Wall Street’s once-hot trades of 2023 are unraveling in markets
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." So far in 2023, backfiring bets are making life difficult for macro-focused fund mangers such as Said Haidar and Chris Rokos amid extreme volatility in US government bonds. An index of macro/CTA funds tracked by HFR is down 0.2%. The pain is particularly acute for investors who have shunned stocks in favor of bonds, worried aggressive Federal Reserve monetary tightening would derail the world’s largest economy.
In a December survey of fund managers by Bank of America Corp., government bonds were forecast to be the best-performing asset in 2023, and allocation to fixed income stood at the highest level since April 2009 versus equities. In the US, Treasuries have advanced, but they’re way behind stocks. Trailing by 7 percentage points in the first five months, government debt is off to the second-worst start of a year in a decade relative to the S&P 500. Fueling the surprise equity outperformance is the optimism around AI following November’s release of ChatGPT.
The frenzy has sparked a surge in shares of computer and software behemoths, with the seven largest tech firms like Microsoft Corp. and Nvidia Corp.
accounting for almost all the market’s gains. AI euphoria, along with better-than-expected corporate earnings and economic data, has helped
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