“The Markets Can Remain Irrational Longer Than You Can Remain Solvent”
As the excess liquidity sloshes around the global financial system, risk assets, most notably select equity markets led by a handful of stocks, are “still” enjoying the party.
Nonetheless, the onslaught of 2024 was marked by worsening geopolitical tensions and mounting concerns about a “mild” second wave of inflation amid the blockade of one of the major shipping routes in the world.
As a result, the most “consensus” trade (long-duration bonds) of 2024 has seen an unwind in the last two weeks.
Furthermore, as the markets push back interest rate cuts due to the strong macro data in the US, yields have hardened with the last few days witnessing bear steepening.
The popular measure 2s10s is now left with -20 bps of inversion.
Thus, our paid subscribers will appreciate our bond positioning, which we have been right about.
Nonetheless, the overall performance of YTD has been in line with the benchmark.
Equities!
There were few hits and misses in the equity portfolio.
While our overweight position on a select developed equity market has given us a stupendous return, our underweight position on a select market has led us to underperform.
Furthermore, as the dollar rose, our overweight position on some Emerging Markets underperformed.
Nevertheless, with the addition of two new positions in the last few days, we remain confident of a rebound with generating significant alpha.
As mentioned earlier, we don’t worry about a small underperformance in the very short term because we are here for the long term.
Moreover, the macro view and fundamental view don’t allow us to go long on the overvalued stocks, as markets have their own way of punishing the overvaluation via mean reversion.
Always remember that bulls take months to build a rally, while bears take only 7-10 days to decimate the momentum and bring sanity to the markets.
Moving on, before the Tech Heavy NDX scaled new highs in late December, it had an interim peak in July before a drawdown of roughly 12-13%.
We have extensively mentioned at that time that
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