Multi-Strategy Model: September 2023 -4.2%, YTD +8.9%
The stock market selloff deepened into September. Historically, September holds the record as the worst-performing month for US stocks since 1928. Including this year, we haven't seen a positive September since 2020. That is 4 years in a row. The last comparable streak was from 1999 to 2003 when the S&P 500 came in underwater for September over 5 consecutive years.
For multi-asset managers looking outside of equities for diversification benefits, it was minimal. Because most of the assets are headed south much like what happened in August. The only exception is commodities and much of that is driven by oil prices which have risen almost 10% this month sustained by deep cuts in oil production with Saudi Arabia leading OPEC on this.
The different stock sectors paint the same picture. The selloff was broad-based. Even defensive sectors such as staples, utilities, and healthcare were hit. The only sector bucking this trend is Energy.
But energy prices were nonetheless just the sideshow, the dominating narrative this month was again a focus on rates. Market sentiments turned worse visibly after the FOMC when the Fed sent a more hawkish message than what markets anticipated. Most notably, the Fed expects one more hike before the end of the year and to hold the rates higher for longer. In the aftermath, stocks fell, volatility spiked, Treasury yields jumped to new highs, and the dollar rose. At this moment, Treasury yields 5 years out are significantly higher than they were prior to the FOMC. 10Y yield is almost 4.6% and 20Y is 4.9% now.
As we move forward, things will hang in a delicate balance. The higher rates will eventually bite and it is likely we will see the narratives switching more often between one of soft landing to recession.
Our model positions in large-cap US stocks, long-term Treasury bonds, Gold, and short volatility were all hit this month. The worst hit was long-term Treasuries which went down 8% this month, but the damage was mitigated because it was the smallest position in our model. Our model’s sector picks fared in line with the broader S&P 500. Financials did relatively better, materials on par, while industrials fell more. Our short volatility position gave back some of the profits it made last month but it is still sitting on a healthy pile of profits year to date. The best and also our only positive performer this month was commodities excluding Gold. It was our next largest single position after Gold and was up modestly.
Overall, the multi-strategy model is down -4.2% for the month and +8.9% YTD.
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* This is the model performance of portfolios constructed using more advanced strategies than those taught in our courses. They can be implemented with the assistance of an iFAST Global Markets (Singapore) senior investment adviser. 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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