Stableford Capital Insights

Stableford Market Commentary July 2023

Second Half Kickoff—A dichotomy between rates and equities

Equities rose another 3% during July, driven by expectations of a Fed pause and lower inflation.[caption id="attachment_4141" align="alignnone" width="1171"]

A graph displaying the equities trend for July 2023

Exhibit 1 - Equities Anticipate a Pause[/caption]The equity upswing is at odds with U.S. 10 Yr. Treasury rates, which increased during July. One would expect rates to be falling in anticipation of lower inflation, or equities to be falling as rates move higher for the second month. Alas, not everything makes sense in the short term.For rates, fears of greater dollar volume of issuance and higher growth rates drove the 12 basis point increase to 3.96% in July.[caption id="attachment_4142" align="alignnone" width="1170"]

Black graph moving in an upwards fashion displaying bond yields

Exhibit 2 - Bond Yields Up 12 Points In July[/caption]Despite this increase in rates, equities continue to believe in a soft landing and better future growth. Additionally, algorithmic traders (who are completely insensitive to fundamentals and valuation) continue to pressure volatility which in turn drives up equity pricing. These strategies work really well…until they don’t. Recall “Volmageddon” in February of 2018 when the VIX (index of volatility) rose from 17 to 37 in one day and the major indices dropped approximately 2.5% as the VeloctiyShare Daily Inverse VIX Short Term ETN went bust, taking $2 billion of investor assets with it.That’s not to say this will happen again. However, the odds of upside vs. downside are becoming increasingly asymmetric given how one-sided this trade has become. It’s a bit like the game Jenga when too many blocks are on one side: The tower may stay up and it is possible to correct the issue, but you don’t want to be holding the last block.

Beige image of someone playing a game of Jenga with a tower stacked very high on a white table

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SUBSCRIBE TO OUR COMPLIMENTARY STABLEFORD MARKET BLASTThis market commentary was written and produced by Stableford Capital, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested in directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.S&P 500 INDEX: The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

July 8, 2024
Posted in
by Stableford Capital
Justin Thomas
Justin C. Thomas has worked for over 15 years as a portfolio manager and analyst managing institutional assets for hedge funds and large financial institutions. Career highlights include 8 years as an equity analyst and portfolio manager at PartnerRe Asset Management, a global reinsurance company with $17 billion in assets under management, and prior to that managing a long-short equity portfolio for Citigroup’s proprietary account. Justin has also worked as an analyst at long-short hedge funds and in research for Montgomery Securities (Bank of America Securities). In addition, Justin Thomas gained operational experience while working in finance and operations at E-Stamp, a start-up in Silicon Valley. He began his career working as a CPA at KPMG. Justin has an MBA and Masters in Accounting from Northeastern University and an undergraduate degree in Economics from Tufts University.