Current market environment performance of dynamic, risk-managed investment solutions.
By Daniel Poppe
Market snapshot
• Stocks: The major U.S. stock market indexes were higher last week. The Dow gained 1.56%, the S&P 500 rose 1.71%, the NASDAQ Composite advanced 2.14%, and the Russell 2000 added 2.41%.
• Bonds: The 10-year Treasury bond yield fell from 4.05% to 4.02% last week.
• Gold: Spot gold rose 3.37% for the week, closing above $4,200 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 Rising, which favors stocks over gold and then bonds.
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Stocks
The SPDR S&P 500 ETF (SPY), which tracks the performance of the S&P 500, finished the week above both its 50-day and 200-day moving averages.
Stocks finished last week slightly off their highs for the year. Investors are still waiting for most companies to report third-quarter earnings, with expectations running fairly high. The federal government has now been shut down for nearly three weeks, making it one of the longest shutdowns on record. So far, business has mainly continued as usual, with no meaningful impact on the market.
According to FactSet’s Earnings Insight report from October 17, of the 12% of S&P 500 companies that have reported third-quarter results so far, most have exceeded expectations for both revenue and earnings. The blended earnings growth rate is in the high single digits. Valuations remain above historical averages, reflecting investors’ optimism about continued corporate growth.
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 hit new highs for the year last week. The move may reflect investors shifting toward a less risky asset class while equity valuations remain elevated and earnings results play out. Despite the ongoing government shutdown, the Federal Reserve is expected to meet at the end of October. However, limited new economic data could leave the committee with less guidance.
According to CME Group’s FedWatch tool, markets almost unanimously anticipate a 25-basis-point rate cut at the upcoming meeting. Weaker jobs data is expected to weigh more heavily on the decision than inflation concerns or potential price shocks from tariffs.
Gold
The SPDR Gold Shares ETF (GLD), which tracks the price of gold, finished the week 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). Launched in 2013, the fund is designed 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 the week with a 60% net long exposure to the S&P 500. Exposure increased to 120% net long on Monday, decreased to 90% net long on Tuesday, rose to 100% net long on Wednesday, fell to 90% net long on Thursday, and returned to 100% net long on Friday.
Our QFC Political Seasonality Index strategy was aggressive throughout the week. (Our QFC Political Seasonality Index—with all of the daily signals—is available post-login in our Weekly Performance Report section under the Domestic Tactical Equity category.)
The Volatility Adjusted NASDAQ strategy started the week with a 200% net long exposure to the NASDAQ 100, which decreased to 120% net long on Monday and 100% net long on Tuesday.
The Systematic Advantage strategy started the week with a 90% net long exposure to the S&P 500, reduced exposure to 60% net long on Monday, and returned to 90% net long on Tuesday.
Our QFC Self-adjusting Trend Following strategy’s primary signal began the week with 0% exposure to NASDAQ 100. Exposure increased to 160% net long on Monday, dropped to 0% on Tuesday, and rose again to 160% on Wednesday.
The Volatility Adjusted NASDAQ, Systematic Advantage, QFC Self-adjusting Trend Following, and QFC S&P Pattern Recognition strategies can all employ leverage, so their investment positions may at times exceed 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 stocks over gold and then bonds from an annualized return standpoint. The combination has occurred 23% of the time since 2003. It is a stage of high risk for stocks and gold.