The notion that the Federal Reserve will be unable to cut interest rates in a meaningful way this year has gained momentum. As inflation readings remain elevated, and the economy continues to fare well (at least according to the reported figures), the “higher for longer” camp is further emboldened. The belief that interest rates will necessarily be high for a longer period of time than was anticipated should weigh on the stock market and depress bond prices (thereby keeping rates elevated), but this is not the case. Equities seem disconnected from this perceived reality, and the S&P saw another steady rally.
Following a strong month in April +1.45% for the Hyperion Fund, May +1.08% was more of a challenge. The strategies that typically thrive in volatility were not able to monetize any ratio put spreads as there were essentially no pullbacks, save for a paltry decline at the end of the month (which was almost immediately retraced). Despite the sparse opportunity set, the fund found opportunities in the market neutral and directional components of the portfolio.
The Tactical and Directional Spread Strategy successfully leveraged the low volatility to find profitable trades, netting the majority of the gain for the month. Ideally, we’d like to see a higher degree of volatility to provide more lucrative opportunities, but as shown so far this year, we are able to find positive trades even in low-volatility environments while keeping a keen eye towards potential risks.
The Federal Reserve meeting and statement on the first day in May did little to change the trajectory of a market seemingly on autopilot. Some theorize that this may be the situation until the election in November, but we disagree. Markets have a tendency to surprise participants when the prevailing sentiment becomes too much of a consensus. Spiking interest rates, escalating geopolitical issues, or a cooling off in certain speculative tech / AI stocks could be that shock to the system. Regardless of the root cause, these types of occurrences have a way of arising when least expected. We continue to search for positive risk / reward trading opportunities in this evolving environment.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE RISK OF LOSS IN TRADING COMMODITY INTERESTS CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN COMMODITY INTEREST TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. IN SOME CASES, MANAGED COMMODITY ACCOUNTS ARE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT AND ADVISORY FEES. IT MAY BE NECESSARY FOR THOSE ACCOUNTS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS.
