The biggest cross-asset rally this year has taken Wall Street by storm.

Nov 6
Wall Street has learned the risks associated with market timing from the startling increase in cross-asset prices.

According to Bloomberg data tracking popular ETFs, evidence that Federal Reserve Chairman Jerome Powell is becoming less hawkish has set off the largest coordinated crises since November 2022, with credit, equities, and bonds all surging at the same time.

A dismal jobs report and the US Treasury's modest borrowing plan were further reasons that stoked investor dovishness.

There is ample proof that systematic financial analysts and hedge funds were caught off guard last week and forced back into a variety of assets.

It may be a foolish endeavor to wager that the recent events will amount to much more than a relief rally, considering the dearth of long-term investors in stocks and bonds and the uncertain future of corporate earnings.

With gains of almost 6%, the S&P 500 and Nasdaq 100 experienced their best week of the year. The 10-year Treasury yield experienced its largest weekly decline since March, dropping more than 25 basis points.

According to Bloomberg data, when equities increased, the largest Treasury exchange-traded fund in the world saw a 4% increase, with investment grade and junk bonds rising simultaneously for the greatest gain in 17 months.

According to premier brokerage Goldman Sachs Group Inc., the increase came after three months of growth in hedge fund sales that were the second-strongest in a decade. Before the most recent bond bounce, professional speculators' net short bets on Treasury bonds were almost at an all-time high, according to statistics from the Commodity Futures Trading Commission.

Particularly hard-affected were investors who were betting on stocks to decline; the basket of businesses with the shortest interest rate gained 13%.

In the meantime, traders reduced their bets on rate hikes, and Cathie Wood's flagship ARK Innovation ETF (ARKK), which tracks rate-sensitive speculative tech firms, saw its greatest week ever, jumping about 19%.

Commodity trading advisers and other fast money analysts are placing a record $302 billion short bet on Treasury securities, according to Scott Rubner, a managing director at the bank with 20 years of experience studying fund movements.

According to his estimates, the cohort may purchase bonds worth up to $456 billion if this week's increase in prices holds, and up to $105 billion if prices stay mostly stable over the next month. If the upward trend in equities holds, CTA's short strategy might trigger a surge of purchasing in S&P 500 futures worth $81 billion.

While traders took note of Powell's observation that tightening economic conditions due to increasing long-term bond rates might assist in reducing inflation, they also appreciated indications that the central bank's hawkish September projections were beginning to soften.

Portfolio manager at JPMorgan Asset Management, Priya Misra, stated, "Treasury and the Fed responded to the market, and now the market is reacting to Treasury and the Fed." The Fed's cautious approach is supported by this week's data. If a recession looks impending, risk assets will be on edge, but that is not the narrative for today."

According to the Fed's swaps, traders have fully priced in a rate decrease by June rather than July and estimate just a 16% possibility of another rate hike by January.
The macro environment is still unstable, according to Barclays Plc's Emmanuel Cau, head of European equities strategy.

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