Sudden Selloff

I.  What’s Going On?
 

1. Current Market Action/Pricing

• As of writing this piece this morning, the S&P 500 is ~5180, approximately ~8.5% off its all-time high of 5670 just about three weeks ago and only ~1.5% away from official “correction” territory.
• The VIX (so-called fear gauge) rose as high as ~65 this morning (before tailing off), a level not seen since the COVID scare in early 2020.

2. Global Stock Market Selloff

• This recent equity weakness is a global, not simply U.S., phenomenon.  For example, Japan’s Nikkei 225 dropped ~12% yesterday, its worst day in ~37 years, officially moving into a bear market.

3. Significant & Sudden Move Downward in Current and Future Interest Rates

• This significant stock market drop was kicked off by a disappointing July jobs report announced Friday causing record drops in interest rates.
• On Friday the 10-year Treasury was ~3.76%, its lowest yield in a year; well off its ~4.20% yield just about one week prior.
• As of the end of the day Friday, the markets were pricing in a Fed Funds rate cut of 0.50% next month, and additional cuts to follow over the coming months.

4. Concerns that the Fed is “behind the curve”.

• For many months the stock market cheered (up ~24% in 2023 and up another ~17% through mid-July this year) as it appeared the Federal Reserve had actually engineered the prized so-called “soft landing,” meaning they had fought inflation down (largely through raising interest rates and keeping them elevated) without resulting in recession.
• Again, the recent job report, yields declines, market selloff, and recession fears now challenges this “soft landing” thesis.

 
II.  What Did TWAG Do to Safeguard Portfolios in Advance of this Selloff?
 

1. Uniquely Powerful Stock Market Hedge

• The bulk of our clients own a so-called “dynamic tail-risk hedging” strategy, which tends to do extremely well in environments like this.
• Allows our clients to protect capital and even profit off significant, sudden downward stock market moves.

2. Uncorrelated Private Investments

• Most of our clients also own private investments which are largely uncorrelated to the stock market.
• Hence, their returns tend to stay very high even during significant stock market stumbles.
• For example, from 1/1/22 through 9/30/23, when the S&P was down ~4% (it had fallen as much as ~28% during this period), our TWAG Privates Portfolio was up ~11%.

In sum, utilizing tools such as the aforementioned hedge and private investments allows our clients not only to preserve their capital in such times but also potentially profit from them.

We welcome your emails and calls; happy to discuss the markets and potentially be of benefit to you and yours during events such as these. click here