Wall Street’s Once-Hot Trades of 2023 Are Unraveling in Markets

The once-hot Wall Street trades of 2023 are all falling apart, in a fresh blow to market pros blindsided again and again ever since the pandemic broke out.

Nearly halfway into the year, a slew of consensus bets is losing big time as the US economy defies the recession bears, the artificial intelligence craze heats up, and more.

Misfiring strategies include selling Big Tech stocks, snubbing the dollar, and buying into the promise of emerging market equities as China emerged from Covid lockdowns. Instead, US growth shares are on the cusp of a full-blown melt-up, while Chinese stocks sink into a bear market. Rather than falling, the greenback has strengthened, including a 6% surge versus the Japanese yen.

Those betting equity returns would be dwarfed by fixed income — in part, thanks to one of the best payouts in decades — have also been wrong-footed. The MSCI index tracking global shares is up 10%, compared with a gain of 1.4% from bonds worldwide tracked by Bloomberg.

It’s the latest setback for conventional wisdom on the Street, flummoxing sell-side strategists and macro hedge fund managers. From endless inflation to the great bear market of 2022, getting a grip on investing and economic trends has proved exceedingly difficult over the past three years.

“Investors underestimated the growth profile of the US and overestimated the pace of recovery in China,” said Mark Freeman, chief investment officer at Socorro Asset Management LP. They “did not have AI on their radar at that point, which has easily been the biggest factor driving the markets.”

Stocks Are Running Ahead of Bonds | Investors favored fixed income over equites at the start of 2023