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.

By Tim Hanna

The major U.S. stock market indexes mostly rose last week. The S&P 500 increased by 0.87%, the Dow Jones Industrial Average gained 0.86%, the NASDAQ Composite was up 1.28%, and the Russell 2000 small-capitalization index lost 1.26%. The 10-year Treasury bond yield fell 15 basis points to 3.42%, taking Treasury bonds higher for the week. Spot gold closed the week at $1,990.00, up 0.35%.


Equity markets were mixed last week. Mega-cap stocks outperformed small-caps and cyclicals. Investors focused on the season’s busiest week of quarterly earnings reports. Last week, 35% of the S&P 500 Index companies released their earnings. These companies, taken together, represent 44% of the Index’s market capitalization. The Index experienced losses early in the week. That changed Thursday (April 27) when gains in four stocks (Microsoft, Apple,, and Meta) accounted for almost half of the gains in the Index. Meta, which jumped 14% on an earnings beat, was the biggest contributor.

On the economic data front, The Conference Board’s Consumer Confidence Index came in at 101.3, less than the 104.1 forecast. Durable goods orders were 3.2% month over month, above expectations of 0.7%. Unemployment claims were 230,000, while consensus expectations were 247,000. Advance GDP was at 1.1% quarter over quarter, below expectations of 2.0%. Pending home sales were -5.2% month over month, lower than the 0.6% forecast. The core personal consumption expenditures (PCE) price index was in line with the forecast of 0.3% month over month. The revised number for the University of Michigan Consumer Sentiment Index was 63.5, in line with expectations.

The S&P 500 Index traded right below yearly highs last week and increased the positive gap with its 50-day and 200-day moving averages. The majority of year-to-date price action has been above the 200-day moving average, and the golden cross (when the 50-day moving average crosses above the 200-day moving average) from late January remains in play. Market technicians consider price action above the 50-day and 200-day moving averages to be a bullish signal. Breakouts of year-to-date highs could indicate a continuation of the trend to the upside over the intermediate term.

Despite mixed economic and fundamental data, the S&P 500 looks ready to test yearly highs, given the bullish technical backdrop. However, the disconnect between the fundamentals and technicals has led to different opinions about the current state of U.S. stocks. One bullish argument from Bespoke Investment Group concerns the more than six months that have passed since the October bear market low. Out of the 13 times the market has done this since World War II, the S&P 500 has been higher six and 12 months later 12 times. The exception occurred during the early 2000s tech bubble, when the market broke to new lows after going more than six months without a new low following September 2001. According to Bespoke, the S&P 500 usually enters a new bull market at this point after a major low.

Another bullish argument is that this year the S&P 500 has averaged a one-day gain of 0.30% after down days, unlike last year when markets failed to recover after down days. Since the inception of the SPDR S&P 500 ETF (SPY) in 1993, almost all of the market’s gains have come after down days. Furthermore, the previous six years that had strong “buy the dip” trades through April like this year had positive S&P 500 performance the rest of the year.

The third bullish argument is a U.S. dollar tailwind, since it had such a large effect on equities and commodity markets last year. A rising U.S. dollar hurts profits due to the global nature of U.S. large-cap stocks. The U.S. dollar’s rally last year coincided with the bear market for stocks, and the dollar’s peak last October came right around the time the S&P 500 bottomed. If the dollar trends lower, it will be a tailwind for U.S. equities that generate significant portions of their revenues outside of the U.S. With mega-caps accounting for a large portion of the S&P 500 and having a large percentage of revenue coming from outside of the U.S., a falling dollar is a tailwind for the S&P 500. During its conference call last week, Meta mentioned that it expects the dollar to finally be a tailwind for revenues again going forward.

Now for some bearish arguments. The Federal Reserve moderated its hawkish stance by withdrawing its potential 50-basis-point hike in March during the banking sector crisis. However, the Fed plans to continue its hikes because of high-than-desired inflation and the economy’s surprising resilience after 500 basis points of tightening. Bespoke Investment Group’s Fedspeak Monitor, which measures the hawkishness/dovishness of public commentary from Fed officials, remains hawkish despite economic data pointing to a recession and falling inflation. As the old Wall Street saying goes, “Don’t fight the Fed.”

Market participants rely on indicators to help them make informed decisions about their investment strategies and portfolio positions. Two examples of such indicators are Leading Indicators and the Philly Fed. Interestingly, both are at levels that have historically coincided with recessions. If we end up not entering a recession, the reliability of these and other often-used indicators will be questioned. Applying a walk-forward approach to indicators and signals adds a level of robustness and adaptability to changing market conditions, reducing the biases involved with using static parameters over an in-sample period.

Another bear case is the inverted yield curve. The three-month/10-year yield curve, which is closely followed by the Federal Reserve, is currently inverted more than 160 basis points. Since the 1960s, a recession has always followed inversions of this magnitude. Bespoke Investment Group found that one-year forward equity returns have been relatively weak when the curve has been this inverted.

The continued disconnect between fundamentals and technical data makes future price direction more difficult to gauge than when they agree. At the end of the day, price movements flow into investor portfolios, not opinions on how price movements should theoretically respond during certain fundamental conditions. During times like these, it is critical to incorporate active, risk-managed strategies into a portfolio. Such strategies give investors the ability to adapt to market changes in an effort to help limit losses during bear markets. In addition to moving to more defensive positions when markets go down, certain strategies have the ability to profit during downturns by going inverse. Furthermore, combining strategies that use different methodologies to trade similar asset classes has been shown to reduce risk compared to holding a sole strategy.


The yield on the 10-year Treasury fell 15 basis points, ending last week at 3.47%.

After rates peaked in October last year, they made two failed attempts at new highs. This may signal a temporary slowdown in the rise in rates. The 10-year Treasury continues to trade below its 50-day moving average (green line on the following chart) and has been exhibiting a tight sideways range below its 50-day moving average since mid-March.

T. Rowe Price traders reported, “Investment-grade corporate bonds weakened through much of the week alongside the disappointing economic backdrop. Bonds issued by regional banks lagged as news related to First Republic Bank weighed on the banking industry and renewed concerns about the health of regional banks. However, corporate bonds rallied later in the week alongside some encouraging corporate earnings reports and an uptick in secondary trading volumes.

“… The Fed blackout period and anticipation of earnings releases led to subdued volumes in the high yield market. Sentiment improved as equities rallied following the weaker-than-expected GDP figure. Weak economic data also weighed on the bank loan market, as did the headlines related to First Republic Bank.”


Gold locked in a gain of 0.35% last week. The metal is currently experiencing a mild pullback since its peak and 52-week high set in mid-April. Still maintaining trade activity well above its 50-day and 200-day moving averages, its first line of major support will be tested at the 50-day moving average. With the magnitude of the rally since November, the 200-day moving average is significantly below the current price action. Very little selling pressure has been seen since the recent 52-week high.

Until November, the strength of the U.S. dollar (the purple line in the following chart) had made it difficult for gold to rally. A strong dollar is a restraint on global liquidity and a headwind for inflation in the U.S. In general, a stronger dollar lowers the price of imports. During gold’s recent uptrend, investors have continued to see the U.S. dollar pull back. The U.S. dollar and other non-equity or bond exposures are available asset classes for consideration within certain strategies at Flexible Plan Investments.

Flexible Plan Investments is the subadviser 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

The very short-term-oriented QFC S&P Pattern Recognition strategy started last week with 70% long exposure. Exposure changed to 80% long at Tuesday’s close, 150% long at Wednesday’s close, 140% long at Thursday’s close, and 60% short at Friday’s close. Our QFC Political Seasonality Index favored stocks last 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 with 100% long exposure to the NASDAQ. It changed to 60% long at Tuesday’s close and 40% long at Thursday’s close. The Systematic Advantage (SA) strategy is 120% exposed to the S&P 500. Our QFC Self-adjusting Trend Following (QSTF) strategy was 200% long throughout last week. VAN, SA, and QSTF can all employ leverage—hence the investment positions may at times be more than 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.

Flexible Plan’s Growth and Inflation measure is one of our Market Regime Indicators. It shows that we remain in a Normal economic environment stage (meaning a positive monthly change in the inflation rate and 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.

Our S&P volatility regime is registering a High and Falling reading, which favors gold over bonds and then stocks from an annualized return standpoint. The combination has occurred 13% of the time since 2003. It is a stage of higher returns and lower volatility for bonds relative to the other volatility regimes.

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