U.S. markets have just a four-day week next week heading into a holiday weekend, and with major players from the financial sector, including JPMorgan, BlackRock, and Goldman Sachs set to release earnings and expectations of the consumer price index for March coming in hot, it could be a volatile several days.
Expectations are that March’s CPI will come in above 7.9%, reported CNBC, and FactSet has predicted a decline for the financial sector of 24.2$ year-over-year. The combination of the two alongside the generally increased volatility seen during earnings season could send markets on yet another tailspin.
The financial sector’s outlook and performance will be closely watched as banks traditionally benefit in rising rate environments, to a point. With the Fed’s recent interest rate increase and potentially more aggressive rate hikes on the horizon, as long as the planned shedding of bonds as the Fed reduces its balance sheets, analysts want to see how big banks are viewing the current outlook for business and clients.
The release of March’s CPI is highly anticipated for a number of reasons, namely in how it will set expectations for the Fed’s interest rate increase for May.
“It’s big. It’s the last key data point before the Fed meets May 3,” explained Michael Schumacher, head of macro strategy for Wells Fargo Securities.
Economists at Barclays are estimating that CPI will have gained another 1.24% in March to hit 8.5% year-over-year, the highest it would have been in over 40 years, but with the expectations that it is the peak and inflation will begin easing after.
“I suspect at the end of next week, with the long weekend ahead, people will want to cut risk, but I suspect it could be a pretty rocky ride with CPI before we see that,” said Schumacher.
Managed Futures Performs Strongly in Macro Volatility
The KFA Mount Lucas Index Strategy ETF (KMLM) from KFAFunds, a KraneShares company, offers investment with managed futures.
KMLM’s benchmark is the KFA MLM Index, and the fund invests in commodity currency as well as global fixed income futures contracts. The underlying index uses a trend-following methodology and is a modified version of the MLM Index, which measures a portfolio containing currency, commodity, and global fixed income futures.
The index and KMLM offer possible hedges for equity, bond, and commodity risk and have demonstrated a negative correlation to both equities and bonds in bull and bear markets. Investing in managed futures offers diversification for portfolios, and carrying them within a portfolio can potentially help mitigate losses during market volatility and sinking prices.
The index weights the three different futures contracts types by their relative historical volatility, and within each type of futures contract, the underlying markets are equal dollar-weighted. Futures contracts will be rolled forward on a market-by-market basis as they near expiration.
Futures contracts in the index include 11 commodities, six currencies, and five global bond markets.
The index evaluates the trading signals of markets every day, rebalances on the first day of each month, invests in securities with maturities of up to 12 months, and expects to invest in ETFs to gain exposure to debt instruments.
KMLM carries an expense ratio of 0.90%.
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