I’m an investor in an early stage global macro fund. Each month, we publish a newsletter with our thoughts on the market and our fund’s performance. I’m now publishing an edited version of that newsletter here, so a broader audience can participate in the conversation.

February’s market performance has continued to be rocky, confirming our January call on not having yet hit the bottom of this leg down in this market.  The month was marked with a meaningful amount of volatility and ultimately found itself in a 3.14% drawdown in the S&P 500 and 4.64% in the Nasdaq 100.  

The conflict between Russia and Ukraine is an unexpected and unfortunate addition to market volatility.  Perhaps counterintuitively (and even more unfortunately), geopolitical tensions are often short-lived in terms of their impact on the markets.  Further, these tensions likely give Powell and the Fed the aircover it desperately needs to slow down the taper.  (Eg., not necessarily raising the Fed Funds rate by 50 bps in March, despite that likely being what the inflation rate is calling for.)  

Perhaps just as importantly, nothing goes up or down in a straight line.  So the factors above drive us to believe that there will likely be a corrective bounce in the near-term.  This could potentially happen after the upcoming March OpEx (3/18) which coincides well with the FOMC meeting (3/15 and 3/16).  

Yet, a short-term bounce doesn’t necessarily mean a sustainable recovery.  We still have a number of downside catalysts to take into account: (1) slowing corporate earnings (2) oil spiking and the effect on CPI (3) increasing geopolitical tensions.  We urge caution over the next 3-6 months.  

We reiterate our conviction that the Fed is not going to stick to the plan of raising rates at most/all of their meetings in 2022.  There should be multiple deflationary catalysts that give them the aircover they need for an about face, which is desperately needed.  

The views above are nuanced as they pertain to timeframe, so a simplified summary of how we feel over the next month, two quarters, and year as follows:

• • 30 days: Bullish
  • 180 days: Bearish
  • 365 days: Slightly Bullish

We reiterate our EOY price target on the S&P 500 of 4850.

Disclaimer: Adil.io does not provide, and no portion of our Content purports to be, individualized or specific investment advice and Adil.io does not provide investment advice to individuals. All information provided by Adil.io is general in nature and is made without regard to individual levels of sophistication or investment experience, investment preferences, objectives or risk parameters and without regard to the suitability of the Content for individuals or entities who may access it. No information provided by Adil.io should be construed as an offer to sell, or a solicitation of an offer to buy any security or investment vehicle, nor should it be construed as tailored or specific to you, or any reader or consumer thereof. You understand and agree that our content does not constitute specific recommendations of any particular investment, security, portfolio, transaction or strategy, nor does it recommend any specific course of action is suitable for any specific person or entity or group of persons or entities. Adil.io research Content is based upon information from sources believed to be reliable. Adil.io is not responsible for errors, inaccuracies or omissions of information; nor is it responsible for the accuracy or authenticity of the information upon which it relies.