Current market environment performance of dynamic, risk-managed investment solutions.
By Daniel Poppe
Market snapshot
• Stocks: Stocks advanced last week, with the NASDAQ Composite gaining 0.83%, the S&P 500 rising 0.99%, the Dow adding 1.79%, and the Russell 2000 returning 3.12%.
• Bonds: The 10-year Treasury bond yield rose from 4.27% to 4.33% last week.
• Gold: Spot gold declined 1.81% last week, closing above $3,300 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 Low and Rising, which favors gold over stocks 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 remain near record highs following a robust second-quarter earnings season. According to FactSet’s August 8 Earnings Insight report, with 90% of S&P 500 companies having reported, the vast majority beat expectations. The earnings growth rate stands at 11.8%, a strong pace for corporate earnings. The market rallied in recent weeks off these positive developments, putting the forward price-to-earnings (P/E) ratio well above both the five-year and 10-year averages.
Second-quarter GDP growth came in much stronger than in the first quarter. On July 30, the Bureau of Labor Statistics reported that GDP grew 3.0% in Q2, well above the -0.5% seen in the prior quarter. This news also helped propel stocks higher.
On August 1, the Bureau of Labor Statistics reported downward revisions to job numbers for May and June. While that news raised concerns about a weakening economy, it has not derailed the market rally, as investors expect potential rate cuts to provide support.
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 have trended higher in recent months as expectations grow for Federal Reserve rate cuts following the recent downward revision to job numbers. However, concerns remain that tariffs could cause an upward price shock as they filter through the economy.
The Fed’s next meeting is scheduled for September 17. According to CME Group’s FedWatch tool, markets currently expect a 25-basis-point cut, with the Fed leaning toward supporting the full-employment side of its dual mandate. Such a move could benefit both stocks and bonds, with further rate cuts possible before the end of the year.
Gold
The SPDR Gold Shares ETF (GLD), which tracks the price of gold, finished the week below its 50-day moving average but above its 200-day moving average.
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 held a 160% net long exposure to the S&P 500 throughout the week.
Our QFC Political Seasonality Index strategy was aggressive throughout 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.)
The Volatility Adjusted NASDAQ strategy started the week with an 80% net long exposure to the NASDAQ 100. On Friday, the strategy took a 100% net long exposure.
The Systematic Advantage strategy held a 90% net long exposure to the S&P 500 throughout the week.
Our QFC Self-adjusting Trend Following strategy’s primary signal was 200% net long the NASDAQ 100 throughout the week.
The Volatility Adjusted NASDAQ, Systematic Advantage, QFC Self-adjusting Trend Following, and QFC S&P Pattern Recognition strategies can all employ leverage, so the investment positions may 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 Low and Rising reading, which favors gold over stocks and then bonds from an annualized return standpoint. The combination has occurred 27% of the time since 2003. It is a stage of relatively low risk across the asset classes.