Bond Market About To Flip: A Major Shakeup Is Coming | Jim Welsh

Jim Welsh (0:00)

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David Lin (0:42)

It's Monday, October 19th, and exactly 39 years ago today was another Monday of momentous importance. It was 1987, and on this date, 39 years ago, the Dow Jones crashed 22 percent in what was later cataloged in the Annals of Financial Markets as the 1987 Black Monday crash. Now there is no market crash today, and in fact, stocks are up, rebounding from the losses last week. The NASDAQ is up 1.4 percent intraday while yields rose. But so many of the market conditions today look eerily similar to what led to the 1987 Black Monday crash that it's hard not to make parallels. AI stocks look overvalued by many traditional valuation metrics and surging yields have lured many equities investors into bonds, which is why bonds have been catching a bit fall throughout October.

Recently, these AI boom fears are back in the headlines as chip stocks crack. The Philadelphia Semiconductor Index, or SOXETF, had its longest losing streak since October 2008

So is today's market bounce the sign of a recovery, or is the AI trade already breaking? It all hinges on interest rates, says our next guest, Jim Welsh, founder of Macro Tides.

Right now on Kalshi, traders are predicting a 14% chance that the Fed will hike rates by 25 basis points next week in October. A $50 trade could yield $336 if you're right and you agree with those odds. Our next guest will give his outlook, so stay tuned. This video is sponsored by Kalshi, the largest prediction market in the US. Unlike a sports book, you're trading peer-to-peer on real-world events from economic data to political outcomes and then price moves based on public opinion, not a house. Go to the link in the description down below or scan the QR code here and use my code Lin, L-I-N. New users who use my code can get $25 in app credits when they trade $25. Kalshi is CFTC approved and available in all 50 states including California and Texas. Welcome back to the show. Jim, good to see you.

Jim Welsh (2:38)

Hey, great to be joining you, David, on this illustrious day.

David Lin (2:42)

Yeah, there's been a lot of hype right before this Monday.

It's another Monday, October 19th, they said. We don't get another Monday very often on the 19th of October. Certainly, we don't have the exact market conditions lining up for what looks to be possibly another big drawdown in the stock market. So the stars were aligned for another Monday, October 19th. It didn't happen. In fact, it went the other way. I'm not sure if that's traders way of a joke, but certainly today was a buy on the dip day. Is today's bounce a dead count bounce? I'll start with that.

Jim Welsh (3:15)

Yeah, I think so. If you look at market breath, which is one of the things I really focus on, know how many stocks are up versus down. The S&P was up 50 points right before we started talking, David, and there were like 600 more stocks down than up. If you look at the S&P equal weight, that was negative. So what we are getting is a bounce in semiconductors. The RSI on SMH got down to 30 late last week, which is where it was at the last trading low near 503

And so to me, we were set up for a bounce. The MAG7 are also getting a bounce. But as we've seen over the last really four plus months, it's like there's not enough money to go into everything. And so we do this tag team where, okay, now it's time to buy the MAG7 and the semis, but we're not going to buy the broad market. And then as soon as the MAG7 are semis weaken, like we saw last week, well, let's buy the broad market. And that's why the S&P has kind of been going sideways. I think in the first week of June, it hit 76.20.