Hedge funds are running for the exits, unloading over $15 billion in U.S. equities in the past three weeks. Goldman Sachs reports that this is the second-largest 15-day net sell-off in three years, signaling a shift in sentiment. Meanwhile, Commodity Trading Advisors (CTAs) have turned net short on U.S. stocks for the first time since 2023, a stark reversal from their previous positioning. Money talks, and right now, it’s saying investors want out.
The warning signs are piling up. The Dow Jones Transportation Average, often seen as a measure of consumer and industrial demand, has plunged 19% from its November high. The Dow Jones Industrial Average isn’t faring much better, down 8%. This divergence is a classic Dow Theory sell signal, historically marking the start of deeper market declines. Smart money isn’t waiting around to see how bad it gets.
The sell-off isn’t just a U.S. phenomenon. Japan’s 30-year government bond yield has climbed to 2.62%, its highest level since 2006, suggesting the yen carry trade may be unwinding. If that trade unwinds further, expect even more turbulence in global markets. Deutsche Bank analysts are already warning that stocks have at least another 6% to fall. History suggests they might be underestimating the damage.
Inflation is creeping back in at the worst possible time. The University of Michigan’s long-term inflation expectations soared in March, marking the largest jump on record. This undercuts the Federal Reserve’s narrative of a “soft landing” and confirms what many feared—stagflation is here. Powell tried to engineer a stable economy for Biden, but all he’s done is set up the perfect storm for Trump.
Sources:
https://x.com/MacroEdgeRes/status/1901460947556081880
https://x.com/Barchart/status/1901086937437347919
https://x.com/StockMKTNewz/status/1901643673722315263
https://x.com/neilksethi/status/1901231973911105585