Need to Know: ‘Like a drunk stumbling across the highway.’ How one fund is preparing for market turmoil even as stocks have surged.

“On the macro front, we cannot shake the image that the markets have been like a drunk stumbling across a highway,” says Beer. “You sit there and watch an eighteen wheeler barrel down on this guy and clench your eyes shut– only to open them seconds later, watch the dust settle and find that he’s still standing. Then he stumbles into the next lane and it happens again. And again.” Those 18-wheelers include the European energy crisis, the regional bank crisis, and the threat of a U.S. debt default, not to mention the recessionary fears present all year.

Beer suggests that maybe this drunk will go splat. “Hedge fund luminaries, in general, are sticking to the view that we’re in for a series of rolling crises – we may have dodged these eighteen wheelers, but they’ll keep coming over the horizon. If one hits, watch out.”

Its biggest position is a short of the Japanese yen, based on the view the Fed hikes while the Bank of Japan sits tight. The fund is also long the S&P 500
SPX,
+0.67%
versus both non-U.S. developed markets as well as emerging markets, which he says is “arguably a growth vs value bet, which lines up with the AI frenzy but not necessarily with higher rates, which tend to benefit value stocks.” The fund has a modest bet on longer rates, is long gold — perhaps a hedge if inflation surprises on the upside — and short crude oil, which he says is a recession hedge.

The fund hasn’t done great this year, falling 5%, but he says it’s a hedge against further turmoil. “For a variety of reasons, most allocators move slowly – which actually works fine most of the time; however, when the world shifts faster, it can be a disadvantage. And that’s why managed futures were so successful in 2022 – inflation came back too fast for most allocators to adapt. So I view managed futures as a hedge against a world that keeps changing fast – and that certainly seems to describe the world today.”

The buzz

Consumer prices rose 0.2%, and importantly rose 0.2% at the core, a tenth below consensus. U.S. stock futures got a pop from the result, with the S&P 500 contract
ES00,
+0.89%
up 0.7% and Nasdaq 100 futures
NQ00,
+1.06%
gaining 1% shortly after the data. The yield on the 10-year Treasury
TMUBMUSD10Y,
3.921%
fell 7 basis points.

Also on the economics front, the Beige Book from the Fed is due at 2 p.m.

Broadcom’s
AVGO,
+0.49%
$61 billion deal to buy VMware
VMW,
+5.19%
was approved by the European Commission.

Cathie Wood’s ARK Innovation Fund
ARKK,
+3.70%
made its first sale of Coinbase Global
COIN,
+9.78%
stock on Tuesday in more than a year.

Nvidia
NVDA,
+0.53%
is reportedly looking to be an investor in Arm’s initial public offering.

Bank of America finds a big gap in spending between homeowners and renters.

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Top tickers

Here were the most active stock-market tickers as of 6 a.m. Eastern.

The chart

When meme stocks outperform consumer staples, the broader market tends to suffer a few days later, points out Jonathan Krinsky of BTIG. “When we see a surge of this magnitude, however, especially relative to a defensive group like consumer staples, it often indicates a chase for what hasn’t moved and can move the most, and this often is the tail end of the move as the numbers in the table below indicate,” he says.

Random reads

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A man in Kentucky found hundreds of rare Civil War-era coins.

Harvard withdraws papers from a dishonesty expert accused of, yes, dishonesty.

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