Weekly Client Letter – December 4, 2023

The Federal Reserve’s recent slowdown in rate hikes marks a shift in the financial landscape, but the journey so far has been anything but smooth, especially for the U.S. 10-Year Treasury Yield. Initially rising with Fed policy, the easing of inflation has triggered speculation: will the Fed maintain higher rates for an extended period, or could rate cuts be on the horizon? These uncertainties have fueled speculative chatter among market pundits regarding the Fed’s next moves.

Attempting to predict the future in such uncertain times is an exercise in futility. Even the most revered financial minds struggle to forecast accurately. And this year, the main point to note here is the vast difference in predictions. Despite all these economists analyzing the same market factors, the wide range of estimates indicates that nobody knows what’s going to happen. While this year’s 10-Year trend might fit within the predicted range (which happened only twice in the last 5 years), it’s akin to the saying “even a stopped clock is right twice a day.”

If the sharpest minds in finance, armed with abundant resources, find forecasting challenging, what hope does the average investor have? Our investment philosophy doesn’t hinge on crystal ball gazing and predicting the unpredictable. Instead, we focus on manageable variables, such as drawdown risk, employing a quantitative, rule-based investment process. This disciplined approach helps navigate uncertain environments, supporting investors in reaching their financial objectives.

Why Pontificate?

Weekly Client Letter December 4 2023
Source: Wall Street Journal, Bloomberg, Redwood. Data as of 11/30/2023. Data range from 12/31/2018 – 11/30/2023. For illustration purposes only.
  • We believe the preservation of capital is key to consistent, long-term investment success.
  • Our investment approach is grounded in economic theory and backed by quantitative analysis.
  • Managing drawdown risk is a pillar from which we build our portfolios.

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