Believe it or not, the S&P500 has rallied 11% since it bottomed at 4161in only two weeks. the index broke at least five key resistances which we mentioned in our previous newsletter, against the backdrop of Russian invasion of Ukraine and uncertain path of interest rate hikes from the federal reserve. the recent rally technically released a lot of market downward pressure as the Q1 earnings season is just around the corner while global food and energy prices surging, and inflation is hot with the consumer price index jumping 7.9% year-over-year in February.
the factors that moved the market are complicated, but the large fund managers coincide with sentiment that the biggest “tail risk” to the market shown as the followings:
Obviously, the yield curve inversion that flashed red has suddenly caught investors’ attention. Despite of this indicator’s accuracy, history shows that it takes about 18-21 month on average for a recession to occur after the yield curve inverted, at this point, we would rather like to focus on our own investment strategies as stocks have room to run and do run significantly higher after a yield curve inverts historically.
the Covid is getting less risky among other tail risks. But recent lockdown in Shanghai indicated that the world’s second-largest economy is pushing ahead with its “zero-Covid” strategy could worsen current global supply chain and further drive up the inflation. Following by Apple’s biggest supplier- Foxconn and Tesla Shanghai factory suspended their operations, there would be more companies’ earnings and valuation would be systematically and gradually affected with the worse unless China adjusts its freaking zero covid policy.
Our Long-term investment portfolio gained 6.98% for the March along with 71.49% of total return since the inception of May 2020 (click for our latest portfolio performance report). meanwhile our Dynamic investment portfolio gained 1.8% for the month while built on its total return to 29.9% since May 2020. additionally, our crypto portfolio which allocates with 50% of BTC and 50% of ETH got a 12.06% of total return since the launched date (03/31/2021). Different from other portfolio, the loss/gain for the structured notes portfolio is based on current market value of its underlining assets. The actual notes’ return will be reflected by its underlying assets’ value on its maturity date, since the most of notes in this portfolio mature in 3-5 years as well as each of those come with different terms (duration, buffer/barriers, and the final value of underlining assets), the market volatilities would have less impacts on its actual return until the last day. For instance, the hedge position we created with structured notes that that invested on Ford Motor (F), Freeport-McMoRan (FCX), Tesla (TSLA) and Apple (AAPL) on March 4th is doing well. As all four linked stocks are moving higher, the protection range (35% for income and 40% for investment principal) increased while the return (22.4% annually) is expected to delivery on time.
The SPX has broken its short-, mid- and long-term MA while the NDX is leaping fast but still underneath its 200 MA which need to overcome as well as the SPX holds all these supports tightly to make the rally last longer. Uncertainties, such as worrisome headlines on inflation, the war between Russia and Ukraine, weakening corporate profit margins and even lockdown in Shanghai stressed investors up and pushed investors holding more cash, but history shows that when gurus are telling you to reduce your equity exposure and increase your allocation to cash, that’s actually net bullish. Especially when the bulk of evidence is telling you to be more cautious and defensive, all of that information probably is priced into the market and the market is more likely to surprise in the opposite direction.
That’s what climbing the wall of worry really mean.
Sen Zhang
Managing Partner
Corrigit Capital Group