"The trouble is, financial prices cannot be falsified indefinitely. At length, they become the subject of a pure confidence game and the risk of shocks and black swans that even the central banks are unable to off-set. Then the day of reckoning arrives in traumatic and violent aspect."
The reason why the stock of Gilead is currently sliding after hours is because while the biotech giant did beat Q2 earnings, it cut its full year guidance by $500 million on the top line while boosting its R&D expense forecast by $300-$400 million.
The Fed’s crusade to pump-up inflation toward its 2.00% target by hammering-down interest rates to the so-called zero bound is economically lethal. The former destroys the purchasing power of main street wages while the latter strip mines capital from business and channels it into Wall Street financial engineering and the inflation of stock prices.
Despite a denial by the Russians, and now an outright statement that Russia "doubts any freeze deal is possible in the foreseeable future," crude prices are surging as momo algos jump on every headline!
In mid-February, we warned of the looming carnage for equity market-neutral funds, and sure enough, as Bloomberg reports, one of the most popular (and successful) hedge fund trades - playing the difference between high- and low-momentum stocks - crashed by the most since 2009 in Q1. After 6 years of almost unstoppable gains, equity market-neutral funds suffered their biggest losses since 2012 - comparable to the 2007 quant crisis devastation - as weak momo stocks massively outpeformed crushing the hedgies' models.
Be careful, Deutsche Bank warns, in a reiteration of Goldman's call from Sunday: if the Fed leans hawkish causing the USD to jump and commodities to fall anew, equities won't like what they see and we could be headed back to the turmoil that kicked off the year - Draghi or no Draghi.
As the dollar weakens, it supports the most beaten down, energy, sector (which has now undergoing a record short squeeze), but it ultimately will pressure the broader market lower through Tech and Momo. As Kolanovic called it: "a market trapped by the USD."