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Cracks Emerge in the Stock Market Rally

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Anxiety among investors is being fuelled by the sharp rise in bond yields, driven by indicators of stronger-than-anticipated growth in segments of the global economy. This has prompted speculation that central banks may keep interest rate levels elevated for longer. The U.S. 10-year Treasury yields reached their highest level in 15 years on Monday, and U.S. real yields, which reflect returns on government bonds after factoring in inflation are near their 2009 peak.

Soaring U.S. Treasury yields are sending ripples of unease through higher-risk market segments, leaving market participants speculating on the extent to which this could dent the stock market rally. Heightened economic growth prospects have reinforced expectations that the U.S. Federal Reserve will sustain higher rates for an extended period, propelling Treasury yields to levels not witnessed since 2007.

The surge in energy prices is also raising concerns that the inflationary impact on the global economy is not yet abated, despite some cooling in price pressures. European gas prices have surged significantly, and oil prices are near nine-month highs, following output cuts from Saudi Arabia. These movements in energy markets, which are pivotal drivers of inflation and inflation expectations, suggest that despite price pressures cooling the fight against inflation is not done yet. Consequently, the narrative around interest rates remaining higher for a longer period than initially anticipated has gained traction in recent times.

In addition to these factors, China’s property sector is undergoing an unprecedented debt crisis, alongside a string of disappointing economic data in the world’s second-largest economy. This is raising fears that further problems could spill over into global markets. The property sector contributes approximately 25% to China’s economy and adds to the existing challenges, such as sluggish domestic consumption, weakening industrial activity, rising unemployment, and weak overseas demand.

The financial sector has not remained unscathed, as S&P Global Ratings downgraded on Monday five regional U.S. banks by one notch and signalled a negative outlook for several others. Moody’s had undertaken similar downgrades two weeks ago and is reassessing the credit ratings of larger banks.

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Source: TradingView, S&P 500 Yearly Chart

The S&P 500 has dropped 6% this month, as the U.S. benchmark 10-year Treasury yield surged to 4.36% – its highest level in over 15 years. A crucial test for market sentiment is the annual gathering of central bankers in Jackson Hole, Wyoming, on Friday where Federal Reserve Chair Jerome Powell is scheduled to deliver an address on the economic outlook.

Some investors believe that equities will maintain their resilience in a year where the benchmark index has had an impressive run and gained 15% year-to-date. Prospects of a soft landing for the U.S. economy further support this sentiment, with predictions that the recent reduction in equity exposure will be short-lived. Company earnings may have reached their nadir in the second quarter and are likely to expand in the third quarter, potentially propelling the index to new highs by year end.

However, other investors are concerned that various destabilizing factors are beginning to emerge, impacting sentiment and risk appetite. These include surging bond yields, rising energy prices, and mounting concerns about China’s economic slowdown. These developments are causing investors to reevaluate their positions following a period of sustained stock market gains.

Active traders looking for magnified exposure to the U.S. equity market might consider our +3x Long US 500 and -3x Short US 500 ETPs.

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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Violeta Todorova

Senior Research

Violeta è entrata a far parte di Leverage Shares nel settembre 2022. È responsabile dello svolgimento di analisi tecniche e ricerche macroeconomiche ed azionarie, fornendo pregiate informazioni per aiutare a definire le strategie di investimento per i clienti.

Prima di cominciare con LS, Violeta ha lavorato presso diverse società di investimento di alto profilo in Australia, come Tollhurst e Morgans Financial, dove ha trascorso gli ultimi 12 anni della sua carriera.

Violeta è un tecnico di mercato certificato dall’Australian Technical Analysts Association e ha conseguito un diploma post-laurea in finanza applicata e investimenti presso Kaplan Professional (FINSIA), Australia, dove è stata docente per diversi anni.

Julian Manoilov

Marketing Lead

Julian è entrato a far parte di Leverage Shares nel 2018 come parte della prima espansione della società in Europa orientale. È responsabile della progettazione di strategie di marketing e della promozione della notorietà del marchio.

Oktay Kavrak

Head of Communications and Strategy

Oktay è entrato a far parte di Leverage Shares alla fine del 2019. È responsabile della crescita aziendale, mantenendo relazioni chiave e sviluppando attività di vendita nei mercati di lingua inglese.

È entrato in LS da UniCredit, dove è stato responsabile delle relazioni aziendali per le multinazionali. La sua precedente esperienza è in finanza aziendale e amministrazione di fondi in società come IBM Bulgaria e DeGiro / FundShare.

Oktay ha conseguito una laurea in Finanza e contabilità ed un certificato post-laurea in Imprenditoria presso il Babson College. Ha ottenuto anche la certificazione CFA.

Sandeep Rao

Research
Sandeep è entrato a far parte di Leverage Shares nel settembre 2020. È responsabile della ricerca sulle linee di prodotto esistenti e nuove, su asset class e strategie, con particolare riguardo all’analisi degli eventi attuali ed i loro sviluppi. Sandeep ha una lunga esperienza nei mercati finanziari. Iniziata in un hedge fund di Chicago come ingegnere finanziario, la sua carriera è proseguita in numerose società ed organizzazioni, nel corso di 8 anni – da Barclays (Capital’s Prime Services Division) al più recente Index Research Team di Nasdaq. Sandeep detiene un M.S. in Finanza ed un MBA all’Illinois Institute of Technology di Chicago.

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