Generation PMCA Warns on Rate Risk, Record Valuations

Generation PMCA told investors in its first-quarter 2026 letter that markets are too high and vulnerable to a decline, repeating a warning the firm has sounded for months.

The letter, reviewed by AlphaScala, points to rising interest rates and record-high valuations as the two forces that could crack the current rally. The firm said it has kept a defensive posture, holding elevated cash and short-duration bonds, while avoiding the most expensive corners of the equity market.

"Here we go again, repeating our mantra that the markets are too high and vulnerable to declines," the letter reads. "Adding to our conviction are interest rates that keep climbing and valuations that have pushed past prior peaks."

Generation PMCA, a long-short equity manager, has been publicly cautious since late 2025. The firm's view is that the Federal Reserve's rate path remains the dominant variable. If the central bank holds rates higher for longer than the market prices in, the letter argues, the equity risk premium compresses to a level that does not compensate for drawdown risk.

The letter does not name specific short positions but says the portfolio is net short the S&P 500 and long selected single names with pricing power and low debt. The firm said it has added to positions in energy and materials, sectors that benefit from persistent inflation and supply constraints.