 BANG! SWOON! And here we go – a dramatic delta as we saw several asset classes post parabolic gains/dramatic declines as inflationary pressures abate, rates remain iffy and geopolitics inflame. Across the board there were more losers than gainers at year's end in USD terms, with Brent crude oil (+6.1%) topping the list and the Hang Seng (-9.2% in USD terms) the largest decliner. The S&P 500 (+1.7%) and Nasdaq (+1.0%) eked out gains but the Russell 2000 (-3.9%) was lower. Indeed, most global equity and bond markets were slightly lower in USD terms on the month due to a stronger dollar. Returns in many European markets were slightly positive in local currency terms. On the last day of January, we saw a notable risk-off tone. That was because of a slightly hawkish FOMC versus market expectations, as well as the news that New York Community Bancorp (-37.67%) had reported a loss as they raised their expected loan losses on commercial real estate. That meant the KBW Regional Banking Index (-6.00%) saw its largest decline since the regional banking turmoil last March. In addition, Aozora Bank (-21.49%) in Japan reported losses overnight that were also because of US commercial property. US indices shot up 9.13%, while developed international markets rose 8.28%, demonstrating a renewed appetite for risk. Fixed income also rebounded strongly as yields declined. The Bloomberg Aggregate Bond Index returned 4.54% for the month. Hedge funds posted their best monthly return of the quarter at 3.27%, effectively capitalizing on shifty/stochastic dynamics. Commodities underperformed, however, declining -4.39% as demand softened for industrial materials. Meanwhile, managed futures struggled with the sharp reversal in stocks and bonds, losing -3.44% on the month. One diamond in the rough was Russia's MOEX, which, despite 'sanctions' and systematic demonization by Western nation-states, generated respectable equity returns (+5.6%) along with a stable ruble. Bizarrely, cocoa futures posted stratospheric gains (+97%). Ditto uranium (+94%), OJ (+51%) and potatoes! Lithium and rhodium got smoked, losing -79% and -63% respectively. The ultra-complacent VIX is now a coiled spring and China is poised to self-destruct. Looking ahead, diversification across investment approaches remains prudent amid ongoing macro uncertainties. Signs of peaking price pressures shifted consensus across multiple markets and strategies. But as always, time will tell how conditions continue evolving. Just stay far away from China - the 'dark star' for FDI/risk capital - as it is now utterly uninvestable .   Comments are closed.
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