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October 2022 Investor Letter: The Markets Make a Comeback

Market Summary

The markets made a strong comeback in October. The Dow gained 13.95%, posting its best month since 1976. All major averages broke a two-month losing streak. The S&P 500 increased by 8%, while the Nasdaq lagged at 3.9%.

Markets have rallied largely on hopes that the Federal Reserve may soon take a break from its series of aggressive rate hikes, with some investors speculating that hikes may be paused in 2023.

However, inflation remains stubbornly high around the world. Investors continue to grapple with whether the Fed’s actions will lead the US to a “soft landing” or bring about a recession. Surprisingly, US GDP expanded in Q3 after two quarters of contraction. However, much of the expansion is due to the narrowing of the trade deficit rather than real economic growth.

Q3 earnings were mixed. Tech companies, such as Meta and Amazon, largely disappointed, which led investors to rotate out of growth stocks and into more traditional companies.

alphaAI Summary

All alphaAI strategies have continued to outperform the S&P 500 on a risk-adjusted basis since inception, year-to-date, and during the month. We continue to deliver positive alpha levels as well as portfolio volatility, beta, and R2 values that are significantly lower than the market.

In mid-October, we launched three Tactical Long-Short strategies (TLSS): Pi, Phi, and Psi. The goal of our TLSS is to profit from both up and down markets by adjusting risk levels in response to market conditions:

  • Poor market conditions: TLSS gain exposure to an inverse ETF to profit from market declines

  • Uncertain market conditions: TLSS adopt a conservative risk profile to minimize losses

  • Normal market conditions: TLSS take on a moderate, well-balanced risk profile

  • Ideal market conditions: TLSS assume an aggressive risk profile to maximize gains

All of our TLSS got off to a strong start by outperforming the S&P 500 during the month. You can read more about these strategies here. Stay tuned for an official announcement on all of our new strategies!


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