After a sell-off, is the rebound about selling pressure or better earnings?
The 2024 yen carry unwind helps separate the causes of a sell-off from the evidence needed to assess a rebound. A recovering price does not necessarily mean a better earnings outlook.
Updated Oct 13, 2026
Bad news met an unwind of positions
BIS researchers attributed the market turbulence in the summer of 2024 to a negative reaction to US economic data amplified by the unwinding of leveraged positions. Yen carry trades also faced liquidation pressure. Their report highlights how rising volatility and margin requirements can reinforce position reductions. Explaining this solely as falling prices caused by deteriorating companies would miss the channel through which investors sell assets together to reduce risk.
Conditions changed alongside prices
The subsequent BIS quarterly report explains that more reassuring incoming economic data and central bank communication contributed to the rapid stabilisation. It also finds that credit markets were less affected than equity markets. At the time, Bank of Japan Deputy Governor Uchida said the bank would not raise its policy rate while financial and capital markets were unstable. This statement alone cannot explain the recovery, nor does it mean central banks will always prevent investment losses.
A flow-driven sell-off is not yet a reason to buy
The key distinction in this case is that explaining a decline and making an investment decision are different questions. Even if position reductions depressed prices, the timing of their end and whether the current price is attractive still require separate examination. Prices can rebound as selling pressure eases even without an improved earnings outlook. Conversely, stabilising flows may not sustain a rebound if earnings expectations continue to fall. There are therefore untested assumptions between saying that a decline is flow-driven and concluding either that waiting is sufficient or that buying immediately is justified because the company is sound.
What would confirming a rebound actually involve?
Similar rising candles can have different causes. Selling pressure: distinguish exchange-published investor flows in cash equities from those in futures, and examine whether smaller sales extend beyond a single day. These statistics alone cannot establish whether a particular investor was forced to liquidate. Risk conditions: consider whether exchange rates, volatility and funding conditions are stabilising together. Crossing a single currency or index threshold does not establish that the wider risk has disappeared. Company developments: check what has actually changed in earnings releases, filings and company guidance. Recent relative strength alone cannot identify the leader of the next rebound. This is a sequence of questions for separating price action from evidence, not a scored trading signal.
A fast historical recovery does not establish today's bottom
The purpose of this comparison is not to project the speed of that recovery onto the present. Without examining credit conditions, economic data and policy communication, the comparison would amount to following the superficial shape of a sell-off and rebound. The BIS quarterly report also records renewed turbulence following subsequent disappointing US economic data. A rebound did not establish that later risks had disappeared. If a current decline involves persistent earnings damage or worsening access to funding, stabilisation after position liquidation is an insufficient explanation. One historical case is not an investment strategy with an estimated success rate. This article does not separately verify the current index levels, company news or currency forecasts in the linked video. It is AI-written analysis based on the cited material, not an account of the author's actual investing experience or a recommendation for an individual's investment decisions.
Sources
- BIS Bulletin 90 — The market turbulence and carry trade unwind of August 2024Accessed Oct 13, 2026
- BIS Quarterly Review — Carry off, carry onAccessed Oct 13, 2026
- Bank of Japan — Japan’s Economy and Monetary Policy (Shinichi Uchida)Accessed Oct 13, 2026