By Will Hubbard Market snapshot • The major U.S. stock market indexes had mixed performance last week, reflecting inconsistent economic data and ambiguous trend signals. • Treasury prices continued to fall, causing some of the worst drawdowns in the asset class in decades. • Gold’s value fluctuated due to a volatile dollar and was unable to recover losses it sustained earlier in the week. • 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 equity over gold and then bonds. *** The major U.S. stock indexes had mixed performance last week. The NASDAQ led performance with a 1.60% gain, the S&P 500 advanced 0.48%, the Dow Jones Industrial Average fell 0.30%, and the Russell 2000 small-cap index lost 2.22%. The 10-year Treasury bond yield rose 23 basis points to 4.80%. Spot gold closed the week at $1,833.01, down 0.84%. 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 . Stocks Last week’s economic indicators provided a snapshot of various sectors of the economy. The Manufacturing Purchasing Managers’ Index (PMI) came in at 49, better than the anticipated 47.8. However, readings below 50 indicate a contraction in economic activity. The Services PMI slightly beat forecasts at 53.6, versus a predicted 53.5. Other notable data points from last week included the Job Openings and Labor Turnover Survey (JOLTS), which reported 9.61 million openings, surpassing the expected 8.81 million. ADP released its change in nonfarm payrolls, which showed a gain of 89,000 jobs in September, well below the 154,000 expected. Payroll declines were from large establishments, defined by ADP as those with more than 500 employees. Despite slowing job gains, wage growth remains strong, up 5.9% year over year through September. The official unemployment rate remained at 3.8%, above the forecast of 3.7%. Since February 2022, the unemployment rate has maintained a tight range, peaking at 3.8%. The recent uptick is likely due to an increase in labor force participation , which stands at a post-pandemic high of 62.8%. Before the COVID lockdowns, the labor force participation rate was 63.3%. As the economy relates to equities, cracks appear to be forming under the surface. We’ve reported on the risks related to the large-cap market-weighted indexes and what some of the smaller-cap indexes might be saying. If we look at the current state of equities in terms of “pros and cons,” the S&P 500’s performance over the last year counts as a pro. Bespoke Investment Group points out that the S&P 500 has held the trend line that connects its lows. Additionally, the 50-day moving average is well above the 200-day moving average, and a significant number of stocks are signaling an oversold condition. Currently, 292 companies within the S&P 500 are categorized as oversold, while only 34 are categorized as overbought. Small caps continue to struggle. The market peaked in July, with small-cap stocks, as represented by the Russell 2000, gaining nearly 15%. They’ve since given back almost all of those gains, ending last Friday down by 0.89%. As risk managers, we analyze these signs from different sizes, styles, and geographies to gain an understanding of the global landscape, which informs our investment allocations for any environment. The pros and cons of the equity universe today highlight the lack of consistency within the asset class. Our goal is to create allocations designed to address the risks of overly concentrating in any particular area and opportunistically allocating to emerging trends. Bonds Last week, 10-year Treasury yields increased from 4.57% to 4.80%, a 0.23% rise. Long-term U.S. Treasurys, specifically those with maturity terms greater than 20 years, started the year off strong, gaining 10% by April. However, the Federal Reserve has since indicated its intent to keep rates steady, aiming to curb inflation and ideally guide the economy to a soft landing. Currently, long-term Treasurys, as represented by the iShares 20+ Treasury ETF (TLT), have declined 11.55%, a 20% shift in returns over five months. The market initially expected rates to begin decreasing at the end of 2023 or early 2024, which the current messaging does not support. Dallas Fed President Lorie Logan said, “I expect that continued restrictive financial conditions will be necessary to restore price stability in a sustainable and timely way. I remain attentive to risks on both sides of our mandate. In my view, high inflation remains the most important risk. We cannot allow it to become entrenched or reignite.” Over the last three years, Treasurys have fallen 42%, failing to provide the safety that bond investors seek. Gold Last week, an initial surge in the U.S. dollar (orange line in the following graph) resulted in a 0.84% drop in the price of spot gold (blue line in the following graph). Spot gold prices ended the week at $1,833.01 per ounce. Although the dollar’s strength waned as the week wore on, gold was unable to recover its earlier losses. 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. The indicators The very short-term-oriented QFC S&P Pattern Recognition strategy started last week 10% long. It moved to 20% long on Monday’s close, jumped to 70% long on Wednesday’s close, and scaled back to 50% long on Thursday’s close where it ended the week. Our QFC Political Seasonality Index started the week in its risk-on posture and moved to its defensive posture on Friday’s close. (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 160% long, reduced exposure to 140% long on Wednesday, reduced exposure to 120% on Thursday, and increased exposure to 140% long on Friday’s close. The Systematic Advantage (SA) strategy started the week 90% long, decreased exposure to 30% long on Tuesday’s close, and increased exposure to 90% on Thursday where it closed the week. Our QFC Self-adjusting Trend Following (QSTF) strategy was 100% 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 in a long, risk-on position 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 a positive monthly change in the inflation rate and a 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 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 High and Rising reading. This environment favors equity 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 relatively low returns for all three asset classes.