Fed holding rates high while tech crumbles — short emerging markets
Thesis
A hawkish Federal Reserve is signaling stubbornness on interest rates while inflation remains above 4%. When the Fed keeps rates high, it makes safer US government bonds pay much more, which causes global investors to pull their money out of riskier developing nations. This directly challenges any hope of a bond market recovery in emerging economies. Combined with the fact that the Nasdaq is sliding and global tech is selling off, the broader market is clearly shifting away from risk. This combination of high US rates and a tech sell-off points to continued downward pressure on emerging market stocks.
Strategy approach
Build a trend-following short strategy on D1 timeframe. Enter short EEM when the US 10-Year Treasury Yield (TNX) makes a 20-day high and EEM closes below its 20-day simple moving average. Exit if TNX drops 5% from its peak, or after a 30-day max hold, or with a 5% stop loss.