Too much Taco ingestion may result in risk-on indigestion. Irrespective of market moves, we think the period of risk-on outperformance has ended as macro risks, that got fully priced out, are beginning to normalize. Today’s market reaction to tariffs underscores my view that investors remain reactive rather than forward looking. Downside is greatest for securities that benefited from the rising tide of macro derisking (tighter spreads, valuation expansion) without improving fundamentals (or don’t have any). If markets correct more broadly alongside macro-risk repricing this only reinforces the point on portfolio repositioning. Looks like the server added too much refried beta in those Tacos.
Everybody is a genius [investor] when P/Es are going up. This is the part of the market cycle where you can throw darts and make money. Trees don’t grow to the sky and valuations eventually stop expanding when macro risks arise. Currently, the markets reflect very little to no risk. Enjoy it while it lasts.
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