What happened? The most famous bears in the US bond and stock markets suddenly shouted in unison, "It's over."

For US Treasury bonds and US stocks, this Monday was quite extraordinary.

US Treasury Bonds: Two Bears Retreat

Not only Bank of America, Morgan Stanley, UBS, and Goldman Sachs all shouted that the rise in US Treasury yields "has gone far enough," even some of the most famous bears on US Treasury bonds have expressed that the historic collapse of US Treasury bonds has gone too far.

Bill Ackman, known as the "Pandemic God of War," wrote on social media that in the face of rising global risks and the US economy slowing down faster than recent data suggests, he closed his short position on long-term US Treasury bonds.

At the same time, Bill Gross, known as the "Bond King," wrote that he is buying short-term interest rate futures because he expects a recession in the US before the end of the year.

While they made these statements, US Treasury yields quickly declined during the trading session. The 30-year US Treasury yield fell by about 21 basis points after reaching a peak of around 5.18%, and the 10-year US Treasury yield fell by about 19 basis points after surpassing 5% for the first time in sixteen years.

During the COVID-19 pandemic, Bill Ackman accurately shorted and went long on US stocks, and in August of this year, when the 10-year US Treasury yield was still around 4%, he revealed that he was "massively" shorting 30-year US government bonds through options. It has now been proven to be a successful bet.Since the end of July, the 30-year US Treasury bond yield has risen by nearly 100 basis points.

Gross also stated in late August that the yield on 10-year US Treasury bonds will continue to rise and could reach 4.5% (at that time it was 4.35%). At the end of September, Gross also stated that neither bonds nor stocks are attractive because inflation leaves the Federal Reserve with little room to cut interest rates.

However, Gross now points out that the volatility of regional banks and the rise in auto loan delinquency rates indicate a "clear slowdown" in the economy.

Whether the retreat of these two bears marks the peak of the current sell-off in US bonds remains to be seen. Some market observers believe that a rise in the yield on 10-year US Treasury bonds to 6% is not impossible.

However, there are also signs of a broader shift in market sentiment. Federal Reserve Chairman Powell stated last week that the rise in long-term bond yields has "marginally" eased the pressure to tighten monetary policy.

In response, as traders unwind their bets on a rate hike at the Federal Reserve's November policy meeting, open short positions in federal funds futures have fallen sharply. Concerns are growing that the conflict between Israel and Hamas could spread throughout the Middle East, prompting investors to seek safe havens.

US Stocks: Largest bear claims "buy" signal has been triggered

On Monday, the US stock market experienced a situation where Bank of America strategist Michael Hartnett stated on the previous trading day that the market was too bearish, triggering the bank's custom indicator "reverse buy signal".

Hartnett wrote in a report on October 19 that as of the week ending October 18, Bank of America's Bull & Bear Indicator fell from 2.2 to 1.9, due to outflows from emerging market bond funds, high-yield bonds, and global equity funds, as well as a significant increase in cash allocations.

Generally, when the Bull & Bear Indicator falls below 2.0, it triggers a contrarian buy signal for risk assets, and is therefore seen as a precursor to a short-term rebound in US stocks.Hartnett, once one of the biggest bears in the US stock market, believed that the US stock market, especially the Nasdaq, would experience a major decline when it was soaring in June this year, just like in 2000 and 2008, where a sharp rise was followed by a sharp fall. It is worth mentioning that Hartnett accurately predicted the market trend in 2022 and is hailed as "the most accurate analyst on Wall Street".

Hartnett stated that the contrarian buy signals for risk assets have been triggered, which historically indicates a bullish market. Since 2002, after 20 such events, the median increase in the US stock market over the following three months was 5.4%, while global stock markets on average rose by 7.6%.

Hartnett believes that the timing for a tactical rebound will be at the end of the year, although he remains bearish on the US stock market in the medium to long term. Currently, three out of Bank of America's four "trading rules" have given contrarian buy signals:

• The Bank of America Bull & Bear Indicator is at 1.9 (below 2%).
• The cash level in the Bank of America Global Fund Manager Survey (FMS) is at 5.3% (above 5%).
• The Bank of America's asset management scale has seen a 1.1% redemption in the past four weeks (above 1%).