It seems yesterday's decoupling (stocks up, and everything else risk-off) has unwound today as equity markets were broadly weaker. The Dow and S&P traded in a very narrow range on the day closing slightly negative and breaking the 6-day winning streak. Nasdaq and Russell underperformed notably as "most shorted" stocks appeared to gain some momentum to the downside once again (ahead of tonight's AAPL/FB results) as high-beta caught down to low-beta today. Away from the oddly decoupled equity markets, Gold, silver and copper all closed unch to modestly higher as WTI crude prces dropped further (to $101.50). The USD rallied off European open weakness to end unchanged for the week (with notable AUD weakness overnight). Treasuries rallied with 30Y outperforming once again and the yield curve flattening to fresh 5 year lows. Credit markets continues to push wider and are not sustaining any of the exuberance remaining in the S&P.
US Equity markets were on a mission today... all-time highs for the S&P and Dow were in sight, green for April for the S&P, and unchanged year-to-date for the Nasdaq and Russell was just over the horizon, but... a total divergence from JPY carry, bond yields, credit, and even VIX meant that a 'warning' from David Einhorn about Tech Bubble 2.0 was just enough to take the juice out of what was already a low volume levitation. It's a Tuesday so we closed green - the 6th up day in a row - longest run in 7 months. Biotechs ripped higher on M&A "get rich quick'"fever - biggest 2-day rise in 30 months. Treasuries were mixed with 30Y bond yields ripping lower and 5s30s dropping 4bps to 1.75% - new lows since 2007. Copper made modest gains on the day but gold, silver, and worst of all WTI crude all dropped on the day (WTI -2% to $102).
Large speculators reduced ther S&P 500 positioning to net short this week and their NASDAQ longs to a one-year low as BofAML reports on CFTC data. Macros funds decreased their long exposure to S&P500 and NASDAQ to now hold short exposure. They also decreased their long exposure to US Dollar (raising their AUD longs to a record high) and maintained their long exposure to 10-year Treasuries. They decreased their long exposure to commodities and increased their long exposure to EM. Across all asset classes, positioning is at extremes.
The topic of High-Frequency-Trading quickly dissolves into a smorgasbord of mnemonics and 'inside-baseball' technical terms - just complicated enough to lose everyone that matters or should care about its implications. Despite the fair-and-balanced defense from the mainstream media business channels (sponsored by the belief in the status quo fair markets that 'America the free' is known for), the fact is that HFT does front-run (perfectly legal under the umbrella protection of Reg NMS) order flow, but there may be one more wrinkle - one which would cement the Michael Lewis (accurate) allegation that the market is rigged.
VIX-slamming, USDJPY-ramping, BTFDe-escalating muppetry and we end the week near the highs with the S&P and Trannies comfortably green YTD (though notably underperforming gold still). Treasuries were sold hard today (7Y +10bps) as the D word was bandied about by the politicians (while in reality de-escalation was anything but what was happening), but the 5s30s still flattened modestly further. 10Y saw one of its worst days of the year and yields pressed up to their 200DMA. Gold and silver were flat to modestly lower as copper and oil limped higher. FX markets were relatively calm as the USD pushed higher on the week (+0.5%). Stocks closed weak into the close but after 3 days of ramp, it's hardly surprising.
Tax time, but not pay-up time.
The S&P 500 is down around 4% from its highs (outperforming the high-beta hangovers of Nasdaq and Russell 2000 that were down almost 10% from their highs at today's lows). But under the surface, the S&P is ugly with the 500 index members down 10.5% on average. 213 members of the S&P 500 are down over 10% (in correction mode). Only 72 member of the 500-stock index are 'beating' the index... this is not just a small-cap growth-hype selloff... it's spreading...
Another day, another epic ramp. Any "investor" watching the last two days of totally manic market behavior must be open-mouthed at the total lack of fundamental sanity behind any of the moves. Even the mainstream media is stunned by the moves embarrased into mere commentary and afraid to opine on any reason. The reason for today's rip - an economic assessment downgrade for Japan which smahed USDJPY higher and through magic of carry, lifted US equities. There was no let-up in Ukraine, no data to confirm growth hype, no US news... but the Russell and Nasdaq managed a 2.5% bounce in a stright line after the Japan headline. Away from the idiocy in stocks, precious metals were rammed lower early on but leaked back higher all day. The USD pushed higher but FX was relatively quiet aside from the idiotic moves in JPY. Treasuries rallied at the long-end on the day (despite the surge in stocks). "unrigged"
It is perhaps worth reflecting on the smorgasbord of free advice given out by the talking-heads after last night's closing ramp proclaiming the dip to be bought and that everything was fixed once again. It was not. Stocks are making fresh cycle lows and the Nasdaq and Russell 2000 are both now below the 200-day moving-average and appraoching the 10% (correction) from their highs. 10Y is back under 2.6% and the 30Y yield is back at 10-month lows... which perhaps explains why "growth" stocks are back at 7-month lows versus "value" stocks...
Despite the best efforts of the straight-line panic buying algos on a Tuesday, it seems flashing red headlines of dreadful escalations in Ukraine (more deaths), from Bloomberg:
11 REPORTED DEAD DURING UKRAINIAN OPERATION IN KRAMATORSK: RT
UKRAINE GOVT: RUSSIAN 45TH AIRBORNE IN SLOVYANSK, KRAMATORSK
...and USDJPY tagging 102 again (of course) were enough to spark the manic idiocy of markets from buy-buy-buy to sell-it-all-Mortimer... So much for yesterday's "see it's all good now" ripfest... The Russell 2000 is back at yesterday's lows and NASDAQ is back under 4000.
On the 'growth' side, Commercial and Industrial loans are rising at a double digit annual rate of change (although it is unclear whether this is an indication of business optimism or stress - after all, we did see a big jump in these loans leading into the last recession). On the flip side, the bond market and the US dollar index seem to be flashing some warning signs about future growth. Simply put, the outlook for the economy is decidedly uncertain right now and we think so is the confidence in Janet Yellen. We think the more dire outcome for stocks would be if Toto fully pulled back the curtain on monetary policy and revealed it to be nothing more than a bunch clueless economists sitting in a conference room with no ability to control the economy or the markets. If US growth disappoints after all the Fed has done, how could anyone continue to view the Fed wizards as omnipotent? That would send the stock market back over the rainbow to the reality of an economy with big structural problems that can only be solved through political negotiation, something that has been notable only by its absence over – at least – the last 6 years. Are we headed back to Kansas?
The US open was enough of an event to decouple stocks (up) from USDJPY (down) but as we approached the crucial 330ET "fundamental" stocks had caught down to USDJPY weakness (worth noting that USDJPY tagged 102 in the pre-open and plunged). The 330 Ramp - JPY and VIX driven - was right on time getting S&P to VWAP and up to its 100DMA and Nasdaq back above 4000. Away from the roller-coaster ride in hope, faith, and BTFD charity in stocks, Treasuries leaked higher in yield all day (with 5Y underperforming and 30Y unch). The USD was bid (+0.3%) led by EUR weakness. USD strength pressured commodities but Gold was bid (closing above $1325 at 3-week highs). Credit markets did not buy the late-day spike exuberance... All major equity indices remain red year-to-date (and negative from 3/19's FOMC). All "normal" and full of unriggedness.
Just a few short hours ago we were treated to a plethora of talking-heads proclaiming "see, this is it... the dip to be bought." But now, led by Biotechs as well as more 'growth' weakness, the Nasdaq has piled back below the critical 4000 level and broken to new cycle lows... we anxiously await the 330 Ramp to see just how much damage they can do (though stocks did catch perfectly down to USDJPY's early weakness)
Wheat, gas and palladium surge 3.3%, 2.4% and 1.7% respectively. Palladium surged for a fifth straight session to its highest since August 2011 on growing fears that supply would be hurt by more U.S. sanctions on top producer Russia and prolonged labour strikes in world number two producer, South Africa.
While US equities have spent much of the past several weeks under pressure (the NASDAQ bio tech index has fallen over 21%, the NASDAQ Comp is down over 8% and the S&P500 is down over 4%), BofAML's Macneil Curry is concerned that the VIX index suggests conditions should deteriorate further before greater signs of a base materialize.