The Market Ear with the latest melt-up bear market case. I’d say it is more likely than not. But, think on this, Brent oil is sitting on $95. After the various growth-supportive measures in China in recent days, oil is going to march higher with any broader risk rally.
How far does it have to go before it kills the whole box and dice with higher yields? $105? $110?
Not very far.
Santa seasonality
Nothing really new, but can you imagine the pain should the traditional Santa rally kick in from here? This market continues doing what it does best, frustrate everybody.
GS
GS
Entering overbought land…
…but note there is more room to the upside as we could see markets become even more overbought. RSI of SPX and NASDAQ.
Refinitiv
A super “bottomy” thing
Thursday’s 5SD SPX rally wasn’t the only one we’ve seen over the tumultuous past few years, however, it’s an event that tends to only occur after a recession or a major dislocation. Shown in the chart below, over the past ~13k trading days, it’s only happened 15 times. Shown in the table (2nd chart), returns following moves of this magnitude are larger than typical on average. Mostly interestingly, over the past 50Y or so we have never had a 5SD+ single day move in the SPX that saw stocks lower 12M on.
Jefferies
Jefferies
Hungry for stocks
Corporates have been very busy buying back stocks. Rubner estimates that elevated buy back levels will end the week ~1.9 – 2.0x levels. He reminds us of the fact that they have been “buying >$10B per day, every day…”
GS
CTAs are hungry for more
The huge convexity in early October is not as attractive. CTAs have bought, but they need to buy even more. According to Goldman’s Scott Rubner there is $28B worth of Global Stocks to buy in the next 1 week, assuming a flat tape or ~$5.6B per day. Although there are some differences across global equity indexes when it comes to projected flows, SPX needs to be bought pretty much irrespective of anything…
GS
Hedge fund gross spiking to post-COVID highs
Mainly due to MTM on run-away shorts. Gross now at 52%-tile on a 5-year lookback. Have not seen that in a while
JPM PI
Room to re-lever
Or may we say “de-lever those bearish bets…” Chart shows hedge fund betas to equities.
Barclays
Eerily similar to what we saw in late July / early Aug…
JPM prime brokerage team sees similarities to the summer squeeze….:
1) positioning was very low heading into the recent rally…but is still quite low with short exposure high and not enough covering to say that’s done yet
2) what’s starting to happen is eerily similar to what we saw in late July / early Aug as performance lags, shorts squeeze higher, and Momentum falls
Thoughts from Tony P
Goldman’s macro guru with some feedback: “… if the inflation narrative is set to improve, there’s growing risk the earnings story is set to worsen”. This is “not an all-bad scenario, as I reckon the first factor dominates the second over the short term, but to my eye it doesn’t necessarily set up as the launch pad for the next long-term bull market”. He also mentions not seeing inflation magically disappear. His 2 cents on 2023: “…even if the macro backdrop is shifting in more favorable ways, my instinct is the limits on S&P upside will be with us for a while longer, and the path will remain very choppy.”
From 3tn to 0.8tn
And it’s gone…
MS
Forget contagion – crypto is too small
Before you get too excited and bearish. US equity market cap $41tn,…cryptos around $0.8-0.9tn. FTX has raised $1.8bn from venture capital and pension funds over past years according to Citi. For some perspective Apple gained around $23bn on Friday (+2%)….
