RGN Monthly Performance Estimates

February 2023

February’s surprisingly persistent and higher than expected inflation readings poured cold water on a strong start for stocks and bonds in January. For the month, stocks declined 2.5%, ten-year notes declined 2.9% and the dollar index rose 2.7%. The declines in stocks and bonds were relatively orderly and smooth. Their respective implied option volatility indices, after dropping in January, rose back up to December levels. Our models performed well in fixed income and rebounded strongly from January’s difficulties for a positive February.

US fixed income led the way with a steady stream of short positions throughout the month. Machine learning, momentum and long-term styles contributed to the gains. It was a similar story in European fixed income, except our models went long early in the month in anticipation of a continuation to the upside of the January rally. This position was quickly closed out and the models were able to trade from the short side for the remainder of the month. Machine learning, long-term and contrarian families profited from the price action.

FX performance was mixed, with Yen and Pound profitable and Euro and Swiss negative. Our models were positioned long early Euro and Swiss early in the month seeking a continuation of the January rally. The quick reversal caught the models offsides. Yen and Pound were traded mostly from the short side on machine learning, breakout and momentum signals, and we profited on the dollar rally in February.

It was a challenging month in equities and commodities for our models. The tight, range bound trading in energies and European stocks were difficult for machine learning, breakout and momentum styles.

You can see how European stocks have been locked around the 4250 level, making it difficult to find opportunities for both short-term momentum and mean reversion styles.

Looking ahead, the fixed income market seems to be repricing the Fed terminal rate and chances of a pivot this year while at the same time, subprime loan delinquencies are rising rapidly. This delicate balance of bringing inflation down with a soft landing is fraught with peril and we continue to see good volatility and trading opportunities in the near future.