent run-up in stocks is also not due to any type of valuation bubble behavior. When stocks change value in aggregate, they do so either because their earnings multiples have changed (investors are willing to pay more or less for a given level of earnings) or the companies’ earnings have grown or declined. In the following chart, it’s clear that since the start of the pandemic, corporate earnings have been the major driver of stock returns while multiples have remained relatively unchanged. In essence, this is organic stock growth based on the improving fundamentals of the underlying companies. These trends are likely to continue as Operation Warp Speed vaccination efforts accelerate. Within the U.S., over 100 million people have received at least one dose of the vaccine, and we’re currently averaging over 3 million doses given per day, according to data compiled by the Centers for Disease Control and Prevention . It’s also the goal to make the vaccine available to any adult nationwide in May. All of this is likely to spur a lot of pent-up demand for consumer services and products that have not been available during the pandemic. While prices remain high amid expectations of an economic recovery, continued good news suggests that the market may have a little bit more room to grow. There is concern that international markets that have been slow to implement a vaccine rollout may suffer in the near term as additional waves of the pandemic occur globally. Bonds Treasury yields increased once again, finishing the week up 5 points on the 10-year Treasury, ending at 1.72%. Yields have been rapidly increasing this year, though they are still relatively low in historical terms. Credit spreads rose for the week and term spreads decreased as shorter-term interest rates rose and longer-term yields fell, both indicating a pause in recent bond action. Overall, long-term Treasurys outperformed high-yield bonds, and longer-term bonds outperformed shorter-term bonds. Expectations for the intermediate term are for interest rates to remain relatively low, leading investors to seek yield in other places. This will likely lead investors to bid up the price of high yields and compress the credit spread as the economy continues to recover. Gold Last week, spot gold closed at $1,728.87, down 0.19%. Other safe-haven assets, such as long-term Treasurys, outperformed, primarily due to a pause in increasing interest rates. As interest rates increase, gold becomes less attractive when compared to bonds, which creates selling pressure on the metal. However, last week’s market action may be just “noise,” as the metal’s movements lacked any conviction. Though the Federal Reserve is expected to keep interest rates low in the short term, if inflation begins to rise, many anticipate that the Fed will become more hawkish. The metal rebounded off (but remains close) to this year’s lows. It’s currently down 8.91% for the year. Fundamentals for the asset have not significantly changed recently. Rising interest rates have been overpowering any protective value that gold has in an inflationary market regime. Flexible Plan is the subadvisor to the only U.S. gold mutual fund, The Gold Bullion Strategy Fund (QGLDX) , designed at its introduction over eight years ago to track the daily price changes in the precious metal. The indicators Our Political Seasonality Index started last week out of the equity markets but reentered at Wednesday’s (March 31) close, remaining there to begin this week. (Our QFC Political Seasonality Index is available post-login in our Weekly Performance Report section under the Quantified Fund Credit category.) The very short-term-oriented QFC S&P Pattern Recognition strategy’s equity exposure began the week 1.9X long, moved to 1X long on Thursday’s close, and remained there to begin the week. Our intermediate-term tactical strategies are uniformly positive, although to various degrees. The Volatility Adjusted NASDAQ (VAN) strategy started the week with 100% exposure to the NASDAQ, decreased exposure to 80% for Tuesday, moved back to 100% for the remainder of the week, and is currently 80% long today (April 5). The Systematic Advantage (SA) strategy is 118% exposed to the S&P 500, our Classic strategy is in a fully invested position, and our QFC Self-adjusting Trend Following (QSTF) strategy was 100% exposed ending last week. VAN, SA, and QSTF can all employ leverage—hence the investment positions may at times be more than 100%. Flexible Plan’s Growth and Inflation measure, one of our Market Regime Indicators , shows that we remain in a Normal economic environment stage (meaning a positive monthly change in the inflation rate and positive monthly GDP reading). 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 also carries a substantial risk of a downturn in this stage. From a risk-adjusted perspective, Normal is one of the best stages for stocks, with limited downside. 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 2000. It is a stage of normal returns for all asset classes with higher volatility overall.