Market insights and analysis

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

2nd Quarter | 2023

Quarterly recap



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

By Jason Teed

The major U.S. stock market indexes rose slightly last week after experiencing significant declines. The Russell 2000 was the best performer, rising 2.25%. The NASDAQ Composite was the worst performer, increasing by 0.73%. The S&P 500 gained 1.51% as the market found some relief from heavy selling. The 10-year Treasury bond yield rose 5 basis points to 3.88%, continuing a run-up that began on August 1. Spot gold closed the week at $1,694.82, up 2.06%.

Seven out of 11 sectors were up for the week. Risk-on/risk-off sector response was mixed. Energy gained the most, up an astonishing 13.9% on recent news from OPEC. Real Estate lost the most, falling 4.15%.


The markets continue to operate in a “bad news is good, and good news is bad” mode as economic reports are released. Any news that the economy is strong has invariably been sending stocks down, as it indicates that the Federal Reserve will need to continue its aggressive approach to interest rates to lower inflation.

We’ve seen the flip side of this in the past when the Fed was expected to intervene to support the economy in the years following the financial crisis. This became known as the “Fed put.” Now, expectations are that the Fed will need to intentionally slow our economy and thereby reduce corporate returns, which sends share prices lower.

The fourth quarter started strong after a brutal ending to the third quarter. The gains made during the third-quarter’s bull-market rally (about 14%) were completely wiped out by the end of the quarter. The new quarter brought a brief relief rally, but those gains were all but eliminated a few days later.

The “bad news” that killed the rally on Friday was a stronger-than-expected jobs report. New jobs came in at 263,000, higher than the expected 255,000. While these numbers have been declining over the last year or so, they are still strong relative to pre-COVID periods and indicate that the Fed has further to go in slowing down the economy.

Corporations have another headwind besides the increasing cost of borrowing. Fed rate increases have been outpacing those of other central banks, leading to a strong U.S. dollar. A strong dollar usually makes it more difficult for companies to sell their goods internationally. That’s because goods priced in other currencies become relatively more expensive.

The relationship between a strong dollar and the stock market is not as direct as it is with individual companies. Over the short term, a strong dollar can lead to outsized market returns. But over the long term, a strong dollar hurts the performance of the equity markets as a whole. Market participants will be taking this into account as they price various companies. This will likely impact forward guidance for many companies, adding another headwind for U.S. equities.

OPEC’s decision last week to cut oil production by 2 million barrels per day, half the amount that was expected, may also affect market performance. This news came despite U.S. pressure to refrain from cutting production after sanctions on Russia have reduced oil supply to developed nations.

Production cuts are often employed to reduce or stop declines in the price of oil. Oil prices had reached about as high as they were before the Russia-Ukraine conflict. The timing and size of the production cut are likely part of long-term friction between developed countries and OPEC, as the world plans a long-term transition away from fossil fuels that subsidize government spending in OPEC countries.

The cut in oil production will likely boost oil prices. This has led to increased inflation across the board, as the cost of transporting materials and goods remains elevated.

Despite this, some data suggests that the Fed may still be able to engineer a soft landing despite the need to keep raising rates. The Fed has been front-loading rate increases, hoping that they may be able to buy themselves some wiggle room as the economy begins to slow. Additionally, the three-month and 10-year rates (a key ratio when looking at yield-curve inversions) remain normal, suggesting that if there is a recession, it may not be as deep as some investors have feared.

Regardless, there is likely still some pain ahead for equities, and the bottom in the market may not be reached for a few more months. Until then, caution is advised, though some forms of active management will have opportunities for growth.


Treasury yields were up for the week. Shorter-term yields rose faster than those at longer maturities, which has been the trend we’ve seen for many weeks.

The two-year/10-year yield curve is deeply inverted. The yield curve has not been this inverted since the early 2000s. The term yield rose 2 basis points, and credit spreads fell about 10 basis points. Both spread changes signal increased expectations for future economic performance. Overall, long-term Treasurys underperformed high-yield bonds, and longer-term bonds underperformed shorter-term bonds.

The Federal Reserve has continued to communicate that it will do whatever it takes to mitigate inflation and that it doesn’t intend to slow interest-rate increases until it does.


Spot gold was up 2.06% for the week, coming off recent new lows for the year. This is likely to be a short-term movement, as the fundamentals of gold prices have not changed materially.

As long as the Federal Reserve continues to pursue an aggressive policy toward inflation, gold will face the headwind of a strong U.S. dollar (higher interest rates elevate the value of the dollar). Typically, gold behaves as a safe-haven asset as equities fall; however, the strength of the dollar has made gold less effective in this role. This has left investors with fewer options for portfolio protection. Other non-currency safe-haven assets, such as long-term Treasurys, were also down for the week.

Flexible Plan Investments is the subadvisor to the only U.S. gold mutual fund, The Gold Bullion Strategy Fund (QGLDX), designed at its introduction nine years ago to track the daily price changes in the precious metal.

The indicators

Our Political Seasonality Index was fully invested last 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 was very active last week. It started the week 0.7X long, changed to short positions on Tuesday’s and Wednesday’s closes, went long again on Thursday, and finished the week at 1.5X long on Friday’s close.

Our intermediate-term tactical strategies are mixed in exposure. The Volatility Adjusted NASDAQ (VAN) began last week with a 20% inverse exposure to the markets, changing to 40% inverse on Wednesday’s close, and remaining there for the rest of the week. The Systematic Advantage (SA) strategy was also very active for the week, trading each day. It gave heaviest weights to Monday and Wednesday, and pulled back exposure to only 30% at Friday’s close to begin this week. Our QFC Self-adjusting Trend Following (QSTF) strategy was -1X exposed for the week. VAN, SA, and QSTF can all employ leverage—hence the investment positions may at times be more than 100%.

Our Classic strategy was out of the market for the week. The strategy can trade as frequently as weekly.

Many of our strategies remain relatively underexposed to the market, as the markets continue to move downward. Volatility remains high and overall market direction has been down year to date. Market professionals expect additional downside volatility.

Flexible Plan’s Growth and Inflation measure, one of our Market Regime Indicators, shows that we remain in the Stagflation economic environment stage (meaning a positive monthly change in the inflation rate and negative quarterly GDP reading). The environment has occurred only 9% of the time since 2003 and has been a positive regime state for gold and bonds, while equities tend to fall. Gold tends to significantly outpace both stocks and bonds on an annualized return basis in this environment, with a lower risk of drawdown than equities. From a risk-adjusted perspective, Stagflation is one of the best stages for gold.

Our S&P volatility regime is registering a High and Rising reading, which favors equities over gold and then bonds from an annualized return standpoint. The combination has occurred 23% of the time since 2000. It is a stage of lower returns and higher volatility for all three major asset classes.

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