His fund is up 60% this year after he called the bottom of March; now see the potential for a ‘severe collapse’

Michael Gayed says he is not trying to scare anyone, but you wouldn’t know from his last take.

In May, the fund administrator warned of the possibility of two falls: first bonds, then stocks. With your ATAC Rotation Fund ATACX,
+ 0.04%
It continues to deliver the products, it has risen almost 60% so far this year to rank among the best in its category, it is still waving the yellow flag.

“It is a wild moment in the markets,” said Gayed, who also directs the Lead-Lag Report. “Despite a crippling global pandemic, where the United States is miserably failing in a daily record response after daily cases are broken, and a US economy that seems to be teetering on the brink of another Fed Monetary Policy response, the stock markets have not seemed to blink when he recovered. “

Yes, 2020 is certainly unique, considering, as you noted, that stocks plummeted by more than 30% at one point, only to rebound nearly 50% from there. All that in less than eight months.

After being bullish near the bottom in March, Gayed now says the main market indicators may be signaling a “severe collapse” in stocks.

The yield of the 10-year Treasury TMUBMUSD10Y,
For example, you’re looking for around 0.5%, while the 30-year yield on the TMUBMUSD30Y,
it is below 1.5%, which, according to him, is preparing for a possible reversal to the mean.

“Bond market investors are often said to be smart money and tend to lead the stock market to anticipate economic activity,” Gayed explained. “The fact that yields have not increased significantly (quite the contrary) in the very short term is quite troubling as historically that short-term movement has tended to precede the main periods of equity stress.”

On top of that, action in the public services sector, which is considered a recession-proof safe investment, could spell trouble for the overall market, he said, pointing to this graph that shows how defensive investments have managed to outperform the S&P 500. in the last month:

“That should raise some red flags as a capital investor, and frankly this just gives me pause,” he said. “A similar move occurred just before the COVID accident this year.”

Lastly, complacency could become a serious problem, with Gayed pointing out several factors, including recent trading antics by Robinhood merchants.

“The S&P 500 is now positive in a year that awaits an economic catastrophe. The Nasdaq is flying. And nobody seems to think that the market could fall, “he wrote in a recent note. “It certainly feels as if everyone has forgotten that investing in stocks carries risks, and conditions are changing so rapidly right now that it looks like the risk could come back into effect.”

There was no big drop in futures trading on Sunday, although the Dow Jones Industrial Average c YM00,
+ 0.01%
, S&P 500 ES00,
and Nasdaq Composite NQ00, heavy on technology,
Everyone is ready for a lower opening to start the week.