Souring Bets on Apocalypse Were at Center of Quant Stock Storm
- A surge in Treasury yields leaves the safety trade under siege
- Long-short hedge funds, quants pay a price for crowdedness
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Below its sleepy surface, a breakdown in momentum trades rattled the floor of the U.S. equity market this week. But before getting too worked up about damage to the math whizzes who bore the brunt, it’s worth considering some of the episode’s happier implications.
While it doesn’t sound like it, in this topsy-turvy market, trouble for high-flying stocks isn’t altogether bearish. That’s because plunging Treasury yields have been persuading hedge funds for a while now that a recession is at hand, luring them into defensive industries like utilities and real estate. As those shares were bid up, companies like American Tower Corp., a REIT, and household product maker Ball Corp. started dominating momentum portfolios.