Attack the Week (ATW)

March 9, 2025

Sunday Thoughts

The return from my skiing break is leaving me with many fond memories and quality time spent with people close to me. While my liver was working overtime to keep up with some of the younger crowd in our group, my brain took a much-needed distraction from constantly thinking about markets and trades.

I don’t know about you, but I can’t properly detach on a beach. Mountains, however, have that magical ability to help me zone out. I will need a few weeks to detox, but as markets are concerned, I am ready to pounce again.

As I was trying to forget about last week’s habit of apres-ski beers, I heard a loud pop coming from the kitchen. I went to see as I thought a bird might have hit the window. To my surprise, a 4-pack of beers seems to have been the culprit, with one of the cans literally exploding all over the kitchen floor. I blame the unusual London sunshine on heating the beers. My wife came to the rescue, and we poured the remaining beer into the sink. As we tried to get the situation back under control, the other cans started popping violently, unloading their hazy pale content onto our kitchen walls. Luckily, nobody got hurt in the process.

The culprit

In many ways, I am taking this as a sign to stay off the beers for a few weeks. Ironically, the beer name “Faith” made me also think. Is this a sign from the beer gods that faith is inherently unstable and fragile? We don’t have to look too far to find proof that market participants’ belief systems are currently shifting violently. Last week, we saw tremendous moves and events, and tons of explosions occurred.

Uncertainty created by the threat of imminent US tariffs generated highly atypical volatility and progressive intensity dislocations throughout global risk asset markets. We can now ascertain that some of the sharp risk-off contractions witnessed as “rotation” in February evolved into much more violent index-level dislocations at the current juncture. This volatility intensified and broadened significantly as the full ramifications of the US removal of support for Ukraine (and potential NATO exit) began to be embedded in risk pricing. These considerations created especially violent moves in European bond and equity markets. The circa 1 trillion USD increase in defence spending ramped beneficiary equity sectors but slammed government bond markets on the hook to fund this expenditure. 10-year German Bunds experienced its worst 1-day drawdown since 1990 on Wednesday. We are now closing in on a yield of 3%, the high in 2023.

The usual stability premium of USD-denominated assets and the USD itself began to be called into question. DXY broke support with a roughly 3-standard deviation weekly loss — the worst weekly return since late 2022.

US equity, government bond, and credit (both IG and HY) markets suffered significant losses. See US HY, and IG spreads below.

US equity indices tested deeper support lines for the first time since early 2023. The third consecutive week of losses brought the cumulative three-week setback to SPX -5.6%, NDX -8.6%, and MAG7 12.2%. See the respective charts below.

VIX gained almost 4 points to record its first close above 23 since last August’s vicious sell-off. 

Does this come as a surprise? Not to me and my readers, who have been following my developing macro thesis. We are at a crucial point, and our momentum and reversal models, in addition to the allocation model, have guided us nicely through that period. Paper Alfa’s 2025 buy-and-hold portfolio took a knock since posting a near 8% YTD high in February but is still up nearly 6%. See below.

I have also recently launched an intra-day model, which is helping us navigate short-term market dislocations. This is especially useful in current market conditions. If you are interested in what this space has to offer, hit the button below.

Let’s now read Macro D’s latest thinking before we briefly scan the week’s upcoming calendar. We then revisit some charts, which give us some interesting set-ups. As always, we close with a look at the output of our asset allocation model. Let’s see what it decides to do for the upcoming week.

Let’s go!