Updated: May 23
During April, the Eta strategy lost 5.1%, significantly outperforming the S&P 500, which lost 8.8%. Our average exposure was 40%, showing that the AI system took defensive measures to limit potential losses. Since inception, Eta has continued to outperform the S&P 500 regardless of market conditions. In 2021, when the S&P 500 was up 6.7%, Eta gained even more at 7.9%. In 2022 so far, the S&P 500 has lost 13.3% while Eta has fared significantly better, losing 6.2% YTD.
April was a dismal month in the markets, with both the S&P 500 and Nasdaq Composite indices finishing at new lows for 2022. The last day of the month was a bloodbath, with the S&P 500 falling 3.6% and the Nasdaq Composite sinking 4.2% to close the month. In April, the S&P 500 lost 8.8%, marking its worst month since the COVID-19 pandemic started. The Nasdaq experienced its worst month since October 2008, dropping 13.3% in April.
Investors are battling a flurry of headwinds, which are leading to a contraction in valuation multiples across the market. On the one hand, the Fed has started monetary tightening measures to combat record-high inflation. On the other hand, the war in Ukraine continues to rage while Covid cases have spiked once again in China. Technology and growth stocks have been hit the hardest as rising interest rates have hurt their high-flying valuations the most. Additionally, we are in the midst of earnings season, and several notable tech companies (AAPL, AMZN, INTC, NFLX) have missed estimates, further fueling negative sentiment.
Looking forward, we believe the markets will continue to be volatile as investors grapple with rising rates and monetary tightening. It remains to be seen whether the current downtrend will turn into something more persistent or if it will be short-lived. Our AI system continues to keep cash on the sidelines in order to reduce drawdowns and capitalize on a potential rebound if it happens.