💎New Year, Old Problems💎

While we have ushered the new year for the 2nd week, it seems that the old problem of last year had not gone- namely two of them: the inflation woes and the Fed’s monetary response. 

💈Beware of the Treasury Yield🛎

Indeed, this has been the focus of our several updates as the 10-year benchmark hit a 1.77% high, a level we saw last March. Short term rates also keep rising as the expectation of rate hikes keep increasing. Such trend tends to hurt high growth stocks we also impacted the Russell 2000 which was a mega spot in our portfolio.

We saw the see-saw of the 10 year bond yield swinging up and down like a roller coaster ride as investors speculate the future trajectory of the next Fed’s action. 

💰Balance Sheet Holdings🗝

Pika World will be looking at any hints of balance sheet reduction in the upcoming FOMC. It will be a significant drain on the liquidity in the market and immediately cause a tightened economic environment. 

🎉Winner and Losers🧸

While our portfolio took a profound hit, a continuation from last Dec, our pivot towards financial had helped to lessen some pressure. In the current market, those of technology and the elevated valued growth stocks were hit hard due to a lower present value of potential future cash flow.

⛳️The Fed Mandate🏒

It appears the Fed had finally achieved both of his mandates. Inflation has gotten above the 2% target after a long undershooting the goal. The Dec job report could be seen as a finished goal of its employment mandate. 

While some argued that the nonfarm payrolls appear light, the unemployment rate did fall sharply to 3.9%, which is below the FOMC estimates of a long-run equilibrium at 4%. Moreover, we see healthy growth in average hourly and weekly earnings. 

🪜Inflation may continue to run hot⌛️

The elevated Inflation is likely to stay for several reasons. First, the wage gains may further accelerate, and so is the rent. Companies also appear to have strong pricing power and the notion of “greenflation”, where cost associated to combat climate change comes at a tricky time. Most importantly, we see strong M2 money supply growth that could fuel the bedrock of sticker inflation. 

In a nutshell, Pika World sees heightened volatility. We shall be more nimble in our trading strategy as we balance towards our goals of various sectoral allocations we laid out in our previous update. 

XOXO, 

Pika Nat.