Happy Friday! 

Every week, we dive deep into macro trends, analyze asset movements, and uncover the best value plays in the world of macro. These insights are shared with hedge funds and institutional clients, and each Friday, we’re bringing them directly to you. 

While the macro landscape can be complex, we believe it doesn’t have to be intimidating. In this recurring series, we break down the key takeaways from the week ending, explain what we’ve told hedge funds, and outline how we’re trading these ideas – all in a straightforward and actionable way. 

First of all, how have our trade ideas and portfolio performed over the past week?

We are all in for transparency in this portfolio setup, and we have – like a good portion of the market – been caught completely off guard by the Fed’s shift towards a more hawkish reaction function, after consensus was hilariously uniform in hindsight, but nevertheless reading the Fed from here is going to be a lot more tricky than everyone had expected – and this is exactly why bond yields are moving as they are at the moment. Bond markets want to be compensated for policy vol – that the Fed will deliver a couple of more flip flops going into next year. 

The soft PCE print today helps the portfolio slightly with bond yields dropping markedly, and it comes at a funny timing, right as the Fed has ranked up their PCE forecast for next year. Will Macro data turn right as the Fed turns hawkish?

Our portfolio tilt is still very much towards soft landing / lower bond yields, and we have admittedly been caught in the middle of the storm on that front, and while it’s tempting to hold on to all of the positions, we are more mixed about what comes next in bond yields and equities.

The portfolio is still outperforming S&P 500, so that’s at least something. 

Chart 1: Portfolio performance – ouch..