Investors are increasingly cautious about long-duration assets amid rising inflation expectations and market uncertainty. The shift away from duration-heavy strategies is driven by the realization that the era of low inflation and zero-rate environments, which has supported a bull market since 2009, may be ending. This sentiment is echoed in the latest UMich Consumer Sentiment Survey, which reports the highest long-term inflation expectations since 2008. Consequently, higher long-term Treasury yields are emerging, signaling a demand for greater compensation for future inflation risks. As yields rise, equities become less attractive due to increased discount rates for future cash flows, potentially leading to lower stock valuations. The increase in real yields and term premiums suggests markets are preparing for tighter future monetary policy, further reducing the appeal of risk assets.
The Direxion Daily S&P 500 Bull 2X Shares (SPUU) experienced a decline, dropping 2.67% to $145.79 at 3:00 PM on Friday, January 10.