US macro

Jackson Hole

Jerome Powell’s Jackson Hole speech contained something for everyone. Outlining the intent to taper, placing emphasis on the separate and distinct idea of actually raising rates relative to a taper, and also noting the effects of COVID, which remain with us.

The market interpretation was “dovish”, which we think is the correct one, at the margin. Yields fells (which can be ambiguous in their signal), the dollar fell, risky assets (commodities, equities) rose and all three taken together is what tell us that “easing at the margin” is the correct conclusion.


The market had already positioned behind “dovish” and as such is comparatively little changed by magnitude (same for the stock by stock composition here, in Aus).

Overall, little to change our anticipated trajectory. We will continue to get strong US macro data (employment, wages, inflation, output) which will bring forward firstly the taper (we now shift that view to September) and subsequently the eventual lift off, from zero.

Given the mix of very strong data (positive for risky assets) and the self evident negatives (inflation, higher rates) we are running a modest underweight to shares at the overall portfolio level (3% UW international equities, 3% UW Australian shares) relative to our SAA weights, and similarly a modest underweight to fixed income (-4%), predominantly by underweighting credit and high yield (which correlate highest to equity market risk).

The underweights translate to equally modest overweight’s to cash (viewing cash as the “short duration” component of fixed income, in this world of near zero yields) and to Alternative assets (infrastructure, diversified alts, and equity market neutral funds) which provide us with a low(er) correlation to stocks and bonds, and a positive expected return.

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Please note that past performance is not a reliable indicator of future performance.

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