Last week, our Alpha Strategy suffered losses as market moves turned against our Equity, Commodity & FX exposures. This came from a decline in our hit ratios, holding at 53% over the last 12-months. The last two weeks have shown the potential for a regime shift, which our systems have shown, but not yet confirmed. Limited periods of lasses can occur during regime transitions, but they are unlikely to remain sustained.
Turning to next week, our systems now have confirmed positions for the next week:
The Prometheus Alpha Strategy is LONG: S&P 500, Consumer Staples, BCOMTR, WTI, Brent Crude, Heating Oil, Gasoline, Lean Hogs, Copper, Gold. However, equity longs should be sized minimally due to current regime dynamics. Our Beta Rotation Strategy is currently LONG: Commodities. A Market Regime Portfolio would be allocated to Stocks: 4.8%, Commodities: 53.1%, Treasuries: 0%, Gold & TIPS: 5%, Cash: 37.3%.
With regards to economic data, here are the data points most relevant to our systematic tracking of economic conditions:
- Monday: ISM Manufacturing
- Tuesday: Factory Orders
- Wednesday: ADP Payrolls, ISM Non-Manufacturing, FOMC Decision
- Thursday: Jobless Claims
- Friday: Average Hourly Earnings, Unemployment Data
Next week, there are two incremental data points relevant to our systematic approach. The first is ISM PMI data. Our High-Frequency Growth Impulse measures suggest that the next print will be sequentially lower, though the jury remains out on whether it will be below a value of 50, which is considered contractionary.
The second is the FOMC meeting, with markets currently pricing 50 basis points of policy tightening. The key to the meeting will be the market assessment of the pace of future rate hikes, in addition to the pace and timing of quantitative tightening. With broad equities in a downtrend according to our measures, alongside a deteriorating economic backdrop, a hawkish Fed poses significant threats to risk assets. We are within spitting distance of a major market regime change and should plan accordingly. Stay tuned!