Once-popular trades are falling out of favor as investors brace for further volatility.
The 2022 pullback in U.S. stocks intensified last week, with stocks on Thursday staging their largest single-day decline since the onset of the pandemic. The plunge came just a day after Federal Reserve Chairman Jerome Powell appeared to clear the way for a stock rally by casting interest-rate increases larger than a half-percentage point as unlikely. The scale of Thursday’s decline and the recent surge of volatility raised questions about larger issues in the markets, such as the unwinding of leveraged trades or the possible liquidation of funds following big wrong-way bets. But many investors and analysts say the action has largely been consistent with the broad market retreat this year, driven by expectations that rates will rise. Portfolio managers say advancing rates will tend to benefit dividend-paying stocks, for instance, while adding to the pressure on speculative trades that were popular and profitable when money was free.