Rates volatility triggers correction in tech

In this week's Macro Insight trading call we discussed...


Finally the move up in US yields was met with some risk aversion in the tech sector, as NDX sold around 6% from it’s recent all time recent highs. The spike higher in the MOVE Index triggering some de-risking across global equities.


Even though markets are correcting lower, the rotation trade seems to be well and truly on with financials and energy stock massively outperforming. Assuming that the FED will remain accommodative and reassure markets in Powell’s semi-annual testimony to the senate, we expect the rally to resume and tech to stabilise but leadership to come from the value and cyclical sectors. SPX has reached some key support levels and is showing some positive bullish momentum divergence, a sign that the correction may be close to complete. Also, given the positive economic backdrop with vaccine rollouts going well in the UK and US, we think “buy the dip” mentality will come back to risk assets. The big risk for markets is that 10Y yields break 1.50% and head quickly towards 2%, this would trigger a massive repricing in Tech and could snowball into a real “crash”, however that is not our base case, and we suspect the FED will do everything it can to avoid such a scenario. Also the wall of passive money will continue to buy megacap tech stocks as they make up such a large percentage of major indices.


Economic recovery expectation, tight supply conditions and Chinese demand are providing a perfect storm for these two major industrial commodities. Given the strong uptrends these are showing, inflation expectations and hence yields will likely continue higher.


Gold seemed to be holding the 1760 support level for now, I can’t see how that doesn’t break lower given the real-yield move we are seeing. I have been getting short via buying Gold puts. Filmed on Tuesday 23rd February 2021.

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