Peace of mind, less risk and steady outperformance.
Only two weeks ago, I indicated we were getting out of the technology sector as economic growth and inflation were slowing.
Since then, Technology has been down -9%, while one of our favorite allocations in this macro dynamic, Utilities, is up almost 6%!
This is a 15% outperformance purely based on the power of macro!
This deceleration in year-over-year growth is driven by several factors, including a gradual slowdown in the labor market, ongoing economic challenges, particularly for the lower-income population, and constraints on further acceleration in both the cyclical economy and consumer credit growth.
On the inflation front, we’re observing a mix of steeper comparisons, favorable seasonal trends, and a deceleration in domestic demand. This is further compounded by the economic slowdown in China and emerging markets, expected to drive a brief period of disinflation. This scenario could create conditions favorable for policy easing in September.
Currently markets are pricing in a 60% chance of a cut within a week. However, it’s important to note that these cuts will unlikely alter the fundamental economic data we’re seeing.
The increase in volatility has been striking, and we advise against relying on opinions from commentators who did not anticipate this.
It’s crucial to stay disciplined and embrace uncertainty, as navigating VIX levels above 30 requires a sophisticated approach.
I’m looking forward to building your portfolio together with you,
Philippe