The major indexes posted mixed performance last week. The NASDAQ finished the week up 2.65%, the S&P 500 gained 0.72%, the Dow Jones Industrial Average was flat, and the Russell 2000 small-capitalization index lost 1.61%. The 10-year Treasury bond yield fell 8 basis point to 0.63%, as Treasury bonds rose for the week. Last week, spot gold closed at $1,940, down 0.24%. Most notably, the S&P 500 traded above pre-pandemic highs set in February. This was the fastest bear market and second-fastest bear market recovery in U.S. history.


Last week was the fourth straight week of gains for the S&P 500. Technology stocks have been the primary group pushing markets higher. Many economic data points and earnings releases have showcased progress in the recovery; however, the data is not broadly distributed. Similar to how Technology is leading the rise, data points show that we are making progress but are not out of the woods yet. Bespoke Investment Group studied forward market performance following round trips after 20% bear markets from an all-time high (1928 to present). First, let’s examine how the rally off lows compares to historical occurrences.

According to Bespoke,

“On an absolute basis, the S&P 500’s 51.5% rally off the March lows has also been very impressive and ranks as the sixth strongest of the fourteen shown … though, it’s important to keep in mind the amount of time it took for the S&P 500 to dig itself out of the hole. At 148 days, the rally off the March lows was the fifth-fastest second leg of a market round trip. Of the four quicker periods, none of them followed a down leg nearly as sharp as the COVID-crash (three weren’t even bear markets on a closing basis) and therefore didn’t see rallies nearly as strong as the 51.5% rally we have seen over the last five months. Again, using annualized returns, the S&P 500’s 179% annualized return from the March low through yesterday’s [August 20] close ranks as the second strongest of any of the fourteen ‘up legs’ shown.”

So, the S&P 500 has erased the losses experienced from the COVID-19 sell-off, which is great for investors, but the burning question on investors’ minds is “Where do we go now from these levels”?” Nobody knows for certain, but history can give us some indication of what we are likely to expect. Bespoke continued their research by looking at the S&P 500’s historical performance following each of the 14 periods shown in the previous table and noted the following:

“Even after the impressive rallies that each period saw to make a new high, forward returns also tended to be above average. While the one-month average return of 0.23% is weaker than the 0.59% average one month return for all periods, on a median basis, the 0.60% gain is right in line with the historical average, and the consistency of positive returns is also higher. Moving out over the next three, six, and twelve months, forward returns were even more positive on both an absolute and relative basis. One year later, for example, the S&P 500 has seen an average gain of 10.92% (median: 12.11%) with gains 92% of the time.”


Regarding the fixed-income markets last week, T. Rowe Price reports,

“Treasury yields drifted modestly lower through most of the week as the disappointing jobless claims and manufacturing data appeared to add to concerns that the U.S. economic recovery is slowing. (Bond prices and yields move in opposite directions.) Despite the tailwind from falling yields, the broad municipal bond market posted losses over much of the week. The firm’s traders noted that municipal investors appear to be taking a more patient approach in anticipation of a less favorable technical environment in September. Investment-grade corporate bonds also underperformed as the Fed’s minutes seemed to contribute to risk-off sentiment. Activity in the high yield market was somewhat subdued, according to our traders, as the seasonal slowdown began. The primary calendar remained active, however, and August’s new issuance volume surpassed July’s monthly total.”


Gold, following a long and steady stretch of gains for months, pulled back for a second week, losing roughly a quarter of a point last week. With gold taking a breather, the consensus is that the metal still presents opportunities going forward and such pullbacks are healthy and expected, not presenting much cause for concern.

Kitco News reports, “SkyBridge Capital, which recently added exposure to gold after ’exiting in 2011, says“ that gold will continue its record-setting rally due to massive currency debasement as the world prints money like crazy. Chief investment officer Troy Gayseki said ‘“gold is obviously a natural alternative currency’” as the dollar weakens against other paper currencies. Bloomberg notes that Gayseki went on to say that it wouldn’t surprise him to see bullion around the $2,100 to $2,200 an ounce range by the end of 2021.”

If you haven’t already, I encourage you to read our white paper “The Role of Gold in Investment Portfolios,” which can be found here (for financial professionals only). At Flexible Plan Investments, we have multiple ways for investors to add gold to their portfolios. The most direct way is via The Gold Bullion Strategy Fund (QGLDX), the first-ever, and still only, mutual fund designed to track the daily price changes in gold bullion in the United States. If you’re looking to invest in gold through an investment strategy, our QFC TVA Gold strategy seeks to provide a steady rate of return with less risk than that experienced with either gold or the S&P 500.

The indicators

Flexible Plan’s Growth and Inflation measure, one of our Market Regime Indicators, shows that we remain in a Stagflation economic environment stage (meaning a positive monthly change in the inflation rate—though still below the Fed’s 2% target—and negative monthly GDP reading). Historically, Stagflation has been a positive regime state for gold, which tends to outpace both stocks and bonds during such an environment.

Our Volatility composite (gold, bond, and stock market) maintains its Low and Falling reading, which favors stocks over gold and then bonds. This combination occurs the most often historically, 37% of the time since 2003.

With Technology leading the move upward and markets breaking highs, it’s fitting for us to examine the positioning of our QFC Self-adjusting Trend Following strategy since it trades the NASDAQ 100 and can go anywhere from 1X exposure short up to 2X exposure long. The strategy held its 2X long exposure throughout all of last week, going into market highs with maximum long exposure. The positioning proved to be a good decision in a week where the NASDAQ 100 was up 3.50%. The strategy ended the week with a gain of 7.49% after fees.

PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.  Inherent in any investment is the potential for loss as well as profit.  A list of all recommendations made within the immediately preceding twelve months is available upon written request.  Please read Flexible Plan Investments’ Brochure Form ADV Part 2A carefully before investing. View full disclosures.