Another Black Monday - It's The Perfect Storm

seekingalpha08-05

The global stock markets are in crash mode as Asia is seeing the Nikkei 225 down 13%. Nasdaq 100 futures are down by 6% and S&P 500 futures down by 3%.It's the perfect storm with the Yen carry trade ...

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Nasdaq 100 futures are down by 6% and S&P 500 futures down by 3%.It's the perfect storm with the Yen carry trade ...</p>\n\n<a href=\"https://seekingalpha.com/article/4710485-the-black-monday-its-the-perfect-storm\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Another Black Monday - It's The Perfect Storm</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nAnother Black Monday - It's The Perfect Storm\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-08-05 21:30 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4710485-the-black-monday-its-the-perfect-storm><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>The global stock markets are in crash mode as Asia is seeing the Nikkei 225 down 13%. Nasdaq 100 futures are down by 6% and S&P 500 futures down by 3%.It's the perfect storm with the Yen carry trade ...</p>\n\n<a href=\"https://seekingalpha.com/article/4710485-the-black-monday-its-the-perfect-storm\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"FXA","symbol_name":"澳元ETF-CurrencyShares","start_time":0,"source_url":"https://seekingalpha.com/article/4710485-the-black-monday-its-the-perfect-storm","article_id":"2457977281","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/155278492/image_155278492.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2457977281","pubTimestamp":1722864622,"columns":[],"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"The global stock markets are in crash mode as Asia is seeing the Nikkei 225 down 13%. Nasdaq 100 futures are down by 6% and S&P 500 futures down by 3%.It's the perfect storm with the Yen carry trade bust, the Gen AI bubble burst, and an imminent major geopolitical escalation.The market selloff is just starting with the S&P 500 approaching the 10% correction, but it will be volatile with sharp rallies as well.   bunhillThe market meltdown August 5, 2024, the global stock markets started crashing in Asian trading hours. Japanese stock market index Nikkei 225  is currently down by almost 13%. The US markets are currently closed, but the futures point to a deep selloff, Nasdaq 100 futures   are currently down by almost 6%, while the S&P 500 futures   are down by over 3%. This is developing into a stock market crash similar to the 1987 crash. 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Nasdaq 100 futures are down by 6% and S&P 500 futures down by 3%.It's the perfect storm with the Yen carry trade bust, the Gen AI bubble burst, and an imminent major geopolitical escalation.The market selloff is just starting with the S&P 500 approaching the 10% correction, but it will be volatile with sharp rallies as well.   bunhillThe market meltdown August 5, 2024, the global stock markets started crashing in Asian trading hours. Japanese stock market index Nikkei 225 (NKY:IND) is currently down by almost 13%. The US markets are currently closed, but the futures point to a deep selloff, Nasdaq 100 futures (US100:IND) (QQQ) are currently down by almost 6%, while the S&P 500 futures (SPX) (SP500) are down by over 3%. This is developing into a stock market crash similar to the 1987 crash. What's going on? The stock market is in a perfect storm, where many negative factors are converging all at once. The Yen carry trade collapse The first factor that's causing the crash is related to what is called the Yen carry trade. Essentially, hedge funds were able to borrow in Japanese Yen at zero interest rate, no cost, and sell Japanese Yen (FXY) for the higher yielding currencies, such as the US Dollar (UUP) and Australian Dollar (FXA), and these funds were also invested in risk assets like stocks. One of the most favorable institutional stock market trades was in US tech stocks due to the Gen AI theme. The Yen-funded stock market speculative trade worked fine as long as the Japanese Yen did not appreciate, as institutions eventually need to convert the funds back into Yen. The Yen-carry trade is generally unhedged, and the spike in the Japanese Yen forces the borrower to liquidate the Yen-funded investments. Just recently, the Bank of Japan increased interest rates with more monetary tightening likely ahead, while the Fed is expected to start cutting interest rates, possibly in September. This is causing the interest rate differential between the Japan and the US to narrow - and causing the Yen to appreciate. So, that's the first factor, the appreciating Japanese Yen, which is currently up by almost 3%, and sharply higher since July 15 (which is when the S&P 500 peaked).   Yen (Barchart)The AI Bubble burst Independently from the need to sell the Gen AI themed stocks due to the spiking Yen, the Gen AI bubble is bursting due to the realization that Gen AI is not that transformational technology that it was hyped to be. Specifically, starting with the Alphabet (GOOG) (GOOGL) earnings call it seems like the Gen AI Capex is not very profitable, but the Gen AI related companies are still heavily investing in Gen AI due to the fear of being left out. As Alphabet said it, \"the risk of overinvesting is greater than the risk of underinvesting\". This statement by Alphabet burst the Gen AI bubble. The other tech mega-caps, like Microsoft (MSFT) said that these Gen AI investments are fungible, meaning the infrastructure can be used in other areas, and this is not a vote of confidence for Gen AI. The valuations for these tech mega-caps were in bubble territory due to the Gen AI hype, but now as the reality about Gen AI sets in, the bubble is starting to burst. An imminent recession The US economy has been slowing for some time - the pandemic related savings are depleted, and the Fed kept the yield curve inverted for the record length of time to beat the post-pandemic inflation, which historically always precedes a recession. Market participants were hoping for a soft-landing, but just last Friday the Sahm Recession Rule was triggered, which signals that the US economy is entering a recession. Specifically, as the US unemployment rate increases by 0.5% from the low point, based on the three-month averages, the US economy enters a recession. We are currently in that situation with the Sahm value above 0.5. In other words, the US labor market is slowing to the point where a recession might be imminent. With a recession, the US stock market faces a recessionary bear market, beyond just a Gen AI bubble burst. The Fed can't come to the rescue yet However, the Fed still does not view the current macro environment as recessionary. Specifically, the FOMC failed to signal the cut in September by not changing the key sentence on the post FOMC statement, and the Fed Chair Powell said that the current labor market is just \"normalizing\". Specifically, Powell sees the recent increase in the unemployment rate mainly due to the increase in labor supply, which is still due to the post-pandemic normalization in the labor participation rate and immigration. The recent data actually agrees with Powell. The market is now expecting the Fed to sharply cut interest rates in 2024, but the Fed does not seem to be willing to come to the rescue yet. The geopolitical situation On top of everything, an attack by Iran on Israel could be imminent (meaning today), and the words can't really describe the dangers associated with the major geopolitical escalation in the Middle East. Iran's attack on Israel in April caused a 10% correction. The market risk of a possible attack is a possible spike in crude oil prices (USO), which could interfere with the Fed's ability to ease interest rates. Systematically, the Middle East geopolitical escalation could cause a major flight to safety and risk off behavior, which also boosts the Yen, and in addition could accelerate the global recession. Implications The stock market is in the perfect storm, which could produce a major crash in the near term.  The Gen AI hype is fading, which leaves the overvalued mega-caps vulnerable to a deep selloff. In fact, Warren Buffett has been a seller, he reduced his Apple (AAPL) position by 50%. The Yen is spiking, which forces institutions to sell their speculative Yen-funded investments. There is an imminent recession, but the Fed still does not see it that way, which actually increases the likelihood of a deeper recession as the Fed continues to be restrictive. The geopolitical situation is escalating, with an imminent situation.  This is all happening at the same time. However, even with the overnight drop in SP futures, the S&P 500 is still up by 6% YTD. That means that it's still appropriate to sell. The current drawdown in the S&P 500 right now is at around 10%, while the total drawdown is likely to be 30-50%. However, the trade will now get more volatile, with the sharp bear market rallies. The current 10% correction is not the time to buy yet. Traders could bet on the short-term spike, but investors should remain patient.  What happens over the near term depends on how the Fed responds, via the Fed speakers. I don't expect the Fed to come to the rescue yet, but let's see. At this point, the S&P 500 is in crash mode.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"-2","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.4","shortVersion":"4.29.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2457977281"}