The Great Inflation Trade Finally Falters

The most crowded trade on Wall Street -- long inflation -- is suddenly getting crushed like never before in the post-lockdown era, sparking a spate of forced deleveraging among a broad cohort of institutional funds.

Betting against technology stocks and Treasuries or going long the dollar are some of the most profitable strategies in a year when inflation at decade highs drove asset returns. Now, with producer prices adding to signs of easing price growth, all these bets look shaky.

The tech industry, home to many of this year’s biggest losers, led Tuesday’s rally with the Nasdaq 100 jumping as much as 2.8% before paring gains on geopolitical tensions. Treasury yields fell again while the dollar slipped toward a three-month low.

The market gyrations are dealing a harsh blow to money managers who piled into big wagers that the Federal Reserve’s inflation-fighting campaign will continue to juice yields while boosting the allure of the US currency. It’s also hurting Bank of America Corp. clients who have recently slashed exposure to tech equities to a 16-year low.