We started January 2024 on a rocky note with a wide mismatch between the markets and the US Federal Reserve in terms of where rates are heading. The markets turned significantly more dovish than the Fed since the latter pivoted last year. At its most optimistic point since the start of this year, the markets priced in as many as 6 cuts. A scenario that can mean the market is looking at a possible recession which will lead the Fed to cut sooner and faster. Meanwhile, the Fed has a different view and is only projecting 3 cuts for the year. This creates a tension that can result in heightened volatility. This tension flared at the end of January when the Fed held its first FOMC meeting. The Fed held the rates steady as expected for this meeting, but drowned hopes for a cut in March and reaffirmed that they were not looking at as many cuts as what the markets expected.
While the popular US stock market indices such as the S&P 500 rose this month, the broad asset class and sector performance presented a much-varied picture
In the equity space, large caps did well this month in sharp contrast to small caps which are down sharply. Bonds also didn't fare well this month being either flat or in the red. REITs took a big hit this month after a solid rally towards the end of last year. Commodities did well as a whole but Gold headed south.
The performance across the different stock sectors also exhibited a wide level of dispersion. The technology and communications sector led this month. This explains why tech-heavy indices such as the S&P 500 can rise above. Most of the defensive sectors and financials are also up this month. But otherwise, all other sectors are in the red.
This month a number of our model’s positions came under fire. The model’s position in long-term Treasuries, Gold, and equity positions in the energy, and discretionary sectors, as well as real estate, were down in the red. On the positive side, the model had a relatively larger allocation to the S&P 500 ETF (Ticker: SPY) this month and also reinitiated the short volatility trade not long after the month started. Both these positions did well but were not enough to offset the losses from the rest.
Overall, the multi-strategy model is down -0.9% for the month and 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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