This Next Punch Will Take Down the Entire Market Warns Famed Fund Manager
On The Daniela Cambone Show, famed portfolio manager Michael Gayed shared his highly bearish outlook on the stock market, warning that a potential crash may be imminent. Gayed, who manages the Lead-Lag Report, has gained a reputation for his deep market analysis and contrarian views, often focusing on early signals of market weakness. With September, a historically volatile month, just around the corner, Gayed believes the market is perfectly set up for significant investor panic.
Why a Stock Market Crash May Be Coming
According to Gayed, several key indicators point to a coming stock market crash. He cited a combination of factors, including the rising price of gold, strong performance in utilities, and shifts in long-term treasuries as clear signs that investors are moving into defensive positions. Traditionally, when markets are healthy, defensive sectors like utilities do not lead in performance. However, utilities have been one of the top-performing sectors this year, signaling investor concern about broader market instability.
Gayed also highlighted a cyclical shift in July when many large-cap tech stocks, which had previously driven market gains, began underperforming while more defensive assets gained traction. This momentum shift, according to Gayed, signals that the market is entering a risk-off phase, where investors are prioritizing safety over growth.
The Role of Treasuries and Utilities
One of the clearest signs of this shift can be seen in long-duration treasuries. Gayed argued that the recent rise in treasury prices as stocks decline is a signal that investors are seeking safety, as treasuries tend to perform well during times of market stress. As stock prices fall, yields on these long-term treasuries decrease, which is a classic indication that investors are anticipating lower economic growth and possibly a recession.
In addition to treasuries, the strength in utilities is also a key factor. Utilities are considered the most bond-like sector of the stock market, often providing steady returns in uncertain times. Gayed pointed out that utilities’ strong performance in 2023, while the broader market remains volatile, suggests that risk-averse investors are already shifting their portfolios away from growth stocks. He warned that this is often a prelude to a larger market correction.
Nvidia: A “Too Big to Fail” Risk
Gayed expressed particular concern about the outsized influence of Nvidia on the market. Nvidia, driven by its leadership in artificial intelligence (AI) technology, has seen explosive growth and has become a cornerstone of the S&P 500. However, Gayed warned that this concentration of market value in one stock could be a risk. If Nvidia experiences significant volatility or faces regulatory scrutiny, it could lead to broader market instability. Nvidia’s dominance in the index could make it “too big to fail,” but its potential collapse could send shockwaves through the market, further amplifying volatility.
Reverse Carry Trade and Japan’s Role
A significant aspect of Gayed’s warning revolves around the reverse carry trade, particularly related to Japan’s bond market. He emphasized that unwinding a two-decade-long carry trade doesn’t happen in just a few days, even if it appears the market has recovered. In August, the reverse carry trade triggered a short-term panic, but Gayed believes the market’s bounce-back has lulled investors into a false sense of security. He argued that the dangers of the reverse carry trade are far from over, and its repercussions could soon reignite volatility in global markets.
What Investors Should Do Next
Gayed’s advice for investors hinges on their individual needs and timeframes. For those with long-term investment horizons, the noise of the market may simply represent an opportunity to buy into assets at lower prices after a correction. However, for active traders or those with short-term financial needs, he recommends considering safe-haven assets like gold, utilities, and long-duration treasuries.
He reiterated that gold is sending a clear warning. While younger retail investors have been focused on riskier assets like cryptocurrencies, institutional investors are shifting into gold, which traditionally serves as a hedge during times of economic uncertainty. Gayed emphasized that this flight to safety could continue as concerns about market volatility and stagflation grow.
A Market Ready for a Crash?
Ultimately, Gayed is not predicting an 80% market crash, but he believes the risk of a significant correction is very real. The combination of seasonality (with September historically being a weak month for stocks), the reverse carry trade, and widespread complacency among investors creates a perfect storm for market disruption. Investors who ignore these early signals could find themselves unprepared for what lies ahead.
Conclusion
As the market enters a critical phase, Michael Gayed’s warnings should not be taken lightly. The convergence of factors such as the strength in treasuries and utilities, Nvidia’s market dominance, and the risks posed by the reverse carry trade suggest that significant volatility could be just around the corner. For conservative investors, now may be the time to reassess portfolios and focus on assets that provide safety in uncertain times, such as gold, utilities, and long-duration treasuries.
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SOURCES:
https://uk.finance.yahoo.com/news/stock-market-set-panic-could-235133465.html
https://www.google.com/finance/quote/NVDA:NASDAQ?window=YTD
https://uk.finance.yahoo.com/news/stock-market-set-panic-could-235133465.html
