August was another volatile month in the markets. The markets initially rallied on expectations for a more dovish Fed. However, this rally was followed by a steep reversal as stocks fell four straight days to close out the month, showing that the most recent recovery was nothing more than a bear market rally. The S&P 500 closed August down 4.2%, while the Dow and Nasdaq posted losses of 4.1% and 4.6%, respectively.
The markets had a strong second half of July and first half of August. The S&P 500 rallied more than 13%, which left some investors scratching their heads. Ironically, this rally was sparked by poor economic data, which led investors to bet the Fed would limit rate increases. However, in late August, Fed Chair Jerome Powell reiterated his commitment to curbing inflation, even if it meant raising rates in a recessionary environment. His comments sparked a sharp reversal in the markets.
In August, alphaAI’s Sigma strategy lost 3% (after fees), outperforming the S&P 500, which lost 4.2%. In 2022, Sigma has lost 9.3%, significantly outpacing the S&P 500, which has lost 17%. All of our strategies continue to outperform the S&P 500 on both absolute and risk-adjusted bases. Average market exposure in August was 92% (vs. 59% in July) as our AI sought to take advantage of the most recent rally. Looking forward to September, we continue to expect a significant amount of volatility in the markets, with all eyes on the Fed. It will be more important now, than ever, to be able to react quickly to changing market conditions.