🦢 Duck, Duck, Swan

Happy Sunday to everyone on The Street. 

Our weekend sends will be bite-sized for the next couple of weekends as 2024 winds down. If you think about it, though, we’re just tapping into the true spirit of the holiday season. Remember, it’s not the size of the gift that matters, but the size of the heart that gives it. 💚

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Nomura Says, “No More”

Duck, Duck, Swan

You’ve probably heard about “black swan” events: high-impact occurrences that are totally unpredictable except in retrospect. But what about the ones we can predict?

Nomura has coined a term for these low probability, high impact events that few expect: “grey swan” events. And, in the firm’s 2025 outlook, it identified several of these grey swans that should be on investors’ radar as we head into the New Year.

NVIDIA Sell-Off?

The first potential event that Nomura listed was a sharp drop in NVIDIA’s (NVDA) share price. The stock’s price has soared 180% YTD and a whopping 2000% over the past five years, becoming one of the most valuable companies in the world.

But how long can it last? According to Nomura, capital expenditures in the tech space are declining and its new Blackwell chip has been delayed. Additionally, with investor expectations sky-high, it won’t take much for growth to come in lower than expected. 

Should these things result in a price drop, the firm expects a large selloff of US stocks. On the bright side, it believes it would also result in cheap hedges for investors.

Other Grey Swans

The firm also raised the possibility of the 10-year Treasury yield climbing to 6%. This could happen if large fiscal deficits prompt bond vigilantes to demand a higher term premium, or if President-elect Donald Trump’s proposed policies trigger inflationary pressures.

Should that come to pass, Nomura recommends exploring payer swaptions, or going long on the dollar index against emerging market foreign exchange.

Nomura’s other potential grey swans include a sharp slowdown in US consumer spending while the unemployment rate rises, or an escalation in geopolitical conflicts. In either case, the firm is bullish on gold, and it favors long-duration bonds in the former scenario as well.

Hindsight is 20/20. But investors who see with clear eyes today likely agree with Nomura: you can hope for the best, while preparing for the worst.

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