Almost 100,000 delegates made the trip to Dubai for this year's climate conference, around double the prior record. I'd suggest that this reflects on the appeal of flying on Emirates, but most climate warriors use private jets. The Paris summit had a particularly large number of attendees because the resulting Paris Accord was viewed as being important.
It should be no surprise then that this week the best performing industries were in clean energy.
However, this had nothing to do with the 100,000, and everything to do with just one man.
Whether a few rate cuts from the Fed means salvation for these beaten down companies is unclear, but it'll be determined by economics rather than politics.
The market was pricing 4 Fed cuts for 2024 and the Fed promised 3. David thinks that the intent is to allow the Fed to cut 3 times without being accused of interfering in the election, while still giving some pushback to the market.
The market seems to think it means that the Fed will do whatever they say, and so moved to price 6 cuts instead.
The result was a 2 standard deviation rally for just about every bond out there, and a short squeeze in the stock market.
Banks and homebuilders continued their recent outperformance after the Fed, while semiconductors were strong all week.
In China the story was more mixed. If we measure Chinese stocks using the CSI 300 index then they made another new low this week. However, if we use the MSCI China index they rallied. The reason for this divergence is that the CSI 300 index is much more weighted towards financials. The market thinks that Chinese banks are being asked to take one for the team, and while there may be an implicit promise of state help later, there's no guarantee that this will be done in a shareholder friendly way.
The signs for China look positive however. The growth sensitive sectors led the US market this week, with materials at the top, while the defensive sectors lagged. I'd interpret this as optimism about Chinese growth.
With China being the dominant source of global emissions, was higher growth expectations the real result of a climate conference with no commitment to cut any time soon?
The rally in banks stocks helped the Unbound Absolute Return Portfolio to a strong week.
BAC was significantly more volatile than JPM, gaining more on the Fed but also giving back some gains today. This still made it the top performing asset in the portfolio on the week.
JETS saw more modest gains as oil found support, while TIP gained just like every other bond.
BYD had a small move considering recent volatility.
For the week the portfolio finished up 49bps, and is now close to 200bps ahead of cash as we approach the end of the year.
A big week of liquidity easing was bad for the Unbound Asset Allocation Portfolio.
Value outperformed growth once again on lower rates, but both stocks and bonds rallied significantly.
The Dollar sold off sharply after the Fed, but bounced strongly today even as rates initially sold off, which suggests that the market wants cuts fron the ECB as well.
On the week the portfolio was down 84bps relative to benchmark.
Our tactical equity portfolio was short industrials against materials.
With China showing signs of life, materials was the top performing sector.
However, it was closely followed by industrials, so on the week we gained a scant 2bps.
Benchmarked portfolios
Portfolio | Benchmark | Current Active Portfolio | Current week | YTD vs Benchmark | IR since inception |
Unbound Absolute Return | Cash | See below | 48bps | 167bps | 0.6 |
Unbound Global Asset Allocation | 60% ACWI, 40% AGG | -10% IVW, -10% IVE, 10% -10% ACWX, -10% AGG | -84bps | -450bps | -0.5 |
Unbound Equity | SPY | -8.2% XLI, 7% XLB | 2bps | 79bps | 1.1 |
An archive of our prior weeks is available here.
Stock trades
In John's short term portfolio (Daily discussion on forum) we sold CAT on Monday and stopped out on Friday.
Portfolio | Ticker | Date entered | Entry | Last close | Size |
Short term | NNDM | 4.62 (avg) | 2.39 | 100% | |
Short term | MDLZ (s) | 69.55 | 70.70 | 100% |
Closed trades year-to-date = 28
Closed trades that made money = 5
Closed trades that lost money = 15
Closed trades that broke even = 8
An archive of our closed trades is available here.