My IWM Short Mistake, Rising Rates And Real Estate

The 10 Year Treasury Yield jumped 11 basis points to 1.635% yesterday (Friday) – and is now up 72 basis points YTD – but stocks shrugged it off. While the indexes got hit hard in the morning, especially the Nasdaq (QQQ), they rallied back to finish the day strong.

The S&P was +0.10%, the Nasdaq -0.59% and the Russell +0.61% on the day.

The idea now is that rising rates won’t kill the bull because while they might hit Growth stocks, the rotation into Value stocks will continue to push the market higher:

Rising interest rates are the reason for the volatility. But higher rates aren’t a signal that investors should sell now. The market could well rise higher still. The stocks leading the market, however, might be a little different than the ones that led it to records in 2020.

[Andrew] Slimmons, [Senior Portfolio Manager at Morgan Stanley], sees value stocks continuing their momentum. Analysts’ earnings estimates for the coming year are rising faster among financial and industrial companies than tech names. Such revisions are a useful way to see which sectors are getting better, or worse, and at what rate. Big positive earnings revisions typically mean good things for stocks down the road (“Higher Rates Won’t Kill The Stock Market. What To Do Now”, Al Root, Barron’s, The Trader Column [SUBSCRIPTION REQUIRED]).

The problem with this argument, as I’ve mentioned many times previously, is that Value doesn’t make up a big enough proportion of the market capitalization of the major indexes to drive them much higher if Growth/Tech has topped.

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Kurt Benson 4 weeks ago Member's comment

IMO, covering your small cap short is compounding your mistake. Let it pull back.