Several months of higher inflation have brought rate cut predictions this year down to two from six in January. The result is a weaking bond market, affecting both investment grade and high yield bonds, with conventional, investment grade bonds taking the brunt of losses. After today’s losses, AGG bonds will have declined by roughly 3% since the start of the year, while the yield on 10-year bonds pushing ever higher.
As a result, the high yield component of our bond strategies shifted to defensive positions over the past three days. Those assets have shifted to cash and Treasury bills allocations (or hedged high yield positions).
This year, stubborn inflation is paired with largely positive data on the economy, which suggests that demand may continue to drive inflation even higher. Those who extended maturities to prepare for FED easing may want to temper their bets as we stand a very real chance of seeing the 10-year yield push up to and beyond 5%.
Stocks have moved lower too, threatening losses to the impressive first-quarter rally. Currently, we remain fully allocated to stocks (and fully hedged). If stocks can hold onto the rally despite higher yields over the next few weeks, that could be an all-clear sign for the stock market rally ahead.
Recently, I had the pleasure of joining the iconic Tom Keene and Paul Sweeny on Bloomberg Radio to discuss stocks, potential threats to FED rate cuts, and the Corona-Bias. I encourage you to take a few minutes to listen here.
Phil Toews
Recent Trades and Current Positions:
High Conviction Tactical Models1,2:
Developed International Stocks: 100% Invested
High Yield Bonds: 100% Defensive3
US Stocks: 100% Invested
Investment Grade Bonds: 100% Defensive3
Managed Risk: Approximately 6% OTM at today’s market close (LEAP on SPX Futures Put strike price)
Equity Portion of Defensive Alpha Models1:
100% Invested
These include the Toews Capital Preservation, Balanced, Balanced Income, Balanced Growth, Growth, and All Equity, High Income, Balanced Income, and Conservative Income portfolios. They do not reflect the allocations of these strategies that are not allocated to Toews Funds.
Exposure to vehicles invested in the listed asset classes.
All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.
This commentary is intended to provide general information only and should not be construed as an offer of specifically-tailored individualized advice, and no representation is being made as to whether the information provided herein would be beneficial for any or for a specific Employer Benefit Plan or investor.
For additional information about Toews, including fees and services, send for our disclosure statement as set forth on Form ADV by contacting Toews at Toews Corporation, 1750 Zion Road, Suite 201, Northfield, NJ 08225-1844 or by visiting www.toewscorp.com. 6552636 MK
(1) These include the Toews Capital Preservation, Balanced, Balanced Income, Balanced Growth, Growth, and All Equity, High Income, Balanced Income, and Conservative Income portfolios. They do not reflect the allocations of these strategies that are not allocated to Toews Funds.
(2) Exposure to vehicles invested in the listed asset classes.
(3) While there are individual High Yield and IG Bonds holdings, 100% defensive positioning is achieved by hedging with High Yield Bond and IG Bond Futures respectively