Market bull Julian Emanuel sees rising government bond yields accelerating a major change in leadership. Here’s how to play it.
While rising yields on government bonds are causing unrest on Wall Street, BTIG’s Julian Emanuel sees opportunities.
The company’s chief stocks and derivatives strategist said Monday he thinks economically sensitive stocks, cryptocurrencies and overseas markets, especially China, will get a boost.
“There is a large subset of ADRs in China [American depository receipts]Emanuel told CNBC’s “Trading Nation” that some of these are focused on the financial sector and have a very close correlation with Chinese returns, which are rising alongside the US.
The benchmark yield on 10-year Treasury notes hit a new one-year high of around 1.35% on Monday.
“This is the environment in which this catch-up trade will show its capabilities,” said Emanuel.
But it’s not just unloved areas of the market. Emanuel sees rising returns that make cryptocurrencies even more attractive.
“They come from such a low absolute interest rate that higher interest rates are likely to support alternatives like Bitcoin,” said Emanuel, who also suggested they are best for those with iron stomachs because of the high volatility.
For investors looking to take the more traditional route, he recommends economically sensitive stocks, especially in the finance and energy sectors.
“It’s about broadening our horizons as interest rates rise on more than just the large-cap tech stocks that have led for so long,” he said.
Emanuel predicts that growth stocks, including big tech, will continue to fall out of favor as rotation gains momentum in cyclicals. He believes algorithmic computer trading will exacerbate the turbulence by increasing downward pressure and accelerating losses.
The tech-heavy Nasdaq fell nearly 2.5% on Monday. The index is now almost 5% below its record high.
However, Emanuel sees pullbacks as important entry points.
“Now it’s a broader, bigger rally and we think this will ultimately be positive for the markets. But there will likely be a period of indigestion,” he said. “You could see a drop of maybe 10% to 15% over the next period.”
Emanuel has a year-end S&P 500 target of 4,000, up 3% from Monday’s close of trading.
“The rise in yields is confirmation that we are going to get a strong economy – maybe even stronger than expected,” said Emanuel. “It’s not just going to be for the US, but likely the rest of the world as well.”
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