Market insights and analysis

How dynamic, risk-managed investment solutions are performing in the current market environment

4th Quarter | 2023

Quarterly recap



Current market environment performance of dynamic, risk-managed investment solutions.

By Will Hubbard

Market snapshot

• Stocks: 2024 should be a good year for the U.S. stock market if historical seasonal trends hold up.

•  Bonds: Bond yields have come down in recent weeks and could decline further if the Federal Reserve cuts interest rates over 2024.

•  Gold: Gold closed at unadjusted all-time highs. Adjusted for inflation, gold has room to move higher.

•  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 Low and Falling, which favors stocks over gold and then bonds.


The major U.S. stock indexes posted mixed performance last week. The Dow Jones Industrial Average was up 0.81%, the S&P 500 Index gained 0.32%, the NASDAQ increased by 0.12%, and the Russell 2000 small-cap index declined by 0.34%. Gold rose 0.48%, marking an all-time year-end high for the commodity. The U.S. 10-year Treasury lost 2 basis points, closing at 3.88%.

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.


The market was fairly subdued during the holiday-shortened week. The S&P 500, NASDAQ, and Dow Jones Industrial Average posted gains for the week, while the Russell 2000 experienced a small loss.

During the slow week, there was less economic news than usual, with only key reports on unemployment claims and pending home sales being released.

Unemployment claims ticked up slightly to 218,000, higher than the expected 211,000. However, claims are still below levels seen in the summer of 2023. Experts are closely monitoring the employment situation to see if the Federal Reserve can achieve a soft landing. The expectation is that a small rise in unemployment could sufficiently reduce demand enough to lower the current inflation rate closer to the Fed’s 2% target.

The concept of a “soft landing” is somewhat unclear because there isn’t a definitive definition of what that is. Yet Fed Chairman Powell often mentions it during his press conferences. If a soft landing is the ideal result of tightening monetary policy without causing inflation or deflation, then it’s a delicate balance to maintain. It also hasn’t been quantified. The National Bureau of Economic Research is the organization that determines if the U.S. is in a recession, but it does not provide definitions for either a hard or soft landing.

Pending home sales in December showed no month-over-month change, defying expectations of a 0.8% increase. Pending home sales, which are homes under contract, typically lead existing home sales. This lack of movement isn’t surprising given the holiday season. However, Realtors were expecting more, given that mortgage rates had dropped from their highest levels since 2001.

As President Biden’s first term enters its fourth year, the typical political seasonality effects are evident. Analyzing the S&P 500’s performance over four-year presidential cycles shows that Biden’s term aligns closely with historical averages, with one main exception: higher-than-usual volatility. However, this doesn’t detract from the overall trend alignment. Historically, in the final year of a four-year presidential cycle, the S&P has been up 73.9% of the time since 1928, with a median return of 9.54%.

As we move into 2024, it’s important to remember that there will be plenty of information—both positive and negative—to digest. Investors should be vigilant and note changes in market sentiment. Negative outlooks don’t necessarily lead to poor outcomes if the market doesn’t reflect them. Likewise, positive predictions based on historical trends may not always materialize. It’s important to follow the current trend and adjust only when data indicates a significant shift. Additionally, regularly assessing your approach to risk management is essential.


The yield on the 10-year Treasury dropped 2 basis points from 3.9% to 3.88%. The 10-year yield continues to decline as the market works to reprice the Fed’s moves around interest rates. Fed Chairman Powell’s recent shifts in language have caused some experts to begin forecasting interest rate decreases in 2024.

Of the 19 Fed policymakers, 17 see rates declining by the end of 2024 with expectations of rates being cut by 0.75%. Fed Chairman Powell said in a recent press conference, “We are seeing … strong growth that ... appears to be moderating; we’re seeing a labor market that is coming back into balance by so many measures; and we’re seeing inflation making real progress.” He later added, “No one is declaring victory. That would be premature. ... But, of course, … the question of when will it become appropriate to begin dialing back the amount of policy restraint in place, … that begins to come into view and is clearly a … topic of discussion out in the world and also a discussion for us at our meeting today.”

The time to dial back appears to be 2024, as investors’ outlook on Fed rate cuts appears to be becoming more dramatic in recent months.

If the expectations set in mid-December hold, bonds are poised to see an increase in value. But these are merely forecasts. Investors who shifted their money from stocks and other bonds to money markets to capitalize on their historically high yields may want to approach this strategy with caution. While rates might stay above 5%, a decrease would quickly negate many of the benefits of that strategy due to the short-term nature of money-market mutual funds. As part of your risk-management strategy, it’s important to plan how you might re-enter the market for longer-term securities—whether those are equities or fixed income.


In 2023, gold returned 13.1%, ending the year at $2,062.98 per ounce. This marked its best performance in three years and was the first time it ended the year above $2,000 per ounce. After 2020, gold struggled due to a strengthening U.S. dollar, despite ongoing high inflation and supply-chain shortages.

Notably, the inflation-adjusted price of gold is still not at the all-time highs seen in 1980 and is actually lower than where it was in September 2020. As we’ve discussed in the Market Update over the last two years, gold and the U.S. dollar have shown a strong inverse relationship. That relationship has kept gold’s returns relatively subdued in the current inflationary environment. If the dollar weakens or stalls, it will be interesting to see how gold performs and whether it can challenge its historical, inflation-adjusted all-time high.

Flexible Plan Investments is the subadviser to the only U.S. gold mutual fund, The Gold Bullion Strategy Fund (QGLDX), designed at its introduction 10 years ago to track the daily price changes in the precious metal in a more tax-efficient manner than its ETF counterpart, GLD.

The indicators

The very short-term-oriented QFC S&P Pattern Recognition strategy started last week 30% short, moved to 40% short on Tuesday’s close, moved to 50% short on Wednesday’s close, moved to 100% on Thursday’s close, and closed out Friday at 120% short. Our QFC Political Seasonality Index started the week in its risk-on posture, where it remained for 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 advantages these strategies offer to investors are their ability to adapt to changing market environments, participate during uptrends, and adjust exposure to more defensive posturing during downtrends.

The Volatility Adjusted NASDAQ (VAN) strategy started the week 120% long, increased exposure to 140% long on Thursday’s close, and remained there for the rest of the week. The Systematic Advantage (SA) strategy started the week 120% long and reduced exposure to 60% long on Friday’s close. Our QFC Self-adjusting Trend Following (QSTF) strategy was 200% long all week. VAN, SA, and QSTF can all employ leverage—hence the investment positions may at times be more than 100%.

Our Classic model was long risk-on positioning all 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 more restrictive platforms and can take up to one month to generate a new signal.

Flexible Plan’s Growth and Inflation measure, one of our Market Regime Indicators, shows markets are in a Normal economic environment stage (meaning inflation is falling and GDP is growing). 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. From a risk-adjusted perspective, Normal is one of the best stages for stocks, with limited downside.

The S&P volatility regime is registering a Low and Falling reading. From an annualized return standpoint, low and falling volatility favors stocks over gold, and gold over bonds. The combination has occurred 37% of the time since 2003. Typically, this stage is associated with higher returns and less volatility from equities and bonds.

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