As the greenback rebounds, market participants may have exhausted easy returns on effective short-dollar strategies like carry trades in emerging-market currencies. One index that tracks the latter fell into the red this week as higher short-term dollar borrowing costs bite.
For now, the consensus on Wall Street remains bullish as commodity prices and output in developing economics increase -- but higher U.S. real interest rates threatens to tighten financial conditions around the world in the coming months while challenging valuations.
Is The Reign Of The Equity-Market Leaders Over?
In recent sessions, investors have been pulling the ripcord on the bull market’s pacemakers -- technology stocks. While robust results from Amazon.com and Intel Corp. spurred a surge in the after-market Thursday, investors are more cautious on the sector as a whole.
The proportion of global funds overweight tech stocks is at the lowest this decade, according to data from Barclays Plc. Momentum stocks finally got too expensive for investors to stomach amid growth that isn’t quite living up to lofty expectations, according to Pankaj Patel, director of quantitative research at Cirrus Research LLC.
“Whenever momentum gets stretched beyond historical norms, we see in the next two to three months the performance breaks down,” Patel said. “We’re seeing that now.”
While there are some signs value stocks are picking up the slack from their pricier stablemates, it’s not clear a true rotation is underway. And if the latter kicks off, investors will have to ask a fresh question: Will emerging trends have the muster to revive a flagging bull market?
This article was provided by Bloomberg News.