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Equities over-extended

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Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at
  • Cost of capital has skyrocketed
  • This causes downward pressure on the stock market

The Fed’s relentless fight with inflation has caused the federal funds rate to jump 525 basis points, which is not only the steepest but also the most aggressive rate hike cycle over the last 40 years. This aggressive central bank policy has led to the worst sell-off in long-term US bonds in over four decades, as the costs of capital have gone up tremendously.

On Monday, the 10-year Treasury yields surpassed the 5% mark, a level not seen since 2007. This move has been influenced by the strong U.S. economy and a hot labor market, causing the Fed to keep its hawkish stance.

The 10-year us debt, a key financial metric, is viewed as a safe-haven during economic downturns and a reference rate for many financial instruments, including those for student loans and mortgages. Following recent quantitative tightening measures, mortgage rates climbed to an unprecedented 8% last week – a peak not reached in two decades. Ripple effects will lead to softer housing and consumer spending conditions.

On top of that, worries about the exploding US fiscal deficit have led to term premiums on the yield curve going up. President Joe Biden is seeking from Congress $100 billion in new foreign aid and security spending, including $60 billion for Ukraine and $14 billion for Israel.

The fears of economic slowdown do not bode well for equities, which look dangerously high, given where rates are. Nasdaq 100 stability is further tested as the earnings season is in full swing with lots of positive and negative surprises.

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Lastly, there is the classical late-cycle warning sign from the bond market as the yield curve steepens before the incoming recession. Flattening the inverted yield curve, as the long end catches up to the short end, preceded the incoming GDP contraction by an average of 15.3 months. And we are close to that point as the 10-year minus the 2-year curve first inverted in July 2022.

A graph of stock market

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Equities are in a treacherous position. The longer the Fed keeps the “Higher for longer” stance, the more treasuries stay above 5%, and the more stocks will suffer.

Investors can long the NASDAQ 100 using our 3x US Tech 100 and/or 5x Long US Tech 100 .

Alternatively, they can short the NASDAQ 100 using our -3x US Tech 100 .

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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Sandeep Rao

Research

Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.

Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.

Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.

Julian Manoilov

Marketing Lead

Julian joined Leverage Shares in 2018 as part of the company’s primary expansion in Eastern Europe. He is responsible for web content and raising brand awareness.

Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.

For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.

Violeta Todorova

Senior Research

Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.

Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.

Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.

Oktay Kavrak

Head of Communications and Strategy

Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.

He joined Leverage Shares from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.

Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.

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