turkey TREATMENT

*The Life of a Tukey. Credit: Nassim Taleb*

Recalling Nassim Taleb’s infamous “life of a turkey” chart, an otherwise unremarkable equity rally was spoiled by a Thanksgiving surprise in the form of Covid and inflation worries that have dogged markets for much of the year. In a wild last week of the month, VIX and equity markets played tug of war in a series of sharp dips and rallies as investors struggled to gauge the implications of a new Covid-19 variant and an admission by Fed Chair Jerome Powell that inflation may not be as “transitory” as initially hoped. In the end, stock market performance was mixed for the month, with the S&P 500 moderately lower (-0.69% Nov) while the tech-heavy Nasdaq 100 (+1.80% Nov) remained relatively insulated from the turbulence.

Initial defensive maneuvers after Thanksgiving kept TCM’s Alpha Seeker (-0.55% Nov) and risk-managed indexing strategies ahead of their benchmarks in November (Tactical Q +2.18%, Tactical Beta -0.51%) while the absence of traditional fixed income exposures weighed somewhat on Legacy Navigator (-1.63% Nov) and Hedged Yield (-1.99% Nov).

After stumbling in November, markets face two final hurdles before year end, first on Dec 15 at the final Fed meeting of the year and second when government funds are projected to dry up by Dec 21 absent further action from Congress to extend the US debt ceiling. While debate over this ever-rising “ceiling” has become an annual political sham that invariably ends with more debt, it nonetheless carries a risk of extreme outcomes that must be factored by markets. As always, we’ll take our cues from the VIX marketplace and respond accordingly.