The performance during the past month was once again deceiving, to say the least. The main reason was the strong underperformance of bonds, gold and silver versus equities, as well as the renewed weakness in the US-Dollar. The next couple of weeks will be crucial, as the macro framework will have to show its true color. Either the market will turn back into a reflation trade, meaning bonds and the US-Dollar will remain weak, which would prevent equities, especially in the US, from a large pull-back, or else, the economy starts to weaken, which would favour bonds and defensive sectors. Nevertheless, a reflation trade will just renew troubles in the banking sector, as a weak bond market will inflict more pain to the credit on balance sheets of banks. A recession, which nobody wants, would be much better for the economy in the medium term than a renewed reflation trade. The key problematic is that if the bottom of the current disinflation cycle is too high, we will move already with the next reflation cycle into a set-up where the whole situation in financial markets can get out of control. During the next couple of weeks, the US-Dollar will be the ultimate guide, for which macro scenario the market is going for. Best performers in the portfolio were APi Group (+ 20.62%) and Medmix AG (+ 17.08%), followed by Cameco Corp. (+ 9.79%). Worst performers have been Fevertree Drinks (- 10.04%), Wheaton Precious Metals (- 6.88%) and Burckhardt Compression AG (- 5.75%). The weakest performers have been cut to a minimum allocation for some time. Currently, the portfolio is not positioned for an early reflation trade. Once the macro picture becomes clearer, it will be adjusted. Gold still owes us a last sell-off, but it held up surprisingly well during the last rise in interest rates. The weakening US currency may have helped. If it is a valid candidate for both macro scenarios remains to be seen. As the current outlook is unclear, the portfolio refrains from taking any large bets. Outperforming stocks remain hard to find. The market remains dominated by a few mega large caps, which help the technology - and the consumer discretionary sector to outperform. The industrial - and materials sector are improving versus the overall market, so the strategy will be scanning for opportunities. All other key sectors – utilities, consumer staples, healthcare, financials and energy continue to underperform. A truly lean meal for portfolio allocation.
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