Last week, the NASDAQ 100 Index rebounded from its 200-day moving average, showing positive growth. The S&P 500 also saw marginal gains, indicating a lack of rotation from tech to value stocks. However, the unwinding of the Yen carry trade is a key factor to watch. Some experts estimate the unwinding to be at 50% to 75%, which could be a positive development. Borrowing Yen in large amounts has led to a Yen short squeeze, increasing correlations between the Yen, NASDAQ 100, and S&P 500. The Bank of Japan’s efforts to control the Yen’s strength have been noted, with the Governor stating no interest rate hikes during volatile times.
The correlation between the Nikkei 225 and S&P 500 futures has become more evident during specific trading hours, indicating the impact of the Yen carry trade unwinding. The recent divergence between the S&P 500 Index and the Japanese Yen highlights the volatility in the market. As the correlation between the S&P 500 and Yen weakens, it may signal the completion of the Yen carry trade unwinding.
The Nikkei 225 Index has experienced spikes in volatility similar to the COVID crash of March 2020, without a pandemic. These volatility spikes often mark longer-term bottoms in the market, but retests of these lows are common. As geopolitical tensions rise, particularly in Iran and Ukraine, the market faces uncertainty. The recent attacks and conflicts in the region have caused spikes in European natural gas futures, impacting the energy market significantly.
Overall, the market outlook remains uncertain, with potential for a rebound in U.S. stocks despite geopolitical challenges. Monitoring the Yen carry trade unwinding and geopolitical events will be crucial for investors in the coming weeks. The opinions expressed in this article are those of Ivan Martchev of Navellier & Associates, Inc. It is essential to consider the important disclosures provided by Navellier & Associates before making any investment decisions.