Dear Investors, Partners, and Friends,
In the words of one of the portfolio managers for the Tactical Program, Mark Adams, regarding July 2021 market conditions and performance:
The S&P 500 Index steadily climbed higher in June, as if on autopilot. The specter of higher inflation and the potential U. S. Federal Reserve response to those higher prices did little to dampen the animal spirits early in the month. Only when the Fed indicated a more hawkish stance did the S&P have a material decline, with a quick drop of 2.2% in a matter of days following the Fed’s announcement. The impact quickly faded and the S&P rapidly regained those losses and resumed its upward trajectory. The VIX reflected this relative calm and reached its lowest level since February 2020.
Minimal price volatility, with a CBOE Market Volatility Index (“VIX”) that remained in historically normal ranges, created a beneficial environment for the Tactical Strategy. Outside a few select days during the month, the VIX stayed within the 15-20 range and provided excellent risk/reward trading opportunities to extract profits for our clients.
While the only real drama in equity markets this month was the result of Fed commentary, a prominent question remains unanswered and could become a bigger story as time passes: is the current inflation just transitory, or will it be longer lasting? To confound that question, how long does inflation need to be present to no longer be considered “transitory”? While this distinction may seem semantic, the Fed will not be able to continue to ignore inflation and provide a highly accommodative monetary policy if inflation figures continue to climb and remain there for many more months. We believe that much of the current inflation is caused by the extraordinary situation brought on by last year’s economic entrenchment in tandem with this year’s economic rebound, but that doesn’t mean these issues will resolve themselves quickly. We believe inflation expectations will continue to confound markets and provide attractive trading opportunities in the near term.
If you’d like to discuss any of the strategies in greater detail or discuss how we generate strong risk-adjusted returns regardless of market direction, please feel free to reach out anytime. Thank you and as always we appreciate you entrusting us with your investment.