Both US equities and rates ended the week roughly flat, but this was a very choppy week for stocks. The daily range averaged around 4% in SPY, keeping VIX above 30% for most of the week. Without a monster month-end rebalancing rally, things might well have looked worse.
The Fed didn't frighten markets too much on Wednesday, but front end rates did sell off in response, taking the dollar higher, to the benefit of our short EUR/USD position.
The post-Fed flattening of the rates curve with 30y rates lower and 5y rates higher is a classic signal of late cycle. It doesn't quite signal the death knell for the bull market in equities though. That typically happens after the curve has inverted and then re-steepens as the front end rallies in anticipation of the Fed needing to cut.
Emerging market equities underperformed in the wake of the Fed. Chinese stocks in particular did poorly, with FXI down 5.4% on the week compared to 3.5% for EEM. It seems likely that the ongoing battle to contain Omicron ahead of the Olympics may have contributed to the Chinese stocks weakness. This hurt our KWEB position in our medium term portfolio. However, this position remains at only 10% of our intended size.
The neutral posture we adopted in both our sector and 60/40 portfolios benefitted from favourable opening levels on Monday, and finished the week ahead of benchmarks by 7bps and 23bps respectively by our estimates.
Oil again moved higher, as geopolitical tensions remained high, with corresponding gains for our XOM position more than offsetting losses from CCL.
In David's medium-term portfolio (The Money Game) we made no changes this week.