Equity markets were generally down for the month with the S&P 500 declining 0.69% and the Eurostoxx 50 losing 4.41%. Markets declined primarily toward month end propelled by hawkish comments from the Federal Reserve and the revelation of the new Omicron variant. Especially large selloffs occurred on Black Friday and the last day of the month. The selloff on Black Friday in particular resulted in a massive one-day spike in the VIX of over 50%. Investors were shaken by the Federal Reserve’s change in stance regarding inflation, effectively retiring the word “transitory” from their outlook. Specifically, Fed chairman Powell pointed toward a quicker tapering of asset purchases. More will be revealed during the Fed’s December meeting. A risk off appetite resulted in higher prices and lower yields for bonds.
Our relative value strategy suffered with nearly all of its losses coming on Black Friday. This was the primary driver of the decline in the diversified portfolio. An exogenous event (e.g. fear of the Omicron virus) which causes a sharp spike in volatility is a text book example of the worst environment for the relative value strategy. Both the counter-trend and hybrid momentum strategies experienced small losses for the month but the hybrid momentum strategy somewhat mitigated the Black Friday decline by holding a short position.