Posts in Markets and Trading
Markets in Q1 - jusqu'ici tout va bien

The first quarter was a pleasant one for investors. It was difficult not to make money on the long side in equities, while it remained slim pickings for bears. Bonds and credit rallied too, albeit less vigorously, and commodities also pushed ahead. The USD-bull story, however, fell by the wayside. My two first charts put some numbers to this. The first shows the total return-to-date for the main asset classes, and the second adjusts for volatility. Equities did the heavy lifting—with EM on top and Japan trailing—but the 8.2% jump in gold is also interesting. Not many have really talked about this, but it has benefited the portfolio in an environment where its core equity positions has been left behind by roaring benchmark indices. High yield credit in the U.S. has also pushed higher without much ado, while commodities have trailed. U.S. govvies have underperformed although, the 10-year bond reasserted itself towards the end of the quarter. Finally, king dollar was demoted to Jester. 

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Much ado about nothing

I am short on time this weekend, which is probably a good thing given that I have really struggled to share the excitement over last week's events. We had the swoon of the S&P 500 and its first 1% daily decline in more than <insert number here> days on Tuesday. Overall the index had temerity to post a 1.4% decline on the week, the biggest fall since the first week of November. It was with a tinge of embarrassment that I watched the overreaction of my fellow equity investors on both sides. For the bulls, this was the buy-the-dip of a lifetime and for the bears it was the signal that the bull market had come to an end. In truth of course, it was evidence of neither, although I suspect that the bulls will be the ones sleeping with most unease.

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Just what the doctor ordered?

Weaker oil prices, a Fed rate hike, and Geert Wilders' anti-EU party swooping in as the second-biggest party in the Dutch parliamentary elections. You would have thought that these events last week would have been enough to scare investors. But headlines can be deceiving. Despite the weakness in oil, the price hit strong resistance at its 200dma, and snapped back in the latter part of last week. The tone of Mrs. Yellen's statement was just right to maintain markets' faith that the Fed will only gently push borrowing costs higher. In other words, risks assets wanted a dovish hike and decided that this is what they got. And finally, the key story in the Dutch elections was not that Mr. Wilders made headway.

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Oh Snap

The uproar over the Snap IPO is a good metaphor for the growing disdain in some parts of the market towards the ever-rising stock market. I explored the uber-bearish meme here, and it remains strong as ever. The bears have thrown everything at the market; extended valuations, stretched technicals, a looming "Trump disappointment", a hard landing in China, or a breakup of the Eurozone. The louder their objections, though, the stronger the rally has become. I have found myself in a similar trap since Q4, when my models started to suggest that I should fade the rally in equities. It has been a costly position in terms of relative performance, but at least I haven't suffered the slings and arrows of those who have been short outright.  

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