soft spot

Encouraged by receding inflation and the apparent end of Fed rate hikes, a resurgence of “soft landing” hopes sent asset prices soaring in November with the best month of the year for stocks (Nasdaq 100 +10.7%, S&P 500 +9.1% Nov) and the best in 15 years for the Bloomberg Aggregate Bond Index (+4.6% Nov) erasing nearly all losses since July.

Highlighting their two-way nature, TCM strategies adapted well to November’s bullish signals to produce the best all-around monthly performance of 2023, including the best month of the year for Alpha Seeker, EAFE Smart Index, Hedged Disruptor, Legacy Navigator, Tactical Beta and Tactical Q and a close second for Emerging Market Smart Index and Hedged Yield. As long as bullish conditions hold, all strategies remain well positioned for further gains in risk assets.

Just a few percent from all-time highs with a soft or no-landing scenario now the overwhelming consensus for 2024 (chart), stocks seem to be fully pricing a happy ending to the steepest rate hike campaign in the last 50 years.

While this low-odds scenario is certainly possible, investors should note that a peak in soft landing hope is not uncommon around recessions (chart below) and if historical odds play out, the market could soon find itself at risk of a sharp repricing. With the stakes sky high on the cusp of the final phase of the Equity Crisis Cycle, a tactical approach could make all the difference in the coming years.