Treasury Yields and the stock market

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Treasury yields vs the stock market Rates on Treasuries have been rising lately, and with Jerome Powell up on the Hill, there's growing chatter on whether there's some problem emerging. Is the Fed losing control of the curve in some way? Is the market testing the Fed's credibility in its fight for higher inflation and maximum employment? There are lot of takes out there, so be careful. In the meantime, here's one chart that shows how the Fed's strategy is largely working, and that it's easily maintaining the credibility of the market. It also shows how radically different this Fed is than the Bernanke Fed in the wake of the Great Financial Crisis. The three month-three year U.S. yield spread is basically a measure of how fast the market expects the Fed to raise rates over the next three years. When the number is high, the market is pricing in several hikes. When the number is low, the opposite. In the wake of the Great Financial Crisis (the red shaded area in this chart), the spread got as high as around 150 basis points. Think about what this means. In the midst of a historic collapse, the market was pricing in numerous hikes between 2009 and 2012. Now we know, in retrospect, that the Fed didn't start hiking post-GFC until the end of 2015. So there was just an incredible mismatch between expectations for what the Fed would do post-Lehman and what it actually did in practice. Now, fast forward to today, and the spread is less than 20 basis points. Which means there's not even a full quarter-percent hike expected. Maaaayyyybe we'll get one hike over the next three years according to the market. Maybe. But also again, consider that we're expected to have blazing fast growth this year and next. Goldman has us growing at around 7%, which would be the fastest pace in years. So here we are with a reopening, stimulus, solid household balance sheets, and the expectation of red-hot growth, and still the market doesn't really see any hikes before 2024. If you thought that maybe the market was testing the Fed, or skeptical of its credibility, this chart should put all that to rest.

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Fund Profile: CI Munro Alternative Global Capital protection is a big way Munro is able to add value. Below shows how well the Munro Alternative Global Growth Fund has protected capital during days in the market where the S&P 500 or Nasdaq were down at least 1%. This data is from Jan 1st until yesterday. In a nutshell, the Nasdaq was down 8 times. Munro outperformed on all 8 days. S&P was down 4 times. Munro outperformed on all 4 days. Process:The team has a stop loss process at an individual stock level and an overall portfolio level.This is when they will determine if they should trim or eliminate a position or add more safety to the overall portfolio. Cash:The managers will raise cash if they are uncomfortable with the market outlook. They can raise cash to 100%. Put Options:They can buy short dated put options on major market indices.These options are relatively small from a cost perspective but can add a lot of value if markets experience big drawdowns. Shorting:The managers will short certain stocks and can short futures contracts on broader indexes, like the Nasdaq.They generally will not short more than 8-9 stocks. Currency:The neutral position for currency 50/50, CAD/USD. However, they will be tactical with this as well. During market sell-offs, if we see a “flight to safety” into USD, the team is able to overweight their USD exposure to take advantage of this.