Market & Positions Update

My thoughts on the portfolio, equities, and bonds.

Over the past few weeks, the main narrative for equities has been the tale of bond yields exploding higher, specifically long-duration treasury yields, as the 10Y has moved from 4.2% to 4.6% since the beginning of April. This is driven by more stubborn and higher-than-expected inflation/growth data we have seen over the past few weeks (CPI, retail sales, NFP, etc…). I have been in the camp that this move was likely, and within the portfolio, I traded TLT puts several times, making significant profits. Currently, I am not short bonds as I believe the trade has less asymmetric upside from here; however, if the opportunity to enter the trade again presents itself, I will go short again, and for context, next Friday, we get the March PCE report, which will undoubtedly drive bond volatility so it will be something I am closely watching to enter over the next week. Additionally, what this recent bond volatility has done is drag down equities. Finally, stocks realize that the three rate cuts and ease of financial conditions that the FED has spoken through markets are less likely to continue in the next FOMC meetings. As a result, the S&P 500 has fallen ~5% from its highs. Interestingly, in the chart below, the blue line depicts the S&P 500 correlation to TLT (long-duration bonds) and how these two were closely correlated all H2 last year; however, this correlation decoupled, and stocks YTD up until April ignored the bond market.

Looking ahead, I see three potential scenarios that could shape stock pricing, and I want to say, hopefully, none of this post comes off as being very bearish; I am a significant buyer at lower prices.