June 2021 Commentary

Inflation Rotation

Equity markets were higher again in June, with recently-battered tech names roaring back (Nasdaq 100 +6.34% MTD) relative to US small cap stocks (Russell 2000 +1.94% MTD). This resulted in a mostly sleepy VIX aside from a slight disturbance around the mid-month Fed meeting which hinted at sooner-than-expected rate hikes. Notably, treasury yields dropped on the announcement, apparently signaling a policy error that would choke growth (see chart below).

30 Year Treasury yield and VIX Index, June 2021. Source: Yahoo Finance

30 Year Treasury yield and VIX Index, June 2021. Source: Yahoo Finance

Despite the headlines about rising inflation, the return of lower rates meant the resurgence of tech and growth stocks, mainly benefitting Hedged Disruptor (+13.06% MTD), Smart Tech (+6.28% MTD) and Hedged Yield (+2.11% MTD) while the post-Fed VIX spike was enough to trigger preliminary defensive positioning that weighed somewhat on US Equity Smart Index (+1.81% MTD) and Alpha Seeker (+0.85% MTD).

Looking ahead, July tends to be a seasonal low for the VIX index as markets drift during the summer vacation season. The next obvious catalyst is in August at the Fed’s annual meeting in Jackson Hole, the traditional venue for monetary policy hints and trial balloons.

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