AI-Research Update December – Omicron und Jerome

Dear Readers,

The new virus variant Omikron is fuelling pandemic fears and Jerome Powell last night held out the prospect of a faster exit from ultra-loose monetary policy before the US Congress. A news cocktail that led to significant price reactions. Nevertheless, the technology index Nasdaq 100 was able to increase by 2% on a monthly basis, the German benchmark index DAX, on the other hand, lost more than 5% on a monthly basis. Our AI Global Opportunity fund, which is loaded with technology leaders, is up 3% for the month. Our Alpha AI US leveraged certificate increased by a strong 4%.

The news surrounding the pandemic will give us some more turbulent days this winter. We also need to keep a close eye on the FED money supply. We will not and cannot make predictions on pandemic events with our AI CAESAR. Monitoring macroeconomic numbers, especially central bank monetary conditions, on the other hand, is our primary discipline.

December will continue to present a bifurcated picture in our opinion. Viral fears meet improving fundamentals as well as still expansionary central banks, even if Jerome Powell’s rhetoric is changing. You can read about how this plays out in detail in the December outlook.

December Outlook “Omicron and Jerome” 

For the past month, we had expected the average market returns of the statistically good stock market month of November. Despite Omikron dislocations, those returns occurred in the tech space. The bare-bones view of the data shows that the renewed flight to safer asset classes like bonds has now made equity sentiment a bit more attractive again. The majority of monitored indicators such as real interest rates or FED money supply remain comfortably in the green. In particular, the yield on the 10-year US Treasury bond (Chart 1: US 10 Year Treasury vs. S&P 500) has fallen to a currently very low 1.40%.

Among other things, our system also tracks the MSCI World Index, which covers all major world regions. The index is currently trading below the medium-term average again, indicating that there is stress in the market and that the stable upward trend of the last few weeks has been interrupted for the time being and further volatile days are to be expected. (Chart 2: MSCI World Index ).

The spread of BAA corporate bonds to the 10-year U.S. government bond is currently showing a negative trend (Chart 3: BBA Corporate Bonds vs. 10y US Treasury). Since the end of November, there has been a significant increase, which should also be seen as a risk signal.

Our early warning system, which is optimized for market risk indicators, also indicates high risk at the start of December. We are refraining from using leverage in all our strategies in this very nervous environment.

Conclusion:

Our overriding market assessment remains bullish. However, many risk indicators currently clearly show the stress in the market triggered by Omikron.

With our title Omikron & Jerome we want to draw attention to the two current key influencing factors that are moving the market back and forth: Fear of the virus and interest rates that are low again after all.

For our private alpha investment experts, who have decades of private banking experience, the pendulum has swung back too far to the fearful side. Fundamental data as well as seasonality argue for rising prices until the end of the year. If the new virus variant turns out not to be as dangerous as the existing delta variant, prices can be expected to rise. Also, the rhetoric of Fed chief Jerome Powell should not be overinterpreted yet. Still lush liquidity supply is to be expected.

We therefore maintain an overweighted investment ratio in all our strategies and will also rebuild leverage in our opportunity-oriented investment strategies as soon as our highly agile risk management system monitored by CAESAR gives the green light.

Leading Indicators:

Indicators are used by CAESAR to define an ideal investment ratio as well as risk analysis for global equity markets.

Chart 1: 10 Year US-Treasury 

Conclusion: The 10-year U.S. Treasury bond yield is an important indicator for the S&P 500 and the Nasdaq. The significant decline is positive for equities.  Going into December, the interest rate is at 1.42%. Technology stocks are primarily benefiting from this still very favorable interest rate environment.

Chart 2: MSCI World Index 

Conclusion: The Moving Average on the MSCI World Index is an important indicator that shows the technical situation in the market. This indicator shows that the bears are currently in control, as the indicator has fallen below the uptrend.

Chart 3: Bond Spreads

Conclusion: The bond spread between U.S. corporate bonds and U.S. government bonds is a good gauge of the stress level that exists in the capital market. The significant increase shows that investors prefer the safe haven of US government bonds over riskier asset classes.

Market Risk: The market risk for a significant correction as measured by CAESAR on a daily basis is high. This analysis is based on mutually independent risk indicators evaluated by CAESAR. From a risk perspective, investments should currently be made with volatility-optimized investment ratios and leverage should be avoided.

Product Update: 

Our AI Global Opportunity Fund again outperformed the market in November. For the month, we achieved a 3.0% return, beating the benchmark Nasdaq100 index by one percent. The top performers over the past four weeks are all highly weighted in our portfolio: Qualcomm +32%, AMD +30%, Nvidia +24%; Xilinx +23% and DollarTree+22%.
Our portfolio is populated with digitization winners. The resurgent pandemic and falling real interest rate should further accelerate the digitization trend through the end of the year. We are betting on this.

Alpha AI US leveraged certificate:

The Alpha AI US leveraged certificate gained 4% in October. Since the start four months ago, we are now 16% in profit, whereas the S&P 500 could only gain 7%. In November, the certificate was able to participate disproportionately in the strong price increase over several weeks with 200% and thus build the significant alpha to the benchmark. At the end of November, the AI controlled risk management became active and reduced the investment quota to 100%. For opportunity-oriented investors, this new certificate is a high-yield portfolio addition.

“New” Alpha AI Innovation Leaders Certificate

At the end of the year we would like to introduce our latest new issue: the Alpha AI Innovation Leaders Certificate. The certificate is a smart index tracker on a basket of 25 Innovation Leaders from the areas of Internet 4.0, Blockchain, Biotechnology, Robotics & Green Tech Innovations. Our Private Alpha Stock Screener selects the 25 strongest companies from a universe of 250 innovation leaders on a monthly basis. The certificate is designed to provide full participation in the world’s most innovative companies during good market phases, while also providing additional protection during market corrections through AI hedging. The market exposure can vary between 0% to 100%. Since issuance in early October, the strategy has gained +7%.

All our strategies are clearly in the profit zone over the year!

Performance Update:

Status 01.11.2021

We wish you a healthy start into Advent.

Your Private Alpha Team