Seasonal Long Opportunities & Conflicts With Trends

I'm seeing a compelling case as to why inflation related trades could be a massive opportunity into this spring. First, the seasonal tendency for stocks to rally in mid-march is a compelling enough reason by itself. Typically, the market has some of its strongest moves during this time period.

Likewise, the bonds seem to have a strong rally into the spring as well. The gist is: long stocks and long bonds has worked well.

So why the title? I think a lot of my focus this year has been on the idea that inflation related trades should trend. Historically, short-term interest rates seem to trend well and the drift higher typically works quite well for trend following. Have we gotten ahead of ourselves though? We haven't even started the hiking cycle and bonds are trading as though we are 5 hikes in already.

I get asked often about buying bond dips and I have largely put it in the "why fade a trend camp". I do think now might be the risk-reward for trying some bond longs on a tactical seasonal basis. One question we also have to ask is: which cycle is dominant? Is it the high P/E multiple compression that is causing an issue? If the bonds were a culprit and might bounce, isn't the easier trade actually a second order trade that has the same risk-reward characteristics but more upside?

Below are some trade ideas I have in mind (if you can't see the content below, consider upgrading here)

Long tech. Look for down opens and sharp legs lower to be met with buyers. We have mostly priced in all outcomes on the Russia/Ukraine conflict front that I'm not sure focusing on emerging markets even matters at this point. The Chinese basically torched their entire tech sector and stocks didn't bat an eyelash in the west. I believe it will be the same in hindsight after this crisis de-escalates.

Google seems like a good way to play it as well. The annualized returns for the upcoming seasonal period over a month or so are some of the strongest, period. I think GOOGL is a "hard to lose" trade if we are right here.

I did well buying Citigroup last time in this zone. You do have to ask the question though: will bond buying see these as just bad beta on the upswing? The risk-reward is very compelling here because if we are wrong on the fixed income side and rates continue to go higher with stocks, this should work well.

So the gist is: a basket of tech and banks seems like a good position trade from here.

Petr