Dear Friends

Last month actually started with great news in the U.S.: a stellar jobs report, unemployment rate down to 3.5% (the lowest since 1969), inflation down slightly to 8.5%, and a three-month high in consumer sentiment. Markets were appropriately optimistic, assuming that the Federal Reserve would now slow the pace of rate hikes.

As you know, the central bank’s goals are twofold: Price stability and maximizing employment. However, interest rate increases for the first goal also tighten financial conditions for the economy and negatively affect employment. Thus, a rather fragile equilibrium must be maintained in order to prevent a recession. Despite record low unemployment, we are starting to hear about hiring freezes and layoffs in large blue-chip companies with impacts on stock prices.

Due to ongoing global conflicts, and in particular rising tensions between the U.S. and China, market participants have also become increasingly wary of China’s large holdings of U.S. Treasury bonds worth over $1 trillion. Any further escalation in U.S.-China geopolitical tensions could lead to a potential sell-off in U.S. bonds putting pressure on the dollar.

Then, in late August, Fed Chairman Jerome Powell delivered an unexpectedly hawkish speech at the Jackson Hole symposium, reaffirming the Fed’s determination to target a 2% inflation rate. He also acknowledged potential “pains to households and businesses” associated with slowing domestic growth and a softer labor market.

Markets were caught off guard by this, having expected the opposite message, and reacted immediately. The S&P 500 scored its worst daily performance since June, and bitcoin, still remaining at the mercy of its heightened correlation to risk assets, followed suit. 

Again, this resulted in a month where everything ended in the red, with the Nasdaq closing -4.6%, the S&P 500 -4.2%, 20-year bonds -4.9%, gold -2.9%, and Bitcoin -14.1%.

While our strategies were able to dampen volatility, they could not escape market trends with Universal comparatively steady -0.3%, Progressive  -4.0%, and CryptoMax -11.5%.

While investors always like to see more growth, macroeconomic data such as the recent job report show that despite tighter financial conditions, the economy still has enough runway for a soft landing according to the Fed’s goals without a “growth recession”.

As we exit the summer months and head into the September FOMC meeting and the U.S. midterm elections in November, we can expect more market volatility as investors await clarity on the trajectory of inflation and growth.

So, once again, we need to keep our seatbelts fastened as we fly through these turbulences. While our patience is being tested, I am convinced that it is precisely in times like these that it pays to keep emotions in check and pursue a systematic strategy with a clear head.

Stay happy, healthy and wealthy!

Omar