Well, there’s the one that did the damage.
Month on month core inflation was much higher than consensus. The market ran “too hard” ahead of a print that, far from confirming a dovish tilt, speaks to further hawkishness ahead.
Everything that was up strongly relative to the benchmark yesterday will be in reverse operation today. REITs, tech, consumer stocks, and to a lesser extent, commodities, will feel the pain today.
At the DAA level, we are underweight equities, predicated on the old adage of “don’t fight the Fed”. There are good reasons to be bullish and to have a good allocation to equities, in keeping with ones SAA objectives, and good reasons to be bearish, in keeping with a DAA underweight.
At the stock level, in our direct equity portfolios, we are running a beta of around 0.85x. That means we are left behind on strong days, but on days of “risk off” (like today) we should do quite well.
We are also overweight the insurance companies, which benefit from higher rates, underweight Energy (which we feel the Fed is specifically targeting) and underweight the consumer, tech, and secular growth narratives (which we think are just far too expensive).
Those tilts haven’t made for cracking outperformance for the past month but are there for days like today.
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This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.
Please note that past performance is not a reliable indicator of future performance.
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