May 2022 - Monthly Report

The Contrarian View

We have a contrarian view. Unless there will be a major sell-off driven by the market participants sentiment, we do not see the S&P500 going below 3,500-3,700 (-27% from its peak value).
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There are a couple of arguments that we believe are supporting this view. First, purely based on macroeconomics, the S&P500 starts getting closer to its fair valuation (-4.56%) and within the uncertainty range of the model.

​Second, the inflation is getting under control. The real 10Y T-Bond yield is quite close to be in the positive territory; see black line below. This is a space to watch when the next CPI data will be released. Depending on the outcome, it will not be unlikely that the part of NEXT-alpha that is shorting the US Treasury bond futures will be closed. Moreover to make things better, this month the M2 has decreased by 0.37%; see blue line in the second chart below. It is quite unprecedented but this probably within the quantitative tightening measures announced by the US Federal Reserves.

​Last, the industrial production of the USA has reached a new peak at 105.60.

​Times are quite exiting: place your bets or be a quant investor! I personally prefer the latest with a touch of macroeconomics. Trends and correlations that have existed for the last 10 to 15 years might not exist in the future. Macroeconomics might help to spot divergences in trends and correlations.