David Lin: “Bigger Main Event” In a Few Weeks Warns Fund Manager Who Called Yen Carry Trade
Is the market selloff over? The massive rush for the exit on the yen carry trade may have hit a frenzied peak. But that doesn’t mean that stocks will instantly bounce back to all-time highs anytime soon.
In fact, there could be more danger ahead for investors. Amid this latest selloff, another trend has emerged that suggests that there could be a danger in the coming weeks or months ahead. And as that unfolds, stocks could see a new wave lower.
The trend? The un-inversion of the yield curve. In English, the two-year U.S. Treasury bond has had a higher yield than the ten-year for some time. During the market’s selloff the past few days, that trend briefly reversed.
Typically, when yield curves un-invert, there’s a high probability of a recession within 12 months. While this un-inversion was temporary, that could change. It’s likely to flip and stay un-inverted after the Federal Reserve starts cutting interest rates.
For now, investors should be cautious, and use any market rally as an opportunity to take some profits off the table. That should start with the most speculative trades. And for tech trades, it may mean selling a partial position to lock in profits. The money can stay in cash, or move into defensive sectors such as utilities.
Doing so can ensure that any further market turbulence this year doesn’t lead to a big wipeout.