It was a positive month for Altex Momentum (+1.92%) and Tactical (+3.71%), but less favorable for Quality (-1.23%) and Growth (-3.07%), that were hurt by the trend reversal in the best performing sectors. Overall, results since January are still positive, with Growth and Quality up +13.43% and +11.28%, respectively. Only Momentum remained flat at -0.74% given its diversification across blocks, where the top performers were dragged by laggards. Tactical staged a significant recovery, accumulating a gain of +8.29%. A sideways market with moderately high but stable volatility allowed volatility futures to deliver attractive returns for the month. 

The Altex DIPS hedge made a mixed contribution for the month: +0.24% for Momentum, +0.07% for Quality, and -0.07% for Growth. The sideways movement of the indices hinders the strategy from performing at its best. 

The USD depreciated by -0.77% against the EUR.

Markets:

Rising bond yields, a fragile and still unconvincing truce in the Iranian war, and the Federal Reserve holding steady. Kevin Warsh spoke at the Jackson Hole central bankers’ meeting at month end, mentioning a commitment to bringing inflation back to 2%, while giving no hints or forecasts about future monetary policy. Markets began to worry that inflation might end up skyrocketing, fueled by too high oil prices for too long, and bond yields rebounded again on the back of these fears. 

There are two converging factors in the U.S. debt crisis:  

Persistent inflation, high energy prices, and a strong job market, and  

Unchecked spending —both government spending driven by cost of the war, and private spending pushed by investments in AI.  

Meanwhile, Kevin Warsh says he is delighted to see such high yields: without his having to raise interest rates, financial conditions have tightened, constrained by market forces. This combination boosted 10-year U.S. Treasury note yield to 4.75% at the month end. 

Calls for greater caution in AI investing helped the blue-chip stocks rebound, while tighter credit conditions weighed on smaller companies: S&P 500 +2.62%, Nasdaq 100 +4.18%, Dow Jones Industrial +1.34%, and MSCI World +2.68%. 

Small-cap companies lagged behind large-cap ones: MAGS +4.21%, S&P Top 50 +2.83% vs. S&P 600 -0.66% and Russell 2000 +0.86%. 

By sector, performance was mixed, ranging from Energy +7.41% to Homebuilders -6.54%, with the notable exception of Gold Miners +32.94% and Metals & Mining +17.37%. 

By factor, Big Cap Growth and Quality performed best (+3.7% and +3.5%, respectively), while Low Vol Equities (-2.0%) and Small Cap Value +0.25% performed worst. The Magnificent Five’s returns also affected factors. 

In a month when oil prices offered some respite, outside the U.S., Japan and Europe outperformed the rest, rising +3.78% and +1.53%, respectively. China closed in negative territory at -3.10% despite a modest recovery. 

In commodities, Oil fell -1.17%, a negligible decline following the previous month’s 29% rise. Concerns about U.S. finances boosted Bitcoin, Gold, and Silver, which rose by +25%, +10%, and +15%, respectively.

Outlook and positioning:

We continue in the midst of an extended summer period of sideways movements, with sharp sector-specific ups and downs driven by market rotation and midterm election uncertainty. The Federal Reserve will hold a meeting mid-September and will then announce its interest rate decision. The market assigns a 60% probability to a rate hike; otherwise, it is likely it will be postponed until after the elections. Although doubts about U.S. Treasuries persist, the spillover effect is limited, and risks appears to be largely confined to that asset class. Corrections seem to be only affecting a few sectors that have risen sharply, and neither stock markets nor the high-yield bonds have been hurt. Looking ahead to September, we expect Kevin Warsh to raise rates, as much of the market anticipates, and for markets to regain stability in the second half of the month. 

Following the earnings season, we have repositioned our portfolios to a slightly more balanced allocation across sectors.

In Altex Momentum, we increased our holdings in IT, Materials, and Financials, while cutting back Communication Services and Healthcare. The three sectors with the highest weightings now are IT at 23%, Materials at 20.8%, and Industrials at 17.9%. The Materials sector has significant exposure to Gold and other metal Mining companies.

In Altex Quality, we increased our holdings in Consumer Discretionary, Communication Services, and Materials, and reduced IT, Industrials, and Healthcare. The three sectors with the highest weightings now are IT (30%), Healthcare (17%), and Industrials (17%). 

In Altex Growth, we increased our holdings in Materials, Healthcare, and Financials and lowered Industrials, IT, and Consumer Discretionary. The three sectors with the highest weightings now are Materials (29%), Healthcare (19%), and Industrials (15%).