Buy in May and Go Away (Core Strategy Rebalance)
No Shortage of Uncertainty
We generally refrain from overly frequent adjustments to our allocation strategy. However, recent developments have shifted the immediate-term risk/reward balance for our Core Strategy, necessitating a relatively more cautious approach. Based on our analysis below, we also have a good idea for when the market will find a more stable footing.
The DXY has rallied significantly, and the long end of the yield curve has experienced a persistent steepening amidst rising inflation expectations and consistent supply of coupon issuance from the treasury. This past weekend was particularly detrimental to the crypto market, influenced by a confluence of factors:
- Geopolitical tensions
- Tax-related selling and reduced fiscal flows (with tax payments to the treasury exceeding disbursements into the private sector)
- A persistent rise in the US 10-year Treasury yield, driven by strong growth figures (e.g., retail sales exceeding consensus) and inflation expectations
This combination has resulted in a significant drawdown, certainly reminiscent of mid-cycle drawdowns in previous bull markets, yet notable in its magnitude, with many longer-tail assets erasing a month or two of gains within days.
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