RBC: "The Model Can Not Explain This", Warns Market Regime Has Changed Suddenly

Tyler Durden's picture

Another day, another warning from a major bank (after Goldman, Citi, and most recently JPM, and various other smaller research providers), this time from RBC's macro strategist Mark Orsley, who in his latest note writes that that something has dramatically, and suddenly changed in the market in recent days, as confirmed by bank's macro model provider. To wit:

There is another interesting force at play in equities that deserves to be flagged. The good folks at QI (our Quant macro model provider) flagged to me that their r2 on SPX has been falling precipitously. This means their model which incorporates hundreds of different factors is now unable to explain why S&P's are moving. Previously the main drivers of S&P's were well explained by 1Y forward earnings estimate, inflation. growth. credit spreads, energy prices, and real rates but that is no longer the case. That means S&P's are going through a regime change and typically when the r2 falls this way, it is a red flag and caution is warranted.

Mark Orsley's take:

"I think Putting together the breakdown in EM last week, the breakdown in high yield credit, and the regime change in S&P's you have to have a much more defensive posture in risk assets for the first time since the election. My  premise is this is entirely due to the move in rates especially in real rates. I recommend some sort of downside protection."

That said, so far every attempt to correctly call the downward inflection point in this rally has failed to see corresponding follow through, as the retail "animal spirits" remain confusingly unquantifiable, at least for now.

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mily's picture

chat room at some bank right now:

"...who you gonna call? vix pounders...LOL "

Ghost of PartysOver's picture

Could be explained by a new Sheriff in Town that is making yuge changes.  But what do I know.

Shemp 4 Victory's picture


That means S&P's are going through a regime change

Where is Nuland with the cookies?

mily's picture

Look at that vix futres selling, yuuge, vol of vix (vvix) ~80, BB tight as shit

mily's picture

quick, lets sell some more...

mily's picture

Tylers, any news from renowned "quant guru" kolanovic?

WTFRLY's picture

lololololol VIX pounders, excellent

old naughty's picture

um, like that vix pounder 2, i think...stocks wmd !


Silver Bug's picture

We are undoubtedly in a precarious period of time, yet dispite all the doomsayers and negativity from the MSM and the crippled left, confidence is surging amongst American business and this is across the board. REAL, QUALITY jobs are coming back and the MSM is pathetically trying to excuse it away.


detached.amusement's picture

LOL the model cannot explain this

I've been saying that since the troposphere shrunk after the sunspot funk of 09 and everyone said holy shit there's a polar vortex!  where'd THAT come from?!?! (oh wait it was always there)

Leebo's picture

Polar Vortex low pressure systems are not always there.  In fact they will begin to start showing up more often as our magnetic shield continues to fade and our atmosphere continues to compress.  We are entering a cool phase that hasn't been seen in 500 years and there are 6 billion MORE people on the planet now than there was then. (That's a rough guess) This is the biggest threat to the world's food supply, even greater than the debt bubble. But people will tell me I'm full of shit.  If the government doesn't crash the economy now, then the weather will within the next year or 2.  Fucking hilarious really, not only is the global debt market on the brink of an inflection point, so is the global climate.  And BOTH are being covered up by all means necessary.

carbonmutant's picture

Seems to be about a 3 month lead time between the Aug peak and the Nov. election.
If the same holds true for the Feb decline the S&P probably won't have any meaningful reaction until May.

LawsofPhysics's picture

More utterly useless "analysis" from utterly useless fucking paper-pushers.

fuck em.

saveUSsavers's picture

YOU THINK GAAP P/E 30  means anything?  foolarse speculating parasites need fumigation

shizzledizzle's picture

Gee, if only there were someone with a endless balance sheet to finger on this one... Pehaps that MVP Janet "knife catcher" Yellen.

Impoverished Psychologist's picture

So.. things are still fine but there are many reasons why soon they won't be but we don't know which ones are most important and how they will impact upon markets...


Where do I sign up for this analyst shit.

order66's picture

Delta Hedging strats are done with forced exits.

Dr. Engali's picture

Funny, these people still like to pretend there is a market. There is no market, there is only the fed.

101 years and counting's picture

absolutley true.  but...at some point....people actually have to sell to lock in profits.  otherwise, they are holding worthless paper in a ponzi scheme.  once big boys start unloading to lock in their massive gains (courtesy of the fed's nonstop bullshit propaganda), there will be zero buyers to sell to.  and it will crash.  it will be fun to watch.  it will happen.  who knows when.

IronShield's picture

Damn these are confusing times. Allow me to read the entrails...

SHIT! Run for the hills!

Da chief's picture

QE5 is on its way...don't be fooled.

Phony baloney rate hike won't change a thing.


PurpleNIRPle's picture
PurpleNIRPle (not verified) Da chief Mar 8, 2017 10:38 AM

What happened to QE4?  Did we have that already while I was napping?

PopTheBear's picture

Dont worry son. You'll have all the QE you can eat. Just watch them backpedal after this rate hike

Thebighouse's picture

All together now.............


voxale's picture

Bullish! I only care about what Gartman says. 

ToSoft4Truth's picture

Trump is doing good at deflating Gold and Silver.  Reagan lite lives!

White Willie's picture

Ever consider suicide?  Apparently your mother's attempted abortions all failed.

pebblewriter's picture

It's pretty straight-forward.  Stocks have been driven higher by algos which have been driven primarily by USDJPY, oil and VIX.  ZH writes about it pretty much every day -- the big collapse in VIX at "convenient" times.  Ramps in USDJPY and oil have the same effect, but have nasty side effects like inflation and trade deficits.

This has been going on for years, long before the election.  But, it's ramped up in the past few months in order to help SPX and DJIA break out past serious overhead resistance.  In other words, the "Trump rally" has had little to do with the election -- just good old-fashioned "market" manipulation.



PopTheBear's picture

This is actually spot on. Not often you see some insight on display its usually just "hang the bankers" spam. Not that there is anything wrong with that. Hang 'em high

undercover brother's picture

Regime change is a cute way of saying the Fed is changing policy from loose to tighter.  Trump tax cuts, improved business climate, cheaper health insurance, etc, etc. notwithstanding, there is no way stock markets will hold up when the fed starts popping their own zero rate bubble.  Dow 12k to 20k on absolutely nothing but ZIRP forced allocations and corporate buybacks will come back to haunt everyone who is not hedged. 

PurpleNIRPle's picture
PurpleNIRPle (not verified) Mar 8, 2017 10:52 AM




all-priced-in's picture

Why are the ETFs DIA and SPY trading so differently - VS the DOW and S&P500 index?



At times today the DOW & S&P500 index have been red - yet the ETF is solidly in the green (at that time)



PopTheBear's picture

Time delay, mate. One of them has more delay.

mily's picture

..."I recommend some sort of downside protection"...

"Protection from what, zee germans?"

checkout the Call-Put ratio and VIX, no one is interested in buying protection

whatisthat's picture

Do the banks actually think anyone in their right mind listen to or act on this manipulated financial market misinformation or window dressing.....it is a wonder that a job function exists to generate this stuff.

besnook's picture

with all the usual suspects calling for a correction(whazzat?) there will be none. BTFD!!!

GRDguy's picture

"They have attained control of the industry and trade of the whole earth;

and are rapidly centralizing all business in their own hands.

They hold possession of all the great lines of trade and business of all kinds,

and they regulate all prices by their own arbitrary methods." 

From the 1889 book "The Great Red Dragon: Foreign Money Power in the United States."

Nothin' has changed. Folks just don't wanta know.


turkey george palmer's picture

A borrower will not pay. Nor borrow again. Fed helpless banks circle the wagons or whatever they do when shit gets shittier. Ma and pa just drive off and leave it to beaver. Snowflake fuckery comes to a hungry end