Daily Stock Market Recap per ZH

Nasdaq Soars To Best H1 In 40 Years; Yield Curve Crashes To 'Most Inverted' Ever
FRIDAY, JUN 30, 2023 - 04:00 PM

The last month has seen a massive divergence between macro data reported in US and Europe (the latter collapsing as the former accelerates). The Global Macro surprise index, however, fell back into negative territory...



Source: Bloomberg

In fact, Q2 saw the biggest collapse in Europe's macro data on record...



Source: Bloomberg

The gap between US and European macro is dramatic, but we note this has tended not to be a 'decoupling' but a lead-lag series (so either US is about to serially disappoint, or Europe is set to soar versus expectations)...



Source: Bloomberg

Just one thing though - while the macro surprise index is 'relative to expectations', the Leading Economic Indicators signal has been contracting for a year and screaming recession...



Source: Bloomberg

Amid those macro moves, rate-change expectations are shockingly close to unchanged on the year - despite the massive dovish shift after the SVB collapse (and on the May FOMC 25bps hike). Since then the hawks are back in control, pricing in no rate-cuts to year-end...



Source: Bloomberg

However, none of that macro malarkey matters to the equity markets where Nasdaq (led by the magnificent seven... or just AAPL) surged in H1. The Dow was H1's laggard, up a mere 3.9%...



Source: Bloomberg

The Nasdaq Composite rose around 31% in the first half of 2023 - its biggest H1 gain since 1983 (outpaced only by the even more concentrated Nasdaq 100 which rose 37% - its best H1 ever). Last year was the second worst H1 in history and this year is the 3rd best ever for the composite...



The median US stock rose 6% in H1 (based on the ValueLine Geometric Index)...



Source: Bloomberg

Nasdaq 100 has been green in July for 15 consecutive years with an avg return of +4.64%...



Source: Bloomberg

The first 15 days of July have been the best two-week trading period of the year since 1928. Since 1928, July 3rd has the highest hit rate for the S&P of positive returns (72.41%), followed July 1st (72.06%)



Tech and Discretionary stocks outperformed dramatically in H1 while Energy and Utilities tumbled...



Source: Bloomberg

H1 2023 saw the biggest outperformance of Growth over Value since H1 2020, completely decoupling from the yield curve...





Source: Bloomberg

Before we leave equity-land, we would be remiss to not note the fact that Apple is once again a $3 trillion market cap company... to the f**king moon , Alice!!



Source: Bloomberg

But there is one thing...



Source: Bloomberg

Equities decoupled from the credit market in Q2...



Source: Bloomberg

Valuations are getting stretched...



Source: Bloomberg

US Treasuries are very mixed in H1 with the short-end monkey-hammered over 40bps higher in yield while the 30Y yield is down over 10bps...



Source: Bloomberg

The yield curve crashed lower in Q2, flattening to its most inverted quarterly close ever



Source: Bloomberg

The dollar ended the month lower, and quarter flat, and down modestly year-to-date. Bloomberg's Dollar Index has basically traded sideways in a small range since Q4's big drop...



Source: Bloomberg

Bitcoin rallied to its best H1 since 2019, up over 80% to $31,000; with Ethereum up over 60%...



Source: Bloomberg

Commodities are down for the 4th quarter of the last 5...



Source: Bloomberg

Oil fell for the 2nd quarter in a row while gold managed gains in H1. NatGas was clubbed like a baby seal in H1...



Source: Bloomberg

Gold has fallen for the last two months, after tagging near record highs over $2000 (and was down 2.5% in Q1), but for now is holding above $1900



Source: Bloomberg

The bulk of Nattie's decline was early in the year and in fact it has been rising recently - though for context, well off post-Putin highs...



Source: Bloomberg

We also note that the EU-US arb is back within its long-run historical range as European NG collapsed even more than US NG in H1...



Source: Bloomberg

Finally, H1 2023 rings a very loud bell with H2 2021 for tech...



Source: Bloomberg

What happens next with the AI-boom?

Perhaps the oldest adage on Wall Street is not to fight the Fed, but as Warren Buffett is fond of saying, “What we learn from history is that people don’t learn from history.”

 

Bitcoin, Banks, & Bullion Bid To Start H2; Bonds & Stocks Chop
MONDAY, JUL 03, 2023 - 01:01 PM

More ugly 'soft' survey data with both ISM and PMI showing serious contraction the US Manufacturing sector (and don't forget, this does not cycle independently of Services, there is a lead-lag relationship).



Source: Bloomberg

Equities were volatile early on (especially Small Caps) but by the close, The Dow, S&P, and Nasdaq all hugged the unch-line while Russell 2000 outperformed...



Banks outperformed today alomg with Discretionary stocks, Tech and Healthcare lagged...



Treasuries chopped around, with yields dropping on the manufacturing data but rebounding back top unch pretty quickly. By the close all yields were marginally higher on the day with the short-end underperforming...



Source: Bloomberg

The dollar ended lower for the second day in a row...



Source: Bloomberg

Bitcoin recovered all of Friday's puke, and got back above $31,000 today...



Source: Bloomberg

Gold extended its gains off the $1900 tick last week...



Oil prices ended lower, despite an early spike on headlines that Russia and Saudis would extend their production cuts. WTI rallied back above $71, but faded back into the red by the early close...



Finally, we note that 'The Buffett Indicator' is on the march once again into the danger zone...



Source: Bloomberg

Do you feel luck again, punk? Do ya?

 

July 4th Hangover & Hawkish Fed Hits Bonds, Bitcoin, & Bullion; Cyclical Stocks Sink
WEDNESDAY, JUL 05, 2023 - 04:00 PM

As 'Murica arrived back its desk, the overnight markets face some volatility after a big deflationary print for EU PPI along with contractionary print for EU PMI. That was followed by uglier than expected US factory orders data... and later in the day, FOMC Minutes reinforced The Fed's 'higher for longer' narrative.

Market expectations are now almost fully pricing in a hike in July, and no cuts through Jan '24...



On the day, the dollar was higher; bonds, gold, crypto, and most stocks were lower.

Defensives outperformed Cyclicals today...



Source: Bloomberg

...which is an interesting regime-shift given the higher-yields on the day (but one day does not a trend make... yet).



Source: Bloomberg

The Nasdaq managed some gains on the day while Small Caps were the biggest losers, The S&P desperately tried to get back to unch, The Dow lagged...



Materials stocks were the biggest losers today as Utes outperformed. Financial were slightly negative...



Source: Bloomberg

"Most Shorted" stocks opened lower but were squeezed back into the green before fading in the last hour...



Source: Bloomberg

VIX was higher on the day, but moved to the upper end of its recent range before fading back...



Treasury yields were higher across the curve but the short-end for a change outperformed, steepening the curve modestly...



Source: Bloomberg

The dollar rallied



Source: Bloomberg

The Mexican Peso surged to its highest since 2015, back below 17/USD...



Source: Bloomberg

The Russian Ruble tumbled (above 91/USD), notably weaker than pre-Ukraine-invasion...



Source: Bloomberg

Gold sank back today...



But oil prices continued their rebound with WTI back above $72...



Finally, NVDA managed a small gain today, despite the admin headlines on China export bans (and chip material export bans from China)...



Source: Bloomberg

Are we there yet?

 

Good 'Job' News Sparks Bad-News-Battering For Bonds, Big-Tech, Banks, Bullion, & Bitcoin
THURSDAY, JUL 06, 2023 - 04:00 PM

A slew of positive labor market data (and an upside surprise for ISM Services - even though Services PMI slipped) was just enough 'good' news to be bad for markets... all markets.

US labor market data has serially surprised to the upside in recent weeks. So much so in fact that in the face of The Fed's tightening, the jobs data is now at its most positive since 2012...



Source: Bloomberg

Small Caps were clubbed like a baby seal today as the entire US equity complex was dumped on the good jobs news. After Europe closed, the machines managed to lift the majors well off their lows with Nasdaq and The S&P leading the rebound. However, they all ended lower on the day...



Notably, there has been a regime shift in the stock market's response to higher rates with Defensives outperforming Cyclicals...



Source: Bloomberg

For context, the 2Y yield is unchanged since right before SVB's collapse... and the S&P is up around 400 points...



Source: Bloomberg

Treasury yields were higher across the curve today but the action was very mixed with the belly underperforming and the wings (2Y and 30Y ending up the least ugly horse in the glue factory)...



Source: Bloomberg

The 10Y yield broke back above 4.00% and 2Y yield smashed back above 5.00% running the stops above pre-SVB cycle highs before fading back lower...



Source: Bloomberg

Intraday, the 2Y yield reached its highest since July 2006...



Source: Bloomberg

The yield curve immediately crashed back near its most inverted levels of the cycle. But that didn't last long as the short-end was bid and the curve actually ended steeper on the day...



Source: Bloomberg

The 30Y mortgage rate surged this week to its highest since November...



Source: Bloomberg

The dollar ended marginally higher after fading back from the huge gappy spike after the jobs data...



Source: Bloomberg

Bitcoin kneejerked higher overnight (topping $31,500) before reversing all those gains and some, testing back below $30,000...



Source: Bloomberg

Gold puked back near last week's lows...



Oil prices ended marginally higher after puking on the jobs data then ramping on inventory draws...



Finally, Goldman's Tony Pasquariello dropped a totally striking chart earlier this morning. Essentially, he explains, financial markets had front-loaded the Fed tightening cycle.

Financial conditions are in the same place today as they were when the target rate was just 0.75% (before the Fed started blasting away in 75 bps clips).



The moral of the story here: the long and variable lags of tighter policy may not be SO threatening anymore (famous last words, we know).

 

Dollar & Bonds Puked In Holiday-Shortened Week; Mixed Jobs Data Sparks Stock Swings
FRIDAY, JUL 07, 2023 - 04:00 PM

Amid holiday-driven illiquidity, markets were a little schizophrenic and short-fuzed this week as various labor market indicators offered something for everyone: 'Hot' ADP, 'Cold' BLS, and 'just-right' Claims data (and take your pick under the surface of each to spin your own narrative). The net of all this was a positive surge in US Labor market surprise data to its highest since 2012...



Source: Bloomberg

On the week, the market's expectations for Fed rate-changes was practically unchanged though as today's dovish BLS 'miss' erased yesterday's hawkish ADP 'beat'. July remains pretty much a lock for a 25bps hike though as the swings were more focused on year-end and beyond...



Source: Bloomberg

The same pattern is clear in equity-land where yesterday's tumble on 'good' news from ADP was largely erased by today's 'bad' news from BLS (for headline payrolls). Nasdaq led on the week, managing to get back to even today before the late-day profit-taking spoiled the fun. The Dow lagged on the week...



The rebound in stocks was largely driven by a massive short-squeeze...



Source: Bloomberg

The early week outperformance of Defensives over Cyclicals was erased by the week's close as both ended around unch...



Source: Bloomberg

VIX was up this week - its first weekly rise since May - spiking above 17 yesterday before falling back today...



Treasury yields were all higher on the week, but the most notable thing is the reversal in the short-end and the belly's underperformance (5Y +22bps)...



Source: Bloomberg

While the 2Y Yield ended higher on the week, it fell back significantly below 5.00% (after reaching its highest since 2007)...



Source: Bloomberg

Today's BLS headline miss saw the dollar clubbed like a baby seal, back near 3-week lows...



Source: Bloomberg

Bitcoin was marginally lower on the week, finding support at $30,000 (and resistance at $31,000)...



Source: Bloomberg

Oil prices surged this week, best week since April, with WTI back up near $74 at the top of the recent range...



Gold was up on the week, but faced some serious intraday swings on the way...



Finally, we note a lot of the hope-filled soft-landing chatter of late has been predicated on data beats. Indeed, as Bloomberg notes, the data have been so strong that the Citi Economic Surprise Index for the US has gone vertical.



Source: Bloomberg

But as Bloomberg points out, this is a mean-reverting series. And the vertical nature of the recent figures is telling you the downside surprise from the jobs print is the first of more to come.

 

Bonds Bid As Hawkish 'High(er) For Long(er)' FedSpeak Spooks Growth Stocks
MONDAY, JUL 10, 2023 - 04:00 PM

A quiet-ish day on the macro front today as the 'main events' lie ahead of us but Wholesale Sales disappointedly declined and Consumer Credit rose dramatically less than expected.

However, a murder of Fed Speakers certainly made clear how they feel, all singing from the same hymn-sheet - 'High(er) For Long(er)' it is:

• *BARR: INFLATION IS STILL FAR TOO HIGH, RATES CLOSE TO RESTRICTIVE BUT FED STILL HAS WORK TO DO
  
  
• *MESTER: INTEREST RATES NEED TO MOVE UP SOMEWHAT FURTHER, WILL NEED TO HOLD RATES AT PEAK FOR A WHILE
  
  
• *DALY: INFLATION PRINTING TOO HIGH; LIKELY TO NEED A COUPLE MORE RATE HIKES, RISK OF DOING TOO LITTLE ON RATES OUTWEIGH DOING TOO MUCH
  
  
• *BOSTIC: MAY NEED TO DO MORE ON RATES IF INF. EXP. UNANCHOR, COMFORTABLE TO LET RESTRICTIVENESS PLAY OUT

Small Caps ripped at the cash open as big-tech tumbled - with Nasdaq rebalancing plans weighing on the S&P and Nasdaq. Late-day melt-up dragged Nasdaq barely green...



Today's shift took the Nasdaq 100 down to recent support relative to the Russell 2000...



Growth stocks underperformed Value...



A massive short-squeeze has been underlying the moves of the last three days with 'most shorted' stocks up 9% from Thursday's post-open (ADP plunge) lows...



Source: Bloomberg

Despite The Fed's proposals to increase capital requirements for smaller 'large banks', regional banks managed gains today...



Treasury bonds were aggressively bid across the board with the belly outperforming (5Y -12bps, 30Y -1bps)...



Source: Bloomberg

Which steepened the yield curve (2s10s) significantly - now back at its least inverted since June's FOMC...



Source: Bloomberg

The 2Y Yield extended its decline from the pre-SVB peak levels in March...



Source: Bloomberg

The dollar was clubbed like a baby seal today as the yen eyed a four-month retracement level at 141.42 after falling below the June 15 high, the pound nears its 2023 high, and the euro challenging the top of a two-year triangle formation. The dollar index is back in a comfortable recent trading range...



Source: Bloomberg

Bitcoin rallied today after positive comments from former SEC Chair on ETF regulatory hurdles.

BTC broke out of its recent range but only modestly...



Source: Bloomberg

Oil prices were lower on the day...



Gold was flat on the day, despite a puke lower into the London Fixing...



Finally, can NVDA extend from here or is the COVID/Crypto-Boom pull-forward deja-vu about to happen all over again...



Source: Bloomberg

We will know soon as earnings loom. Let's just hope it's not all hype..."We are nowhere near achieving artificial general intelligence (AGI). Those who believe AGI is imminent are almost certainly wrong."

 

Massive Short-Squeeze Sends Small Caps Soaring; Gold Up, USD Dn Ahead Of CPI
TUESDAY, JUL 11, 2023 - 04:00 PM

With all eyes on tomorrow's CPI print (and Friday's Nasdaq rebalance), what was left for traders but to bugger about in Small Caps, squeezing shorts, and playing gamma-grab-ass.

'Most Shorted' stocks have exploded 11.5% higher from Thursday's lows - far outpacing the 10%-in-5-days into June's month-end...



Small Caps benefited most from this squeeze-gasm, but all the majors ended green as FOMO struck in the last few minutes...



Small Caps underperformed Nasdaq once again as the ratio breaks interim support...



Under the hood, 0-DTE traders pushed aggressively against the uptrend in Small Caps early on... but that failed and they were forced to cover - juicing Russell 2000 in the afternoon...



Source: SpotGamma

Treasuries were mixed (and quiet) today with the short-end underperforming (2Y +3bps, 30Y -1bps), but the whole curve remains lower on the week...



Source: Bloomberg

The dollar pushed back to its mid-June lows (this was the lowest Dollar Index close since 5/10/23)...



Source: Bloomberg

Bitcoin spiked up to $31,000 last night and then puked back but has been slowly bid all day, never breaking down to $30,000...



Source: Bloomberg

Gold managed to hold on to gains today - but do you notice pattern...



Oil surged to the upper-end of its recent trading range with WTI testing $75...



Finally, Bloomberg notes that 3-mo bill yields are back at the highs of late May in anticipation of another Federal Reserve rate hike. You can lend to the US government for three months at 5.44%, which is exactly what you’d get from lending to single A rated corporates for more than 10 years (the average maturity of the Bloomberg US Agg A index).

Additionally, the spread between the earnings yield on the S&P 500 and three-month bills, already the worst since the dot-com bust, has fallen to a fresh low...



Source: Bloomberg

On that basis, the most expensive sectors are info tech and consumer discretionary, which have earnings yields more than 200 bps lower than the yield on bills. For info tech, that’s comparable to the end of 2000.

 

Soft CPI Sparks Bond-Buying Bonanza, Meme Stock Meltup, Gold Gains As Dollar Pukes
WEDNESDAY, JUL 12, 2023 - 04:00 PM

The cooler-than-expected CPI print was all the doves and bulls needed today and while the odds of a July hike were unchanged (pretty much a lock), expectations for Fed rate changes for the rest of the year dropped notably, erasing the hawkish shift after the strong GDP revision at the end of June...



Source: Bloomberg

Curvature's all-knowing STIRs guru, Scott Skyrm noted the following:

Fed officials say there are two 25 basis point tightenings left on the table. The market is only pricing one, with about a 20% change of a second.

The market is pricing an 89% of a tightening on July 26 and expects fed funds to peak at 5.38% in November.

Given that the weak CPI number didn’t even move the needle on the July rate hike, it means the real question is whether the last rate hike occurs in September or November or not.

Equities loved it "because this means The Fed is almost done" - seemingly forgetting that the cost of capital is still 500bps higher than it was (at least) and The Fed is adamant that it won't be cutting any time soon. Small Caps and Nasdaq were the biggest gainers today as The Dow lagged...



The short-squeeze continues with the 'most shorted' basket up a stunning 19% in the last 10 days...



Source: Bloomberg

Which has helped send 'Meme Stocks' up 15% in the last 10 days... is that really what The Fed wants?



Source: Bloomberg

Un-profitable tech stocks are up 13% in the last 4 days... The Magnificent-Seven stocks are flat...



Source: Bloomberg

It wasn't just stocks that were panic-bid, Treasuries surged with yields plunging across the curve (with the short-end outperforming - 3Y -17bps, 30Y -6bps). On the week, the belly has seen the biggest decline in yields (but the long-end is still down 10bps)...



Source: Bloomberg

The 2Y yield is perhaps the most notable since it ran the stops above the pre-SVB yield highs and was unable to hold above 5.00%, it is now down 40bps from its highs



Source: Bloomberg

The yield curve (5s30s) steepened notably today - pushing back up to un-inverting...



Source: Bloomberg

The dollar puked today - its biggest daily drop since Jan 2023 - down for the 4th straight day (the biggest 4-day drop for the dollar since Nov 2022). The Bloomberg Dollar Index is at its lowest since April 2022...



Source: Bloomberg

Dollar' losses are Euro's gains - which closed at its highest since March 2022 - completely decoupled from its macro data...



Source: Bloomberg

Bitcoin was pumped (up near $31k) and dumped...



Source: Bloomberg

Oil continued its rebound with WTI trading above $76 - the highest since the first day of May...



Gold also extended its recent gains, topping $1960 (futs) today - the highest in 3 weeks...



Finally, this is probably nothing, right?



Source: Bloomberg

When did credit traders know anything anyway? </sarc>

 

Broke-Buck Mounting After Soft PPI; Crude, Crypto, & The Yield Curve Soar
THURSDAY, JUL 13, 2023 - 04:00 PM

Following a benign CPI release Wednesday, the June PPI release also came in softer than expected this morning (and initial claims fell), sparking calls for "mission accomplished" headlines for The Fed.

But tomorrow marks the kick-off for the bulk of earnings season (with the banks reporting) which could spark some renewed volatility (although many suggest the bar for earnings season is already set so low that even Zelenksy could step over it).

The 'good' inflation news sent rate-change expectations for the rest of the year tumbling (July remains a lock for 25bps). The market is now pricing in a 25bps hike in July, no move through year-end, and a rate-cut in Jan '24...



Source: Bloomberg

The biggest headline-maker in the markets today was the USDollar. The DXY tumbled for the 6th straight day - the longest losing streak since July 2020 - down 4.5% in that period (the biggest such drop since Nov 2022).



Source: Bloomberg

The Dollar Index is back to pre-COVID-lockdown levels...



Source: Bloomberg

Nasdaq soared higher today as The Dow lagged (barely in the green) with Small Caps and the S&P up comfortably too...



The S&P 500 is now 3% above the level it was at when The Fed first hiked rates in March 2022...



Source: Bloomberg

Meme stocks are now up 17% in the last few days...



Source: Bloomberg

As 'most shorted' stocks continued to get squeezed, now up 20% in the last two weeks...



Source: Bloomberg

If those charts don't make you laugh, nothing will...

this is getting a bit ridiculous....

— SpotGamma (@spotgamma) July 13, 2023
Treasuries were bid once again today with the belly outperforming once again (5Y-15bps, 30Y -5bps), and all notably lower in yield on the week...



Source: Bloomberg

With 2Y Yields now down over 50bps from last week's highs, having thoroughly rejected the 5.00% and pre-SVB levels...



Source: Bloomberg

The yield curve (5s30s) surged steeper again today, edging ever closer to un-inverting...



Source: Bloomberg

Bitcoin soared to it highest since May 2022, helped by the SEC losing its case against Ripple. Ethereum also ripped today, back above $2000.



Source: Bloomberg

Oil prices extended gains today, helped by news that Libya's Sharara oil field will be halted, and the weak PPI easing restrictive Fed fears. WTI topped $77, back above pre-OPEC spike levels from March...



Gold held on to yesterday's gains...



Finally, as cash exits the Fed's reverse repo facility, it appears the US equity market is benefiting...



Source: Bloomberg

Is this what The Fed wants? Another wealth-creating bubble that will re-juice inflation?

 

Dollar Dives In Dovish Week; Stocks, Bonds, Gold, & Crypto Soar
FRIDAY, JUL 14, 2023 - 04:00 PM

Cooling inflation data dominated the price action this week, but Citi's US macro surprise index surged to a fresh cycle high helped by sentiment and labor market signals...



Source: Bloomberg

Sparking a dovish reaction in STIRs, with July fully-priced-in for a 25bps hike and then nothing to year-end, and then beginning to price in a rate-cut in Jan '24...



Source: Bloomberg

That dovish shift sent the dollar reeling lower and everything else soaring.

Nasdaq and Small Caps outperformed on the week but all the majors were significantly higher with The Dow and S&P managing greater-than-2% gains on the week...



The mega-short-squeeze (up 15% in 6 days) seemed to end today as 'most shorted' stocks were sold and couldn't catch a bid...



Source: Bloomberg

While the week was exuberant in stocks, we do note some anomalies today with NVDA giving up its earlier panic-bid to record highs and ending in the red..



Interestingly, 0-DTE traders were aggressive call-buyers in the afternoon as NVDA sold off...



Source: SpotGamma

Meme stocks melted up for 6 straight days but today saw that fun-and-games come to an abrupt end...



Source: Bloomberg

Banks were bid early on but even JPM gave it all back by the close and Citi was a shitshow...



Source: Bloomberg

Treasury yields were down significantly on the week (biggest weekly drop in yields since March), with the long-end underperforming, but Friday saw a noteworthy sell-off with yields backing up 8-12bps in the belly...



Source: Bloomberg

The yield curve (5s30s) steepened dramatically this week (3rd biggest weekly steepening since Lehman), getting very close to un-inverting...



Source: Bloomberg

The dollar index tumbled for 5 of the last 6 days, with its second biggest weekly decline (-2%) since March 2020. The Bloomberg Dollar Index is back at pre-COVID-Lockdown safe-haven-spike levels...



Source: Bloomberg

Crypto had a mixed week, with everything soaring on the heels of Ripple's victory against SEC but this afternoon saw everything puking back their gains.

Bitcoin pushed up near $32,000 on Thursday and then plunged back near $30,000 today...



Source: Bloomberg

Ripple remained up over 45% on the week, but well off its highs (up over 90% at its peak on Thursday)...



Source: Bloomberg

Silver soared higher this week (dramatically outperforming gold), NatGas was lower on the week with Crude and Copper up solidly...



Source: Bloomberg

Silver's big gains relative to gold slammed the Gold/Silver ratio down to 2023 lows...



Source: Bloomberg

WTI traded above $77 this week, breaking out of its two-month range, before fading a little today...



Finally, we note that Tech valuations are back at their highs on a standalone basis and near record highs relative to the market...



Source: Bloomberg

And US equities remain notably decoupled from bank reserves...



Source: Bloomberg

Is it different this time?

 

Stocks Soar, Shrug Off China Chunder; Seth Klarman Warns "I'd Be Worried"
MONDAY, JUL 17, 2023 - 04:00 PM

Weakness in the Empire Fed Manufacturing survey this morning came on the heels of ugly China GDP data overnight (along with really ugly property investment, youth unemployment, and retail sales), prompted bond yields and commodities to drop overnight, but on a quiet-ish day (volume-wise), the day session saw things end quite differently.

Stocks just won't stop - Small Caps and Nasdaq soared higher today from the cash open. The Dow and S&P also ended comfortably green on the day. Some late-day profit-taking wiped a little lipstick off this pig...



And, of course, another massive short-squeeze unwound all of Friday's losses in the "most shorted" names...



Source: Bloomberg

The Telco trouncing accelerated today as Jefferies put the owners of cell-phone towers on its list of "stock pans" ahead of earnings season and BMO reiterated that it’s cautious on tower stocks in the near term...



Source: Bloomberg

Despite more threats from the Biden administration to ban chip sales to China, NVDA powered ahead, decoupling (for now) from its 2021 analog...



Source: Bloomberg

Credit markets are seemingly convinced of a soft-landing as the HY-IG spread fell back to its lowest in 15 months...



Source: Bloomberg

Treasuries were mixed today and traded a roller-coaster - yields tumbled overnight and then soared back during the US day-session. 30Y ended marginally higher in yield while the belly outperformed...



Source: Bloomberg

The dollar was very marginally lower after a pump and dump around the Empire Fed data...



Source: Bloomberg

Bitcoin broke back below $30,000 late in the day, below Friday's spike-lows...



Source: Bloomberg

Oil fell overnight following ugly China GDP data but early in the European session it exploded higher (and quickly tumbled back down) after Reuters printed a headline about Saudi extending production cuts through the end of 2024 (only to retract the story within minutes).



Gold limped marginally lower on the day but bounced back nicely from a plunge around the Empire Fed data (and London Fixing)...



Finally, billionaire investor and Baupost Group CEO Seth Klarman said during the latest episode of 'Capital Allocators with Ted Seides', that he's "not convinced that we've even begun to sort out that bubble."

"You had a bubble, it was really a credit bubble, that became an everything bubble," he noted, and "Super-low interest rates, at times zero rates, made capital easily available and incredibly cheap."

"That led to startup manias and SPACs and meme stocks and crypto, all kinds of speculative activity."

"You had a lot of hiccups between '98 and ',01 and then the Great Financial Crisis was a really ugly 12 months or so," he said.

"I'm just not sure why you couldn't have more trouble."



"We haven't seen a lot of bodies float up," Klarman concluded. "I don't know what that means, but I'd be worried."

 

Banks & Big-Tech Burst Higher, Bonds & Bullion Bid As Macro Skids
TUESDAY, JUL 18, 2023 - 04:00 PM

An insanely schizophrenic day...



Weak retail sales (real retail sales down 4 of the last 5 months), and even weaker industrial production (negative YoY amid sizable downward revisions) set the scene early on with US macro surprise index dropping by the most since Feb...



Source: Bloomberg

But, after Value outperformed Growth early on, that was completely reversed after MSFT announced new pricing for its AI offerings...



Source: Bloomberg

That drove value back near its record lows relative to growth...



Source: Bloomberg

For context, MSFT and NVDA have added $175BN market cap today, more than the mkt cap of 462 S&P companies, and more than the value of Nike, Wells Fargo, Walt Disney, Morgan Stanley, Intel, etc





All of which meant that the early relative weakness of Nasdaq reversed hard (right after the European close) as MSFT took off, catching up to Small Caps and The Dow...



A total reverse in the Nasdaq/Russell pairs trade...



Somewhat notably, the 'most shorted' stocks reversed the early squeeze today...



Bear in mind that next Monday is the Nasdaq rebalance and the 'up-weights' are now barely outperforming the 'down-weights' (after initially outperforming by over 4 percent)...



Source: Bloomberg

And then there were the banks with MS initially selling off on its earnings, only to reverse massively, rallying 7% on the day...



Tech & Energy outperformed along with Financials while Utes were the laggard...



Source: Bloomberg

Treasuries were mixed today with the long-end outperforming (30Y -3bps, 2Y +2bps). Bonds were well bid overnight, but gave much of it back during the US day session...



Source: Bloomberg

The yield curve flattened today, erasing the last week's steepening...



Source: Bloomberg

The dollar ended very marginally higher on the day with a bid during the US session trumping the overnight selling...



Source: Bloomberg

Bitcoin leaked lower once again, breaking back below $30k...



Source: Bloomberg

Gold extended its recent rebound, back above $1980 - at six-week highs...



Oil prices rebounded today, holding above the range of the last three months...



Finally, US equity markets have decoupled from the global liquidity proxy for the first time in over a decade...



Source: Bloomberg

Is the market pricing in a massive global re-liquification of asset markets? Or is this just the vinegar strokes of an extended 'bear-market rally'?

 

Another Day, Another Short-Squeeze For Stocks; Yield Curve Yells 'Recession'
WEDNESDAY, JUL 19, 2023 - 04:00 PM

It's like deja vu all over again...

For the second day in a row, US macro data disappointed notably (Housing data today was not good at all). That is the biggest 2-day decline the index since Jan 2022...



And for the third day in a row, none of that mattered as the algos squeezed the shorts hard at the cash open...



Source: Bloomberg

Nasdaq underperformed on the day (for a change) and ended in the red, with The Dow, S&P , and Small Caps all making modest gains...



Banks were excitedly bid once again...



Source: Bloomberg

For a few brief excitable moments, AAPL (and the AI stocks) all spiked after BBG headlines about AAPL developing a LLM, but that faded as reality was just a copycat and nothing new...



NVDA got excited for an even briefer moment and then faded into the red...



VIX continues to hover with a 13 handle (but VVIX signals some expectation of trouble ahead)...



Source: Bloomberg

The S&P 500 is at its highest since April 2022... but the credit market ain't buying it...



Source: Bloomberg

Yields were lower across the curve today with the long-end outperforming. On the week, the 2Y yield is unch while 30Y is down around 9bps...



Source: Bloomberg

The yield curve (2s10s) flattened once again (back near its most-inverted of the cycle)...



Source: Bloomberg

The dollar was stronger today, back to 5 day highs...



Source: Bloomberg

Bitcoin bounced modestly on the day, back above the $30,000 level...



Source: Bloomberg

Gold chopped around on the day but ended unch...



Oil prices ended lower on the day, with WTI testing back down to $75 after DOE reported sizable inventory draws (don't ask us!!)...



Finally, we note that there is none, nada, zip interesting in hedging downside here. In fact, the S&P 500 skew is at a record low...



Source: Bloomberg

What could possibly go wrong?

 

Bonds, Big-Tech, Bullion, & Bitcoin Breakdown As Greenback Gains
THURSDAY, JUL 20, 2023 - 04:00 PM

Initial jobless claims were better than expected but Philly Fed Manufacturing, Existing Home Sales, and Leading Economic Indicators all weakened and disappointed.



Source: Bloomberg

But the big drivers for the day were in tech (after earnings).

Tesla tumbled (down over 9%)...



Netflix not chill (down over 8%)...



Chips stocks stumbled after TSMC pissed in the AI punchbowl...



Source: Bloomberg

As an aside, CVNA soared over 30% in the pre-market after its debt restructuring and capital raise; then faded back in the US day session...



All of which pummeled the Nasdaq. which suffered its worst drop since Feb. Only The Dow was green on the day among the US majors.



Today was the biggest Dow outperformance of Nasdaq since March 2021...



Today is the 38th day in a row since the S&P had a 1%-down-day - the longest streak since Q4 2017...



Source: Bloomberg

The Dow is up for the 9th day in a row - the longest streak since Aug 2017...



Notably, with the Nasdaq rebalance looming, today saw the mega-cap "down-weights" get monkeyhammered relative to the "up-weights"...



Source: Bloomberg

'Most Shorted' stocks fell today for the first time this week



Source: Bloomberg

It was VIXperation today, and the fear index dumped and pumped on the day...



Treasuries were dumped on the day with the belly underperforming (2Y & 30Y +6bps, 5Y +11bps), pulling all but the 30Y yield higher on the week...



Source: Bloomberg

The dollar extended gains to one-week highs....



Source: Bloomberg

As the Nasdaq began to accelerate lower, so Bitcoin joined the party, tumbling back below $30k...



Source: Bloomberg

Gold slipped lower on the day as the dollar rallied...



Despite a sudden puke mid-morning, WTI ended marginally higher on the day...



Finally, the correlation between VIX and the S&P has surged of late as negative gamma increases which infers dealers must buy stock into higher markets, sending correlation higher and higher...



Source: Goldman Sachs

The last time this correlation hit these highs was late '17...which was the lowest VIX reading ever & the previous all time low in the CBOE correlation index.

Translation: regime change is coming.

 

Dow's Longest Win-Streak In 6 Years Shrugs Off Recession-Signaling Yield-Curve Collapse
FRIDAY, JUL 21, 2023 - 04:00 PM

Ever so quietly under the covers of a quiet summer week, US Macro data surprised to the downside, with the biggest weekly drop since Feb 2019...



Source: Bloomberg

But that didn't disturb the equity market melt-up (except for Nasdaq but more on that later). This was The Dow's best week in 4 months (best 2-weeks since Oct '22), Nasdaq's 3rd weekly loss in last 5 weeks.



The Dow is up 10 days in a row (managing to hold on with a 0.01% gain on the day!!) - its longest winning streak since Feb 2017...



With the Nasdaq rebalance taking place, we look back at the performance of our ups-versus-downs basket pairs trade with the up-weights outperforming the down-weights (dominated by the Magnificent 7 stocks) by around 5ppts...



Source: Bloomberg

It was quite a week for 'most shorted' stocks with the opening 30 mins every day either a pukefest or buying-panic...



Source: Bloomberg

Some of the lipstick came off the un-profitable tech stocks pig this week...



Source: Bloomberg

Bank earnings dominated the early week with MS outperforming and Citi not so much...



Source: Bloomberg

Tough week for some of the big-tech firms...







Treasuries were mixed this week with the short-end underperforming (2Y +8bps, 30Y -2bps)...



Source: Bloomberg

The yield curve flattened (deeper inversion) this week, having reversed from the pre-FOMC levels...



Source: Bloomberg

The dollar bounced back to its best weekly gain since Feb '23...



Source: Bloomberg

Crypto was basically flat on the week with Ripple the only standout...



Source: Bloomberg

In commodity-land, crude managed gains, but copper was ugly; gold was slightly higher and silver down...



Source: Bloomberg

NatGas ripped higher to its first positive week in over a month...



Finally, as Goldman points out, there is an increasing bifurcation between optimism on main street (AAIIBULL) and optimism on wall street (GS sentiment score)...



While the two were on relatively the “same page” over the last four years, retail is much more positive than professional traders.

And the decoupling between the decade-old regime of global liquidity and US equities continues to widen...



Source: Bloomberg

Probably nothing, right?

 

Banks Bid, Bonds & Bitcoin Battered As Stagflation Scare Soars
MONDAY, JUL 24, 2023 - 04:00 PM


Ahead of a week full of potential headline-bombs (FOMC, Q2 GDP, PCE...), the day started off - from a macro perspective - to the downside with EU PMIs an utter disaster (growth plunging but inflation sticky). Then came the Chicago Fed's National Activity Index which printed significantly more negative than expected (with 54 of the 85 indicators worsening).

Rubbing salt in that wound, US PMIs were ugly with the service sector finally taking a spill - but prices a lot more sticky than expected - matching the European picture and spelling the big s-word nemesis for central bankers - STAGFLATION.

Growth expectations slipping...



Prices not slipping...



This is the biggest 3-day decline in US macro surprise index since May 2022...



Source: Bloomberg

Interestingly, it appears the stickiness of inflation signaled by these reports trumped the slowing growth and short-term rates markets shifted significantly more hawkish with expectations now for no cut from this week's 25bps hike through at least Jan '24...



Source: Bloomberg

On the day, stock traded in a relatively narrow range with Nasdaq underperforming and The Dow leading (up for the 11th day in a row)...



With the Nasdaq rebalance now having taken place, we saw a small reversion in the up-weighted names vs down-weighted names - but the former still outperformed the latter by over 400bps since the rebalance was announced...



Source: Bloomberg

Banks continued their recent outperformance of big-tech...



Source: Bloomberg

Treasuries were sold across the board with the short-end underperforming. Bonds were bid during the early European session but as soon as the US opened, selling began...



Source: Bloomberg

Which flattened the yield curve (2s30s) back towards post-SVB lows...



Source: Bloomberg

The dollar was very quiet today (even with Euro moving around on PMIs)...



Source: Bloomberg

Bitcoin tumbled today, back below $30k...



Source: Bloomberg

Seemingly mirroring the flow into Sam Altman's WorldCoin as it debuted...



Source: Bloomberg

Gold extended its recent trend lower with two selling-legs today...



But oil continued to soar, with WTI topping $79, the highest since April...



And finally, there's this...



Stocks that beat earnings are being sold... very unusual.

 

Big-Tech Bounces, Banks Bust, Bonds Breakdown As Rate-Hike Odds Rise Ahead Of Fed
TUESDAY, JUL 25, 2023 - 04:00 PM

Consumer Confidence jumped to post-COVID highs, the labor market appears to getting 'easier' once again (Jobs data in conf board survey), home prices are rising at a rapid clip once again, and regional Fed surveys all ticked up...



Source: Bloomberg

Does that sound like the economy The Fed wants to see after 500bs of hiking? Financial Conditions are at the same level of 'easiness' as they were when The Fed did its first 50bps hike in May of 2022...



Source: Bloomberg

The last two weeks have seen a notably hawkish bias to short-term rate markets with a 25bps hike locked and loaded for tomorrow but now a 50% chance of another rate-hike by year-end.



Source: Bloomberg

But Nasdaq doesn't care about such formalities as more hawkish expectations, soaring 1% on the day. Late-day weakness dragged Small Caps into the red and The Dow clung to green...



The last time The Dow had a longer winning streak than this (12 straight days) was in Jan 1987 (13 days - the all-time record win streak)...



Banks were dumped today, erasing yesterday's exuberance...



Source: Bloomberg

Treasuries were sold today relatively evenly (up 3-4bps) with the belly slightly underperforming. Interestingly, the 30Y is trading back (on its way up to 4.00%) at the same level as it was at the last FOMC meeting...



Source: Bloomberg

But the short-end is notably above the last FOMC meeting levels...



Source: Bloomberg

The dollar continues to tread water in a very narrow range (eerily narrow for the last three days)...



Source: Bloomberg

We do note that EURCHF tumbled today as the Swiss Franc saw demand ahead of The Fed and ECB. Swissy is the strongest vs the euro since Sept 2022 (with the biggest strengthening of CHF vs EUR since January today)...



Source: Bloomberg

Bitcoin inched higher (finding support at $29k) after yesterday's tumble but nowhere near $30k...



Source: Bloomberg

Gold ended the day marginally higher but had a very choppy day



Oil prices extended their gains, with WTI testing up near $80 - back at the same level as it was after the OPEC-Cut news in April...



Finally, we note that there remains only one thing that matters to stocks right now...



Source: Bloomberg

So what will cause The Fed's reverse repo facility to stop being drained? While you ponder that consider this...



Source: Bloomberg

What do all those insiders know about this meltup that retail investors don't?

We give the last word to Thomas Peterffy, the billionaire founder and chairman of electronic brokerage giant Interactive Brokers, who told MarketWatch this afternoon that a US soft landing is "wishful thinking" adding that "the market should be much lower."

 

Dow Matches Record Winning Streak As Powell Keeps The Party Going
WEDNESDAY, JUL 26, 2023 - 04:03 PM

And to think it was less than a year ago when a demonically hawkish Jerome Powell triggered what would end up being a brutal tech bear market, when during his 2022 improvised Jackson Hole speech the Fed chair warned pain, fire and brimstone was coming.

Well, what a difference a year makes: after a neutral FOMC statement which said nothing besides informing the public of a 25bps rate hike - which sent rates to the highest level in 22 years - and keeping most of the June language in line, the S&P 500 reversed earlier modest losses to spike to a session high after the Fed chair said that "there was disinflation", and that inflation was a little better than expected. If that wasn't enough, Powell unleashed another dovish shot when he said that the Fed can start rate cuts before 2% inflation is hit (which is important since Powell also said that 2% inflation won't hit until 2025).

Unwilling to be cornered by the market, Powell also said that officials haven’t made a decision to go to every other meeting, and will instead “be going meeting-by-meeting."



However, things quickly reversed toward the end of Powell's presser and and spoos slumped from a session high over 4,600 after Powell said that the Fed no longer was forecasting a recession, which the market quickly interpreted as hawkish forward guidance, and suggesting that conditions would stay higher for longer.

Ironically, the market - with its 15 millisecond attention span of a gnat - forgot that this is nothing new and is a recap of what the Fed's June SEP showed, reversing the March economic forecast of a shallow recession. But since it was also headline scanning algos in control by this point, stocks promptly slumped to session lows.



What else happened? Well, in a day when the market correctly predicted that today's FOMC would be a nothingburger with the smallest implied straddle for a Fed day since 2021...



... that's exactly what happened, with most asset classes trading basically unchanged. Well that's not exactly right: both stocks and yields fell...



... but as Bloomberg notes, under the hood the moves were not necessarily what you’d expect if the outlook was for lower yields. That raises the possibility that the rally in bonds may be driven by flows rather than the barely-changed policy outlook.

The decline in stocks was led by info tech, while communication services was up the most today (thanks to Google parent Alphabet’s better-than-expected earnings).



Banks were also solidly in the green after yesterday's PacWest take under was somehow spun as bullish.



In credit, shorter-duration bonds have tightened more on the day while the Treasury curve is steeper.

The greenback eased lower after Powell said the central bank will continue to make decisions meeting by meeting and upcoming data will inform decisions; notes that either hike or steady policy possible at September meeting.



And with the dollar sliding, both precious metals...



... and bitcoin sprinted higher, showing clearly what will happen once the Fed is no longer hiking but is forced to start easing.

 

Market Panics After Planted Story Of BOJ YCC Tweak Sends Stocks Tumbling, Yields And Yen Soaring
THURSDAY, JUL 27, 2023 - 04:05 PM

With just three hours to go until the oldest US equity index was set to close green for the 14th day in a row, its longest stretch of gains since the Dow Jones' inception in 1896....



... and with stocks levitating merrily one day after Powell effectively gave the green light to keep buying by assuring markets that the "July Goodbye" was, for all intents and purposes, the last rate hike, the market suddenly deflated like a Hindenburg balloon encountering a spark just after 1pm Eastern when the BOJ's favorite mouthpiece, the Nikkei, decided at the perfectly obvious local time of 2am, to blast a report claiming that the BOJ would "discuss" tweaking its infamous yield curve control (something it did back in December to catastrophic consequences).

That was all it took to reverse all the Dow gains and send it deep in the red, putting a screeching halt to all imminent celebrations of euphoric market stupidity.



Mind you, the report said nothing new: just last week, Bloomberg reported exactly the same when it also noted that a YCC discussion was imminent, however with the substantial caveat that the BOJ would end up doing nothing despite said discussion.



What the report did, was spark a marketwide momemtum reversal (as amateur retail traders once again got spooked out by whoever planted the trial baloon, who just happened to be long the yen) and stop hunt, as first the USDJPY plunged below the key level of 141 and then 140...



.... while fears that the BOJ would spark another round of JGB liquidations, sent both JGBs and US Treasuries (recall Japan is the largest foreign holder of TSYs, so dumping JGBs would suggest less demand for US paper too) crashing, with the 10Y yield surging above 4.00%



And since everyone is watching the 4.00% level as a catalyst to sell long duration assets - you know, those stocks which are up 50%, 100%, or much more YTD - spoos promptly panicked, and tumbled 70 points after the planted BOJ story.



Pretty much every sector (with the exception of Communications services, where last night's META earnings blowout kept the lights on), was red.



The carnage spilled over into crypto...



.... and even precious metals were hammered although the pain here started well before the BOJ news, and instead it was today's stellar US economic data that sparked the rout.



The only asset class that did well, was the most beaten down one: oil briefly tipped above $80 and having crossed back above its 200DMA for the first time this year, is a fraction away from a new bull market and much more gains.



Turning to the world of derivatives, flows followed price: according to SpotGamma, put buyers came in this afternoon, unlocking after the SPX touched fresh highs at the 4600 Call Wall. Yet absent into the afternoon was 0DTE flow (red) - one would have assumed that they try would bring some mean reversion before the close, but it was not meant to be.


By SpotGamma

 

Stocks Close At Highest Since April 2022, Yen Tumbles As BOJ "Tweak" Fizzles
FRIDAY, JUL 28, 2023 - 04:09 PM

It was a day defined by the "shock" BOJ decision to tweak the central bank's yield curve control, yet as we have said all along, the BOJ can't normalize, and today's half-assed attempt to both widen the YCC band and pretend like it is doing nothing, would end up backfiring. One look at the reaction in the USDJPY shows that we are well on our way there, because while Ueda's unexpected intervention was really meant to crush the yen, after an initial jump in the Japanese currency, the yen gave up all the gains from both the BOJ and the Nikkei leak and proceeded to tumble to 141 vs the USD, 300 pips off overnight levels.



But while the YCC intervention was completely wasted on the yen, which will now drift ever lower as carry traders pile in with aggressive shorts to pick up a historic yield differential, when it comes to the all important Japanese bond market, the 2nd biggest in the world, the fact that the BOJ is now in the process of pilling the rug on its own JGB holdings (which amount to over 100% of Japan's GDP), and the broader bond market in general, was not lost on anyone, and 10Y JGB futs kept sliding all session ...



... and pushing the 10Y JGB yield to 0.56%, the highest level since 2014.



For now, Japan's bond rout has been relatively contained, and after spiking as high as 4.04% overnight, the 10Y Treasury saw its yield slide back under 4%.



The lack of a bond market rout, in turn, allowed the levitation to return - just as we said it would in yesterday's market wrap, and following yesterday post-Nikkei rout which sent futs tumbling 80 points, spoos managed to recover almost the entire slide in a move that pushed the S&P to close at the highest level since April 2022...



... a meltup that saw broad-based participation from almost all sectors (except REITs, utilities and energy where both CVX and XOM shat the bed with their latest earnings)...





... as the VIX was once again proper clubbed and reversed yesterday's entire spike and on its way to a 4-year low...



... as even the VVIX - which briefly seemed poised for a breakout after yesterday's gamma-driven spike - was snuffed with impunity.



And while we don't usually care about micro events in market wrap, we present the following hilarious chart of $12.5BN market cap ROKU, which saw its stock explode 30% higher, trading like your plain vanilla penny stock in a market where everything is now disconnected from fundamentals and only trading flows and short squeezes matter. Yes, we get it earnings were good, but a billion-dollar market cap stock repricing by 30% overnight on what is just management commentary confirms that the Fed's attempt to eliminate excess liquidity from the market has been a colossal failure.



Of course, as it always does, as the market melted up it was planting the seeds of its own destruction because not only have gasoline prices hit a 2023 high as wholesale gasoline has exploded, assuring that the Fed will have to do a lot more tightening in coming months as CPI comes in far hotter than expected...



... with Brent rising to $84.80, the highest since mid April and about to steamroll the countless shorts who are still using this asset as a recession hedge.



And so it's only a matter of time before markets freak out about the return of inflation all over again, but first we will get a few more days of melting up in the post-CPI blow off top we discussed two weeks ago, before traders realize that Powell will have to do much more and promptly tumble back to square one.