By Tim Hanna Market snapshot • The major U.S. stock market indexes were mostly down last week. September is historically challenging for stocks, although market volatility is declining. • Treasury yields rose and continue to trade above the 50-day moving average. • The Federal Reserve is expected to maintain the federal funds rate during this week’s policy meeting. • Gold rose 0.25% last week after experiencing a mild pullback from its 52-week high. It has been trading in a narrow range, and investors are watching for a breakout in either direction. • 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 equities and then bonds. *** The major U.S. stock market indexes were mostly down last week. The S&P 500 decreased by 0.16%, the Dow Jones Industrial Average gained 0.12%, the NASDAQ Composite was down 0.39%, and the Russell 2000 small-capitalization index dropped 0.24%. The 10-year Treasury bond yield rose 7 basis points to 4.33%, taking Treasury bonds lower for the week. Spot gold closed the week at $1,923.91, up 0.25%. 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 The S&P 500 Index has struggled to establish any meaningful direction since the start of September, with a swing high set in July and a swing low set in mid-August. The Index is now trading right below its 50-day moving average and is exhibiting a pennant price pattern, currently trading inside but toward the lower bound of the pennant. There is still a significant positive gap with both its 50-day and 200-day moving averages. We’re approaching the end of the third quarter. Unfortunately, the last two weeks in September have historically been one of the worst two-week periods of the year for the S&P 500. After examining two-week performance over the past 20 years, Bespoke Investment Group discovered that the S&P 500’s median performance in the two-week period (10 trading days) following the close on September 16 is -1.02%. The only weaker two-week period over those 20 years is the two weeks following the close on February 21, with a median loss of -1.16%. During the second half of September, the S&P 500 has yielded gains only 30% of the time. The only period that has been less consistent is the two weeks after the close on June 11, during which the S&P 500 has increased just 25% of the time. September’s second-half weakness has also been broad-based. Utilities is the only sector of the 11 that has a positive median performance. Every other sector has been positive less than half of the time. As U.S. equity markets have traded sideways over recent months, market volatility has decreased. Last week, the CBOE Volatility Index closed below 13—the lowest level since January 2020. Similarly, volatility in the NASDAQ and long-term U.S. Treasurys reached their lowest levels since the fall of 2021. While there is no official volatility index for the STOXX 600 (European index), its 100-day average daily percentage change has been below 0.50% since mid-August. The last time that happened was in January 2020. Friday (September 15) saw the yield curve inversion reach a record 213 trading days. This surpasses the previous notable streaks of 207 days ending in April 1980 and 209 days ending in May 2007—the only streaks to even come close. Bespoke Investment Group notes that the duration of the inversion isn’t the only thing that is remarkable; the level of inversion is also significant. The yield curve has been inverted by more than 100 basis points for 125 trading days. This is double the previous record of 66 days set in 1981. As the following chart shows, every other time the yield curve has been inverted by more than 100 basis points, even if for a few days, it has occurred in or around a recession. As market direction begins to experience uncertainty again, it is important to incorporate dynamically risk-managed investment strategies that can adapt to changing market conditions as the changes are reflected in asset prices. For example, when markets exhibit positive momentum, many of our momentum-based strategies adjust their positioning to be more risk-on. If prices continue to rise, systematic trend-following algorithms are designed to identify and participate in the upward price momentum. Conversely, if volatility arises and prices decline, systematic momentum strategies are designed to identify the change and move to more defensive positioning. Mean-reversion strategies attempt to recognize and navigate sideways market conditions, offering an uncorrelated complement to momentum-based programs, which face challenges in trendless periods. The following chart shows the one-year performance of the Quantified Pattern Recognition Fund (QSPMX, 22.19%) compared to the SPDR S&P 500 ETF (SPY, 14.62%). The Quantified Pattern Recognition Fund dynamically trades the S&P 500, identifying and using mathematical patterns within the market to determine exposure. It has the flexibility to adjust its position daily, ranging from 100% inverse to 200% long. The Fund is used within some of our QFC strategies and can be used in our turnkey solution, QFC Fusion. Within our more customizable QFC Multi-Strategy Core and Explore turnkey solutions, QFC Multi-Strategy Explore: Special Equity has a current allocation to QFC S&P Pattern Recognition. Bonds The yield on the 10-year Treasury rose 7 basis points last week, ending at 4.33%. The 10-year Treasury continues to trade above its 50-day moving average, as indicated by the green line in the subsequent chart. This follows the July breakout of the downtrending price channel, represented by the black lines on the chart. Should it surpass the August peak, it won’t just set new 1-year highs but will also mark new 10-year highs. The Federal Reserve is expected to maintain the federal funds rate during this week’s policy meeting. According to the CME Group FedWatch Tool, there is currently a 99% probability of rates remaining in the current range. T. Rowe Price traders reported, “Issuance was heavier than expected in the investment-grade corporate bond market, with the new supply mostly made up of shorter-maturity bonds. … The high yield bond market was mainly focused on the busy primary calendar, and sellers seemed to be making room for new issues. Similarly, bank loan market participants appeared to concentrate on newly issued loans.” Gold Gold rose 0.25% last week. The metal is still experiencing a mild pullback since reaching its 52-week high in mid-April. After seeing little support at its 50-day moving average, the metal has found some at its 200-day moving average. Currently, its price is between the 50-day and 200-day moving averages, which are very close to each other. A break of the 50-day moving average below the 200-day moving average would be considered a “death cross” and is seen by technicians as a longer-term sell signal. However, the January “golden cross” (when the 50-day moving average crosses above the 200-day moving average) is still in play. The yellow metal has been trading in a narrow range for some time now, and investors are watching for a breakout in either direction. 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 with 100% long exposure. Exposure changed to 30% long at Monday’s close, moved to 10% short at Tuesday’s close, changed to 0% exposed at Wednesday’s close, changed to 20% long at Thursday’s close, and changed back to 0% exposed at Friday’s close. Our QFC Political Seasonality Index favored defensive positioning 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.) 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 200% long exposure to the NASDAQ, changed to 180% long exposure at Monday’s close, changed to 160% long exposure at Tuesday’s close, moved to 200% long exposure at Wednesday’s close, and moved back down to 180% long at Friday’s close. The Systematic Advantage (SA) strategy is 90% 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 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. 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.