This publication is a short excerpt from our weekly Prometheus ETF Portfolio note. While we reserve our forward-looking views on macro and portfolio construction to paid subscribers, we offer our high-level diagnostic of macro conditions here as we aim to offer value to the broader public.
For those unfamiliar: The Prometheus ETF Portfolio aims to allow everyday investors to access an investment solution that combines active macro alpha, passive beta, and strict risk control, all in an easy-to-follow, low-turnover solution. We aim to achieve strong risk-adjusted returns relative to cash, with limited capital drawdowns in depth and duration. We do this in a highly accessible package, which rotates between five highly liquid ETFs, readily available to any investor with a brokerage account. You can sign up for it here:
Let us dive into our assessment of macroeconomic conditions:
Markets continue to price in regime probabilities consistent with rising nominal growth and liquidity conditions.
Economic data momentum decreased modestly this week.
The latest data remains consistent with our expectations that inflation is unlikely to return to the Fed’s 2% objective in the near term.
Let's dive into the data driving our assessment before moving on to positioning. Over the last week, asset markets rose. However, gains remained skewed towards inflationary assets. Equities and bonds struggled, while commodities and gold performed well.
Economic data momentum slowed modestly during a week light on data releases, primarily driven by weakness in initial claims and consumer sentiment. CPI data was the key driver of markets this week:
For a further understanding of how economic dynamics have been priced into markets, we show our tracking of market-implied macroeconomic regime probabilities.
Markets continue to price in a regime of rising growth and liquidity. Inflationary odds have risen dramatically over the last few weeks, which puts pressure on stocks, but more so on bonds. We allocate accordingly. Until next time.