What combination of market moves could rattle investors?
According to Bank of America strategists led by Michael Hartnett, the new pain trade, so to speak, would be lower bond yields with a lower Nasdaq and a stronger Japanese yen.
“Every billionaire minting same long T-bills, long Nasdaq barbell…biggest Q3 pain trade is lower yields, lower Nasdaq, plus higher yen…no one has that on,” the strategists say in their weekly flow show commentary.
No carry trade, they say, is bigger than long the Mexican peso against the Japanese yen
MXNJPY,
This year the Mexican currency has vaulted 23% against its Japanese counterpart. A carry trade involves borrowing in a low interest-rate currency to fund an investment at a higher rate.
The Nasdaq
COMP,
also has seen meteoric gains this year, with the Nasdaq Composite jumping 31% so far. Techs have weathered higher rates from the artificial-intelligence speculative frenzy, though they do to tend to react to changes in the interest rate environment. Tech stocks have led gains for the S&P 500
SPX,
up 14.9% year-to-date, while the Dow Jones Industrial Average
DJIA,
lags behind, up 2.4%.
Hartnett and team say AI remains a narrative based on speculative numbers, albeit impressive ones given ChatGPT usage. They say a “sell the last hike” by the Fed move will hit tech the hardest, but “if AI and Magnificent 7 can shrug off new rates-shock then ‘baby bubble’ set to mature into something bigger in the second half.”
The Magnificent Seven refers to Apple
AAPL,
Nvidia
NVDA,
Meta Platforms
META,
Tesla
TSLA,
Amazon.com
AMZN,
Microsoft
MSFT,
and Alphabet
GOOGL,
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