Economy

There are two extremely difficult factors in the bond market currently the Fed is stepping on the pedal as quickly as ever and inflation is taking off to 40-year highs. Both of these put upward pressure on rates which move inversely with bond prices. However, some funds may prove more resilient or even move upward when rates rise. Rate hedge bond funds give investors an option exactly described, but they do come at a cost. One example is LQDH which is an interest hedged corporate fund, which has drastically outperformed its direct compliment, the unhedged LQD. However, these funds are for the extremely risk-averse investors.


Finsum: Rates may be stalling as noted by the recent 10-year dip which is a sign that bond prices might be undervalued currently. 

The commodities super cycle is closing or at least halting as many prices such as oil, wheat, and copper have begun to fall. This could be in line with the Fed’s objectives as they have interred the most aggressive tightening in over two decades, but it could be a recession ‘red flag’ similar to the inverted yield curve we have been seeing. Construction and consumption slowing would affect commodities prices, especially those like copper with wide uses, these price declines could be signs of severe contractions in the economic growth. Experts believe this could make a soft landing even less likely if commodities have softened already, however, there is still some bullishness that oil could turn around yet again with Russia and Ukraine still in conflict.


Finsum: If commodities slow, but we continue to get excellent jobs reports like the most recent June report it looks more like the soft landing than a slipping recession. 

Recent market volatility has many investors swept up like Dorthy in the Wizard of Oz with no place to turn to, but Direct Indexing could be the ruby red slippers to take you home or at least mitigate some losses. Direct indexing is where investors own the underlying asset of an index, with a core advantage of being able to add/drop individual equities from their holdings. In these highly volatile times when the stock market and particularly subsectors like tech/crypto have taken a beating, investors can drop stocks because of taste or taxes. Rather than being stuck with the whole distribution of gains or losses you can leverage the failure of an asset by selling it off and for tax-loss harvesting. This generates additional alpha that a mutual fund can’t match, and while ETFs are fairly tax-efficient direct indexing is even more so.


Finsum: A small antidote to the volatility could be realizing some losses for those stocks that might not rebound right away. 

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