Mike Wilson of Morgan Stanley returns with his latest spot-on missive.
Easy Come, Easy Go
Last week started with one of the bigger 2-day rallies in history only to give most of it back by Friday’s close. The culprit for this extreme 2 way volatility is a combination of deteriorating fundamentals with oversold/supportive technicals. As noted last week, September was the worst month in what’s been a brutal year. Retail was a net seller for the first time since March 2020 while CTAs sold $75B in equity exposure according to our QDS team. On a scale of 1-10 that’s probably an 8 in terms of how bad it can get from these 2very important investor groups. In other words, the equity market was primed for a rally especially with the S&P 500 closing right on it’s 200-WEEK moving average the prior friday. There was also a lot of fear circulating about an imminent financial “accident.” With that accident failing to materialize over the weekend, the rally was vicious, forcing short sellers to cover.Low quality stocks led the rally as further evidence the rebound was just bear market action rather than the beginning of a new bull.
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