Alternative Investments

A relatively buoyant environment for Equity Market Neutral strategies.

Since the market has incorporated the fact that there would be fewer rate cuts by the Federal Reserve and they would probably come later than expected at the end of 2023, core equity indices have continued to perform well in Northern America and Western Europe.

Has commercial real estate reached its inflection point? With little transaction activity, price and index data are generated with a lag. Market prices can change much more rapidly than they can be aggregated and reported. Investors must rely on fundamental analysis and experience more than data to time the recovery.

Although the Federal Reserve slightly opened the door to rate cuts during the last quarter of 2023, the latest economic data points were solid, leading the Fed to indicate that rate cuts may come later rather than sooner.

2022 was a landmark year for monetary policy, with Central banks shifting priority from supporting growth to taming inflation.

Like the Rolling Stones during a concert, the dovish stance from the Fed had the effect to “spread out the oil, the gasoline” on a market that was already anticipating a brighter future.

Central bank tightening monetary measures continue to progressively slow the economic growth rate of most regions around the world.

Economic fundamentals did not dramatically change over the summer.

Financial markets took a breather over August.

It is not unusual for the quiet summer season when investment professionals take a break from their screens to chime with nervous and volatile markets.

Looking back over the first half of the year, we can say that the bulls gained the upper hand over the bears.

With the onset of the inflationary cycle and the change in central bank monetary policy, markets have entered a new paradigm, leaving investors uncertain as to the direction that markets will take next, and the timing of the transition into the next phase of the economic cycle.

In a market animated by contradictory economic data points, NVIDIA’s excellent Q1 earnings were enough to light the fire under an already hot technology sector.

The market narrative remains very cautious and divided as to the path to follow over the next few quarters.

March was a challenging and volatile month, with investment sentiment going through a whole variety of shades in a single month.

During February, economic and inflation data came in slightly above expectations, which helped cool the market down. Central banks reiterated the message that the market should expect monetary policy to maintain its course until we see significant signs that inflation is abating.

2023 started out on the right foot for holders of financial assets, as the overall performance of equities and bonds was positive. However, a significant part of the financial community is bedazzled by the vigour of the rebound.

2022 was a very challenging year for traditional asset allocations, with the active repricing of risk premiums taking centre stage.

In 2022, the markets repriced risk premiums in financial assets, quickly adjusting to the inflation risk and to the interest rate hikes implemented by central banks that followed.

Although the economy continues to decelerate, equities staged a strong rebound during the month of October.

If the smile measures how the portfolio value reacts to changes in the underlying markets, then maybe we should measure the smiles – and this is what our investment team has been doing.

September was another very challenging month for investors. The market is subject to considerable uncertainty, with no clear evidence of the next step.

After a two-month period of improving risk appetite, the market started to head downwards in mid-August, influenced by the outcome of the Jackson Hole meeting. Jerome Powell’s hawkish tone obviously had a strong impact on the markets, but it was not the only strong driver. The deterioration of energy supply in Europe as we are quickly approaching winter is a cause for concern for industrial output, but also consumers, who will be facing record energy bills.

As the investment community was slowly preparing for a well-deserved summer break, a higher-than-expected US CPI read revived fears that a recession might be around the corner. Uncontrolled inflation is pushing central bankers to continue raising the cost of capital, as the Fed did at its June meeting.

Markets remain nervous, as investors perceive the Fed as being behind the curve in taking control over inflation. Rising prices are biting into consumer sentiment and savings, leading to decreasing growth expectations.