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Arch Indices Weekly Thoughts: January 8, 2024

Recapping our current income portfolios: 

DFMAP (Dividend Focused Multi-Asset Portfolio) 
TAC (Treasuries Across the Curve)
VWI (Volatility Weighted Income) *NOTE: The divergence in the VWI ETF/Index is due to the dividend payment of 0.3044/sh

Please reach out if you would like to learn more about them. 

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Happy New Year! We hope everyone had a good holiday break and is ready to tackle 2024. Proud VWI update: We learned recently that Morningstar gave VWI a Bronze medal!

This is always a fun time in reading forecasts from people who have mixed track records of making predictions. Let’s rewind to a year ago: who predicted where 30y rates and Nasdaq ended up at year-end?

Q4-23 was a roller coaster of expectations. In a matter of a month, the Fed pivoted and drove 30y interest rates from over 5% to under 3.9%, expectations of 7 rate cuts, AND equity markets higher with expectations of a soft landing. As we saw over the last year, expectations and outcomes rarely converge where we initially thought it would.

With every forecast of 2024 bullish on equity markets, how did the scorecard look in the first week? Equity markets took a big step back as bond yields moved back up. Two interesting observations: 1) Correlation between SPY/TLT decreased sharply towards the end of year and 2) Long-bonds outperformed SPY.

What have we seen in the data since then? The jobs market has some signs of weakening from JOLTS but remains strong. Interestingly labor force participation dipped down in the last report: if the Fed is of the view that supply side normalization will help drive inflation lower, this would be a warning sign (though 1 data point doesn’t change much).

Expectations and outcomes are just one facet of portfolio construction. We preach the importance for investors to have the optimal exposure to a desired outcome. It’s not as exciting as being right on a big market call but it produces far better results for investors over the long-run.

As always your thoughts and feedback are very much appreciated!


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