A Tale of Assumptions and Expectations
Less than 18 months past a 2-month truncated recession, it’s always good to step back and think about how investors’ assumptions and expectations have changed. In the depths of March 2020, investors and allocators were happy to just not lose money. Things were changing fast, causing collective FOMO (fear of missing out) from Mega-cap technology, infotech companies (think FAANG), crypto currencies and NFTs, which dislocated return expectations from reality. It’s hard to not feel nervous about this market. Investors have every right to feel nervous, as we navigate our portfolio allocations while experiencing the Federal Reserve’s series of experiments. With magic wands capable of erasing (or truncating) any recession in our sights, the Fed adds more leverage and fuel for the next market dislocation, all while leaving the world of allocators to question if this market is anything but one-directional in the long term. While many joke that the Fed is protecting equity markets, the Fed has really been focusing their actions on bond markets. Muting volatility and interest rates has been the name of the game.
