On Monday, Japan’s Nikkei fell by an astounding 12.4%. This is its worst-ever daily sell-off when the index lost 4,451.28 points. Before that, Japan’s currency, the Yen, fell to lows not seen in 37 years.
The Bank of Japan stepped in to defend its currency by buying it. In addition, it unexpectedly raised rates. This disrupted the easily made money through carry trades. Carry traders borrow in one currency at a lower cost to buy assets that offer a higher return in another currency. When the Yen strengthened and rates increased, investors with big positions unwound the trade.
On Tuesday, the Nikkei rebounded, closing up by 10.2%.
The Nasdaq (QQQ) and S&P 500 (SPY) mirrored the Nikkei’s volatility. On Monday, news that Warren Buffett cut his stake in Apple (AAPL) by around 50% triggered selling panic for tech stocks.
What To Do Next
Long-term bonds rallied when markets fell. It attracted investors seeking yield and safety from the stock volatility. Although the 20+ Year Treasury Bond (TLT) touched $100 on Monday, it is far from a safe holding. The Fed did not indicate that it would cut more than 25 bps. Additionally, it may refuse to act until its September meeting. Bond investors must wait over a month before they commit to their positions.
