Market insights and analysis

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

1st Quarter | 2024

Quarterly recap



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

Market Update 2/13/23

By Jason Teed

The market fell across different sectors and market capitalizations last week. The Dow Jones Industrial Average, the leader for the week, was down 0.17%. In the middle of the pack, the tech-heavy NASDAQ Composite fell 2.41%, and the S&P 500 lost 1.11%. Small-cap stocks experienced the steepest decline with the Russell 2000 falling 3.36%.

Ten of the 11 sectors were down last week. Energy was the only sector with positive performance; it gained 5.03%, rising along with the price of oil. Communication Services was the worst performer; it fell 6.59%, reversing some of the run-up it has experienced since the beginning of the year.


Last week’s market movements were largely driven by the strong jobs report for January. Nonfarm payrolls increased by over 500,000, much higher than the 187,000 that was expected, and unemployment fell to its lowest rate since 1967.

This caused the bond markets to rapidly reassess the maximum interest rate the Federal Reserve is expected to use to fight inflation. Despite headlines regarding layoffs in the tech sector, the labor market continues to remain extremely robust, which is likely to keep aggregate demand somewhat higher. This makes the Fed’s task of taming inflation more difficult. However, jobs tend to be a lagging indicator, and other leading indicators are suggesting that inflation may be slowing.

Headline inflation has fallen for the last six months, and some economists are projecting an inflation rate of about 4% by the end of the year. Economists largely expect that trend to continue for Tuesday’s report.

But some factors suggest that inflation’s path downward might not be linear. Gas prices rose about 9% in January. Typically, these numbers work their way into core inflation as a trickle-down effect. Historically, there is about a 0.33 correlation between gas prices and the consumer price index (CPI) reading, so if the CPI reading for January doesn’t decline as much as in previous months due to the rise in gas prices, it wouldn’t be unexpected.

Despite these possible bumps in the road, it is clear that the Fed’s policy is having the desired effect. The market is only trying to determine exactly how long and how high rates will need to be elevated.

These increased interest rates will continue to have an impact on corporate earnings, which have been declining. Earnings for the fourth quarter of 2022 are expected to fall about 5% year over year, which is the first negative earnings growth since 2020. Forecasts call for more of the same: The next three quarters are projected to have negative growth on an annualized basis.

Despite this, the market appears to be looking for an excuse to be optimistic. Much of the falling earnings have not been priced into the market. Whether the Fed can engineer a “soft landing” (taming inflation without sparking a recession) remains to be seen, but the market appears to believe it’s still possible.

Going forward, any surprises in market trends (e.g., unemployment, retail sales, or inflation) will likely have an outsized impact on market performance and volatility. Many economists are suggesting that the recent market rally may be testing highs for 2023. Regardless, the probably upcoming recession will likely not be as precipitous as the one we experienced in 2008, and it may represent significant opportunities for market entry for those who have been sitting on the sidelines.


Treasury yields broadly rose for the week. Maturities in the 5-to-7-year range rose the most, and shorter-term maturities rose the least. This suggests that the market expects interest rates to rise and remain more elevated in the intermediate term than recently expected, although they are expected to peak sometime this year.

This week’s market movements lessened the inversion of the yield curve, and credit spreads fell by 16 basis points. Both of these suggest optimism from the bond markets relative to the previous week. Overall, long-term Treasurys underperformed high-yield bonds (though both were down significantly), and longer-term bonds underperformed shorter-term bonds.


Spot gold rose 0.03% for the week after falling significantly the previous week. The metal has risen nearly 15% since its bottom near the end of September last year but has fallen 4.4% since its recent high on February 1.

The metal had recently been enjoying some tailwinds: Inflationary pressures seemed to have subsided a bit, and economic indicators suggested that the economy was slowing. Then came an unexpectedly strong jobs report, which suggested that the Fed’s fight against inflation may not be over. This led to a sell-off in gold, which was not entirely unexpected given its swift run-up. Some investors were likely looking for an excuse to take some money off the table.

Non-currency safe-haven assets, such as long-term Treasurys, were down for the week, as longer-term rates rose for the period. Last year’s higher-than-average correlation among bonds, equities, and gold has continued into this year, making both active and passive investing a challenge.

Flexible Plan Investments (FPI) 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 began last week out of the market but entered on Thursday’s (2/9) close. (Our QFC Political Seasonality Index is available post-login in our Weekly Performance Report section under the Domestic Tactical Equity category.) The very short-term-oriented QFC S&P Pattern Recognition strategy’s equity exposure began the week 0.8X short. It changed to 0.7X long on Monday’s close, 0.6X long on Tuesday’s close, 0.7X long on Thursday’s close, and 1.4X long on Friday’s close. The strategy has been much more active lately than in the earlier parts of 2022.

Our intermediate-term tactical strategies are mixed in exposure. The Volatility Adjusted NASDAQ (VAN) strategy began the week 20% short, changing to 40% short on Thursday’s close. The Systematic Advantage (SA) strategy began the week 120% exposed to the market. It changed to 30% exposed on Monday’s close, 90% on Wednesday’s close, 60% on Thursday’s close, and 30% on Friday’s close. Our QFC Self-adjusting Trend Following (QSTF) strategy was 1X long 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 fully invested for the week. The strategy can trade as frequently as weekly.

Flexible Plan’s Growth and Inflation measure, one of our Market Regime Indicators, currently indicates a Normal economic environment stage (meaning a positive monthly change in the inflation rate and positive quarterly GDP reading). Historically, a Normal environment has occurred 60% of the time since 2003 and has been a positive regime state for equities, gold, and bonds. Gold tends to outpace both stocks and bonds on an annualized return basis in a Normal environment, albeit with higher risk.

Our S&P volatility regime is registering a High and Falling reading, which favors gold over bonds and then equities from an annualized return standpoint. The combination has occurred 13% of the time since 2000. It is a stage of relatively high returns and lower volatility for the three major asset classes.

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