Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!

Powell ‘Trips’ Short-Term Value-Trap, Sends Yields Tumbling Below CTA’s “Red Line”

Courtesy of ZeroHedge View original post here.

Well that de-escalated quickly…

The Fed statement and Jay Powell's downbeat press conference are acting as a powerful curb on the hope-filled (and extremely rapid) allocation shift that had been unfolding in recent days.

In general terms, the meeting ended with the dovish outcome of continued monetary easing measures and a cautious stance on the economy. However, recent positive surprises in the incoming economic data had led some quick-footed investors in particular to start adopting an optimistic take on the economy.

As a result, Nomura's Masanari Takada notes, the gap in perceptions between the market and policy authorities lent support to the idea that such an abrupt allocation shift was not really necessary in the first place, and as a result, the market trends that got under way last week did an about-face, with investors selling equities and buying bonds while selling the value factor and buying the momentum factor.

We have seen this pattern before (the recent 'value' explosion vs Sept 2019) – and it didn't end well then either…

As Takada notes, performance across a range of US equity factors is being pulled back in line with the median trajectories followed after significant historical risk-off events. If the average historical patterns hold, the momentum and low-vol factors may have a new lease on life through mid-August.

But the moves are escalating very rapidly as Takada explains:

We have warned our readers previously that a value trap might open up around 12 June, and it may become evident in retrospect that the FOMC meeting marked the point at which this actually happened.

Critically the Nomura quants note that the shift with the greatest symbolic significance was in the UST market, where the 10yr UST yield dropped back below the CTA trigger line at around 0.84%.

Reinforcing this trend, CTAs seem to have put a stop to their unwinding of long positions in 10yr UST futures (TY). CTAs had started exiting long positions for the sake of cutting losses, but with the 10yr UST yield now back below 0.84%, the loss-cutting incentive is gone.

In summary, the performance of major equity factors is starting to fall back in line with well-trodden patterns after spending some time on trajectories particular to the present circumstances, driven by Fed Chair Powell's admission that all is not well at all under the surface of the US economy (despite the irrational appearances of the major stock indices).


Do you know someone who would benefit from this information? We can send your friend a strictly confidential, one-time email telling them about this information. Your privacy and your friend's privacy is your business... no spam! Click here and tell a friend!





You must be logged in to make a comment.
You can sign up for a membership or get a FREE Daily News membership or log in

Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!