The key highlights for the month
After a strong first quarter from US equities, things started to scale back this month. The escalation between Israel and Iran, while causing large swings, was brief and not the main reason behind the markets’ move. The prime drivers are the same old story of high-interest rates and inflation that we have all been too familiar with.
Inflation accelerated further this month supporting the upward trend we have seen since the year started. Both headline and core inflation data rose more than anticipated with the Fed’s preferred gauge, the core PCE inflation coming in at 2.8% against the 2.6% economists expected.
The broad market paints a similar picture that smells of inflation stirring in the backdrop and prolonging a high-interest rates regime. Commodities in general are thriving this year with the “inflation hedge” Gold has risen more than 10% since the year began. Energy stocks are also the best performing as a sector year to date. Meanwhile, rate-sensitive securities such as bonds and REITs came under heavy pressure as the market adjusted itself to the prospects of rates remaining high for longer. From the nearly 7 rate cuts expected when the year starts, we are now down to just one cut towards the end of the year.
In the midst of all these, the 1Q 2024 GDP estimate came in surprisingly low at 1.6% vs the 2.5% forecasted reviving talks about stagflation. The GDP drag came mainly from a surge in imports. Things were, however, held up domestically by US consumers and the labor market with both still displaying a healthy resilience which is likely supporting the upward price pressures.
Asset Class & Sector Performance Snapshot for the Month
Portfolio Updates
The AQ multi-strategy model portfolio was down 2.2% this month but overall fared better than the S&P 500 which was down 4%. We did not hold any allocation to bonds in April but our holdings in US REITs which is the smallest position in the model were hit by the sell-off. Other equity holdings were also dragged down this month. But the model's sector picks in Staples and Energy held up much better than the broad market and helped to mitigate the fallout from equities. Meanwhile, the volatility trading strategy again bucked the trend and turned in a modest positive result this month amidst the volatile market as we added to our short volatility position when the Israel-Iran conflict arose.
Overall, the AQ multi-strategy model is down -2.2% for April 2024 and up +1.9% YTD.
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* This is the model performance of portfolios constructed using more advanced strategies than those taught in our courses. Note that live performance may vary due to execution price slippages, the difference in sizing precisions, etc. All performances are measured in USD terms.
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