Rising Yields, falling bonds, and this Investors bet on repositioning

(Via ZEXPR) Former fund manager Andrew Lim is raising his bet that the Financial sector will crack the back-end of Equity markets and Tech. Forced interest rates will call for repositioning on behalf of the Federal Reserve if sustainment within the marketplace is required.

His CTC Management Group, LP recently increased its stake in shorting the XLF financial sector by 40% and increased stake within Bond markets up to 28% as of late February.

“There are four stages to a bubble. The fundamental phase. The technical phase. The emotional phase. The psychological phase.- To add, my shoe shiner just provided me with a stock tip.”

With rising yield curves, the Fed funds rate is currently hovering at 0.35% while our 5, 10, and 30 year rising yields continue to steepen. The steepening from these yield curves have caused expansive price shifts to occur within high-growth beta names in the year of 2020. From the March 2020 Covid downturn, we’ve observed secular names prospectively those within the Nasdaq outperform value. Sector rotation continued throughout 2020 maneuvering in-and-out popular names such as Tesla, Zoom Media, the Nasdaq, Financial and Energy markets.The S&P 500 then turned to new highs later in August of 2020. The Financials alongside the Energy sectors were down until the welcoming of the New Year 2021. Bond markets have consolidated in-between ranges until 2021, breaking lower while staging in over a -7% decline in less than 3-months.

With Bonds breaking lower, this has caused interest rates to shift higher leaving the 10-year yield curve up more than 60% YTD. Financials are up more than 20% YTD and the IWM Small Cap index highly correlated alongside the Financials have seen an influx flow and strong rally of more than 18% all in less than 2-months.

During the last 3-weeks we’ve observed Tech names coming under-pressure and a correction within the Nasdaq of more than -18% while Dow futures continued to progress higher. This suggests capital rotation maneuvering into value based products while investors shift gears in playing catch up with leading laggards as of the late stages of the bull rally; while yield curves remain steepened. Tech names such as Zoom Media  which have had share offerings throughout this past year and price to sales ratios exceeding more than 5-years forecast have been hurt the most throughout this correction. Tesla’s drawdown shifted more than -35% since its all-time-highs and his fund believes these names still have further downside left.

CTC Capital Management indicates positioning is reliant on variable factors such as pressurization occurring within equities across innumerable long term timeframes, the notion of rising percentile increases across the board, social sentiment among investors, the feds relentless support, and sector rotation.

If the Bond markets continue to sell-off, this will push interest rates higher. A push higher in interest rates within a marketplace which has received stimulus, rate cuts, small-businesses which have shut down, and with jobless claims remaining at all-time highs will eventually cause the market to price in the feds inability of a well-functioning marketplace. We will then see one of two things likely occur: 1.) equities fall, bonds bid out of fear, financials fall from lowered interest rates, and the market continues to sell OR 2.) The Fed initiates Yield Curve Control with the purchase of bonds, interest rates come down, financials retrace, and with little-to-nowhere left to rotate capital the equity markets fall. The Fed has already indicated interest rates to remain unchanged. However if the market begins to unfold and selling persists the Fed may require repositioning sooner than later.  “If the financial sector begins to sell, the market may be in for some deep selling. Professionals are watching the Bonds and Financials in this point-in-time.”

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