“The Generals Are Out Front”

Athos Capital Advisors – Monthly Newsletter

June 2023


  • What’s driving the stock market
  • Why bonds are still bad
  • And why now it’s a great time to be an investor

What’s driving the stock market?

The stock market continues its march higher, carried almost entirely on the backs of 10 mega-cap technology stock “Generals”.  The Generals are definitely “Out Front” and hence the title of this month’s newsletter.  The rest of the stock market remains fairly subdued with breadth at historically low levels.  For example, 40% of S&P 500 stocks are down for the year and 50% of Russell 3000 constituents are still below their October 2022 lows.  Strip out the top 7 performing stocks of the S&P 500 and the remaining S&P 493 is roughly flat.  In other words, it has been a great year so far if you are in the right handful of stocks.  If not, it has been a relatively flat year.

As the two charts below show, it has been a historic year in terms of dispersion within the stock market.  Never before has the gap between the S&P 500 (market cap weighted) and the S&P 500 Equal Weight (where all 500 stocks are weighted the same) indices been greater.  At Athos Capital we have been able to capture much of the gains from the largest and best performing stocks through two of our favorite investment vehicles (TQQQ & UPRO).  

Why Bonds are Still Bad

Traditional core fixed income (Bloomberg US Agg) has remained an unproductive part of portfolios so far in 2023.  Coming into the year many commentators were calling for this to be the year to get back into bonds as yields had risen meaningfully and the bulk of the Fed’s interest rate hikes were in the rearview mirror.  This has failed to materialize and bonds have disappointed in adding value to portfolios as they have been highly correlated with equities and have been highly volatile.  

Stocks and Bonds Remain Highly Correlated

The main purpose of bonds in portfolios is to provide income, diversification to equities, and dampen volatility.  At present stocks and bonds remain highly correlated and thus bonds aren’t adding much diversification value to portfolios.  History suggests that stock-bond correlations could remain high as evidenced by the chart below from Byron Wien of Blackstone that shows how periods of higher inflation have corresponded with higher stock-bond correlations.  This is likely due to the fact that The Federal Reserve has to raise interest rates during periods of high inflation which is in turn detrimental to both stocks and bonds.

As long as stocks and bonds continue to move in the same direction bonds appeal is greatly diminished.  If stocks and bonds are moving in the same direction you might as well just own stocks as the returns should be much greater.

Bonds Remain Highly Volatile

At the same time that stock-bond correlations remain elevated, bonds are also highly volatile.  As the chart below shows, bonds have been more volatile over the past twelve months than they have been in over 40 years.  With continued interest rate increases on the horizon and higher starting yields, volatility in bonds looks likely to continue.

The solution we recommend to this dynamic is staying in short-term bonds, utilizing money market funds – where the risk is virtually zero, volatility is zero, and investors can actually get the highest yields (~5%).  On the other side we recommend utilizing floating rate private credit funds (our suite of Interval Funds) which have yields in the 10% neighborhood and also have minimal volatility.

Alternative investments remain critical to countering this new dynamic of bond volatility.  Athos Capital’s suite of alternative investments continue to perform strongly, offering high levels of income, low volatility, and low correlations to stocks and bonds.

Why Now is a Great Time to Be an Investor

Despite the pervasive and persistent bearishness amongst professional and individual investors I believe this is a great time to be an investor for a few reasons.  Principally, there are a lot of opportunities to generate returns and make money.  On the safe side, short term bond yields are ~5% allowing an investor to get 5% risk free for the first time in over a decade.  One step out on the risk spectrum, the Athos Capital Interval Fund lineup has continued to generate extremely attractive risk-adjusted returns with yields and target returns in the 10% range.  On the equity side the market is “climbing a wall of worry” with the biggest and highest quality stocks leading the way.  While the lack of market breadth is one reason to be concerned it is also an environment where all of the stocks you should own – and can be comfortable owning – are performing.  Don’t fight against the “Generals”.

Interval Funds Continue to Perform

The Athos Capital Advisors Interval Funds continue to perform in a tough environment, offering low volatility and high income.  These investments are generating income at 10% rates.

What does it all mean? – Portfolio Implications

  • Now is actually a great time to be an investor – despite the pervasive bearishness (a “pandemic of pessimism”)
    • Investors can get 5% risk free in money market funds
    • Athos Capital’s Interval Fund lineup continues to generate high rates of income and low volatility with expected returns in the 10% range
    • The best parts of the stock market that you should own at all times are doing well
  • Bonds are still not a great place to be – investors should stay at the short end of the yield curve where risk is lowest and yields are the highest.
  • Continue to focus on high quality, large cap equities with recurring cash flows and strong balance sheets
  • Keep your buy list ready and be prepared to dollar cost average into high quality equities


As always, I look forward to hearing from you.  Never hesitate to reach out.


Henry A. Miketa

President & Founder