When assets are negatively correlated, such as stocks and long-dated government bonds over long periods of time, a portfolio provides superior risk-adjusted returns
Shelter is not just causing headaches for Americans due to supply/demand imbalance, it’s causing headaches for the Fed too
Interest rates mean revert over time. The higher yields from the recent retracement provides investors with incremental income and multi-asset diversification benefits as correlation decreases.
Arch Indices VOI Core Absolute Income Index (VOIVWI) announces its quarterly rebalance to reflect current market conditions Following the rebalance, the index portfolio yield is 7.0% and composed of 112 dividend stocks and 9 bond ETFs
Regional banks do not belong in your equity allocation and preferreds do not belong in your income allocation
With mortgage rates dropping over the last two months and both business and consumer confidence picking up: 1) Can the Fed rely solely on declining inflation and r* neutral rate to cut rates throughout the year? 2) Will the Fed need to turn more hawkish to keep inflation on the downward path?
Factors need to be updated to reflect today’s market structure. Value is an excellent example of a factor that has worked over the long-run but in need of a refresh. Many value factors use price-to-book and price-to-earnings ratios which reflect an earlier era of investing and the economy.
While we were all glued to the Bitcoin ETF launches, CPI came in hotter than expected. The culprit is housing inflation which picked up month/month. This is a worrying data point for the Fed thesis that shelter will drive core inflation down to target and give them room to cut rates in a soft landing.
Q4-23 was a roller coaster of expectations. In a matter of a month, the Fed pivoted and drove 30y interest rates from over 5% to under 3.9%, expectations of 7 rate cuts, AND equity markets higher with expectations of a soft landing. As we saw over the last year, expectations and outcomes rarely converge where we initially thought it would.
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