The 2022 bear market and the 2023 rally broke almost all of the rules of the downturns and recoveries of the last 30 years. With rate cuts now widely expected in 2024, markets are quickly approaching a major fork in the road.

With asset prices soaring in November and a soft or no-landing scenario now the overwhelming consensus for 2024, stocks seem to be fully pricing a happy ending to the steepest rate hike campaign in the last 50 years.

As we have repeatedly suggested, the best time to own a crisis-focused strategy is just ahead of the next crisis. History suggests that we may now be on the precipice of one.

Equities have historically moved through recurring cycles of expansion, stress, and policy response. If each cycle ultimately leads to higher equity values while periods of market stress create opportunities for VIX-related gains, we believe combining those return sources can improve long-term outcomes. That pattern has been evident in Tactical Beta since inception nearly seven years ago, and while every cycle is different, we expect the current one to ultimately present similar opportunities.

The return of the market’s fabled “bond vigilantes” threatens to remove a significant source of economic support just as stress from rising rates is growing extreme.