Stocks have given up JPY-carry momentum and fallen back to the old VIX-smashing algo (back under 16) to run stops above Friday's highs. This morning's dip has been bought (on notably low volume) and lifted the S&P, Nasdaq, and Russell 2000 back into the green for August (Trannies and The Dow remain laggards). 10Y Yields are unch, the USD Index is unch, gold is down and oil is up. Perhaps, US investors have forgotten that Europe opens again in 12 hours...
The year's best performing major index was its biggest loser this week. Trannies tumbled almost 4% - the worst week in 22 months. The rest of the indices fell 2-3% with the Russell 2000 down 4 weeks in a row for the first time since November 2011. Dow ends -0.5% and Russell -4% for 2014. Away from stocks, Treasury yields collapsed today erasing most of the post-GDP losses and ending the week only 3-5bps wider at the long-end and 1.5bps lower at the front-end. 10Y closed under 2.5%. The USD Index mirrored bonds, surging on GDP and then plunging today to end the week up 0.35%. Gold and silver oddly decoupled today (silver lower) ending week down 1% and 2% respectively on the week. Ugly week for WTI crude, ending under $98 (Feb lows) down 4.4%. High-yield credit spreads rose 9.7% (to over 350bps - worst since Nov 2013) for the worst non-roll week since May 2012.
For mega caps (The Dow) and small caps (The Russell 2000), the old adage "Sell in May" is now working... both are in the red since the end of April (and the S&P is catching down)...
The market has been so overbought for so long, that most investors were ignoring the clear warning signs that we were in trouble.
The deer is back...
The Dow and S&P 500 are now in the red for July as stocks are opening weak this morning. Of course, the month's big loser is the Russell 2000 which is down 5.3% - its worst month in over 2 years.
While equity markets were in focus for the mainstream, the big moves today occurred in Treasuries and oil prices. From the GDP release this morning, Treasury yields surged higher, rallied briefly after FOMC, before closing near the high-yields of the day (up around 10bps or the most in 9 months). Oil prices started to tumble at around 1030ET, flushed again on EU close, tumbled early afternoon on sanctions headlines, then pumped-and-dumped after FOMC to close at near 3-month lows (below $100). Equity markets surged on GDP, dumped on sanctions, pumped-and-dumped on FOMC, then lifted to the close. Only the Nasdaq ends the day above pre-GDP data levels. On the day, only the Dow closed the day red. Gold and silver chopped around in a narrow range as the USD index roundtripped from early GDP gains after FOMC. VIX closed modestly higher on the day. The Russell 2000 is -4.2% for July, its worst month in 2 years.
Equity markets were lifted on a sea of USDJPY stops this morning to open higher and press to the week's highs. Once 102.00 was achieved and Europe closed, headlines started to stall stock exuberance. The initial downturn was when BES cancelled its shareholder meeting, the dip was bought, then Europe unveiled its sanctions started to take stocks down and then the US unleashed a further round of sanctions targeted at banks and that dragged stocks to the lows of the day. Trannies were worst down 4 days in a row. This move merely caught stocks down to bond's less-than-exuberant day. Treasuries rallied with yields dropping 2-3bps on the day. The USD surged to 6-month highs, ending up 0.2% from Friday. Credit markets continue to sell off notably. VIX closed back above 13 (highest in 2 weeks). The Russell is -1.65% YTD and 4.5% in July (on course for worse month in over 2 years). It appears sanctions fears trumped turbo Tuesday.
Earlier today, countless investors who still foolishly believe that in the new normal "fundamentals" matter, screamed out in terror when Zillow announced that it would acquire Trulia for $3.5 billion or a 20% premium to the Friday close, and were suddenly silenced. The reason: with 38% of its float short (making it the 30th most shorted stock in the Russell 2000), this was one of the most dramatic confirmations of what we said was the best trading strategy under the Fed's artificial and capital misallocation regime, namely "buying the most hated names to generate the most alpha." So for all those who still believe that the market has quite a ways to go under the yoke of the Fed's centrally-planning before it all crashes into a house of rigged cards, here is the list of the most shorted stocks in the S&P500 and Russell2000, sorted by descending short interest as a % of float.
Despite an early dump on dismal data, US equity markets (except Trannies) 'v-shape-recovery'ed back up to unchanged or better (as Europe closed and POMO ended) on the heels of an increasingly more beta-sensitive AUDJPY rampfest. Trannies never really recovered (3rd down day in a row) and Russell was less exuberant in its dead-cat-bounce but the Dow and S&P closed very modestly green. High-yield credit markets continue to widen - now at 10-week wides (up 35bps from tights) - notably divergent from stocks. Away from the shenanigans in stocks, the USD ended unchanged; Treasury yields were up 1-2bps; and gold closed very modestly lower. Oil slipped 0.5% to $101.60. VIX closed unch. Only the Nasdaq is green post MH17 Headlines on 7/17 and The Russell 2000 is -1.9% and Homebuilders -9% year-to-date.
The attached Barron’s article appeared in December 2007 as an outlook for the year ahead, and Wall Street strategists were waxing bullish. Notwithstanding the advanced state of disarray in the housing and mortgage markets, soaring global oil prices and a domestic economic expansion cycle that was faltering and getting long in the tooth, Wall Street strategists were still hitting the “buy” key. In fact, the Great Recession had already started but they didn’t have a clue: "Against this troubling backdrop, it’s no wonder investors are worried that the bull market might end in 2008. But Wall Street’s top equity strategists are quick to dismiss such fears."
Well that escalated quickly. Friday's micro (earnings-based) weakness has extended to today's macro weakness and removed any "ignore the geopolitics, just buy the dips"-exuberance. All US equity indices are once again below the levels pre-MH17 headlines with the Dow and Russell 2000 worst performers. It appears investors need some reassurance that Yellen's "price-equity" ratio is still 'fair'.
A hot CPI and better-than-expected home sales was all that was needed (aside from USDJPY and VIX pumps) to send the S&P 500 and Trannies to new all-time intraday record highs. Escalating sanctions threats and death tolls be buggered... this is going to the moon, Alice. Treasuries were less than exuberant and rallied 4bps off their high yields of the day (i.e. totally disconnecting from stocks) and even USDJPY decoupled through the middle of the day. The USD rose 0.3% (biggest jump in 3 weeks) testing up towards 5-month highs. Gold and silver were dumped, pumped, and then dumped as CPI and housing data hit to end the day mixed. Credit rallied but diverged again this afternoon and remains wider post-MH17. VIX closed back below 12. Only the Dow remains modestly red since MH17 headlines hit last week and in spite of all this exuberance The Russell 2000 remains -0.5% year-to-date.
Equity prices tumbled early on - giving up all Friday's gains - before rampaging phoenix-like (thanks to an AUDJPY driven short squeeze) back to 'unch' after rumors of ceasefire discussions in Israel rolled around trading desks. Oil - it appears - was looking at the death-toll (and the fact that Hamas can only accept a deal that denies Israel's existence) and soared back towards $105 (its 2nd biggest day in over a month) notably divergent from stocks. The Russell 2000 was the laggard all day (ramped the most of the lows on the squeeze) and Trannies the leader. Since the MH17 headlines hit, the Nasdaq is the only index green, Treasury yields are -4bps, and oil up almost $4. The USD ended the day unch, 30Y Yield -2.5bps, gold, silver, and copper up modestly, and VIX up 0.5 vols at 12.7. Stocks closed on the weak side.