Weekly Commentary

January 26, 2024

US Equity markets have continued to march ahead following the flurry of earnings announcements, but in essence, the main drivers for performance continue to be in the so-called Magnificent Seven, which have propelled the tech-heavy Nasdaq and S&P 500, while leaving the Dow Jones to underperform yet again.? While we continue to believe in the long -term story of AI, it could be poised for a possible pullback in the short term, given lofty valuations and a peaking economy, and options hedging strategies could be an interesting play right now, especially given low VIX readings and cheaper hedging options.? We also believe the significant underperformance of dividend-paying stocks could turn around, as the market digests the slowing economy and focuses on more defensive strategies.

On the fixed income front, longer-term rates have remained comfortably above 4% for the week, but expectations for a Fed rate cut in March have fallen, given the strength of the economic data and the inflation rate stuck at 3.4%.? Credit products, such as high yield and even lower rated investment grade, we believe, do not warrant an overweight position in the current environment given historic spread tightness and the increasing possibility of an economic slowdown.? Therefore, treasury bonds, both short and medium in duration, are favored currently.? ??

Finally, it appears highly likely that the 2024 election will be a rematch of the 2020 campaign, with Trump and Biden heading their respective tickets (although Trump almost certainly and Biden possibly will have different vice-presidential running mates).? New Hampshire, seen as the best chance to defeat the Trump candidacy for Nikki Haley, gave the ex-president a nearly 10-point victory on Tuesday, and it is uncertain where the Haley team's path to victory lies. Haley touts herself as a plausible alternative with a higher chance of beating Biden, but it appears Republican primary voters are not convinced.? On the investment front, markets will likely avoid the primary process, and therefore political volatility,? but look for more Trumpian sectors local manufacturing, small and mid-caps, oil and gas) to be interesting sectors as Trump officially locks up the nomination.? But from now until November is a long time, and a lot can happen between now and then.? ? ?

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