With asset prices soaring in November and a soft or no-landing scenario now the overwhelming consensus for 2024, stocks seem to be fully pricing a happy ending to the steepest rate hike campaign in the last 50 years.

As we have repeatedly suggested, the best time to own a crisis-focused strategy is just ahead of the next crisis. History suggests that we may now be on the precipice of one.

Equities follow a repeating cycle of crisis periods created by monetary policy. If each cycle ends with a higher stock market and produces VIX profits, then a strategy using these pieces in combination should end up ahead over time. This is precisely what has been observed with Tactical Beta since its inception nearly seven years ago… we expect this cycle to ultimately end profitably like the others before.

The return of the market’s fabled “bond vigilantes” threatens to remove a significant source of economic support just as stress from rising rates is growing extreme.

To us, this month confirms that interest rates are the main source of risk for equity markets. While stocks can’t seem to tolerate higher rates, any rate decline must also be benign… it seems as though the Fed’s “landing pad” is very narrow indeed.