November 2023 Market Strategy

My base case: Equities grinding higher in a low volatility regime, bond yields to remain elevated across all tenors and pure store of value assets to disappoint.

Disclaimer: The information contained in this article is not and should not be construed as investment advice. This is my investing journey and I simply share what I do and why I do that for educational and entertainment purposes. I try my best to be transparent about my positioning to the extent it is relevant to my posts. However, I reserve the right to close positions at any time without further notice.

Disclosure: I am long the US stock market via SPY 0.00%↑ and IWM 0.00%↑. I am short UVXY 0.00%↑ TLT 0.00%↑ USO 0.00%↑ and BTC (via MSTR 0.00%↑). I have long and short positions in various other stocks with a long bias. The above positions include stocks and derivatives.

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Summary

This is a big article with tons of charts, which is why I am offering a summary upfront.

Over the past months, I have argued that investors are positioned for a hard landing because they have longed bonds and shorted stocks vs. historical average levels. I believe this picture has somewhat changed. In my opinion, they are now positioned for a soft landing which would be characterized by falling yields and economic weakening, with a rather mild recession (if any).

This is evidenced in positioning data which still demonstrate an extreme imbalance in the bond market that has even increased recently. But investors have not just converted their cash in bonds, but also into equities. These are still underweighted vs. historical levels, but far from the excessive levels we have seen earlier this year and that have preceded (driven?) the strong stock market performance YTD. In terms of sector exposure, investors still prefer defensive industries that would benefit from weaker growth.

Cash levels are now below average historical levels which is stunning considering that we are seeing the highest cash yields in decades. What we have seen in recent months can be best described as a duration bid, a clear manifestation of a consensus agreeing on falling interest rates for all tenors very soon. Not higher for longer, but lower sooner.