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Credit Underperforms As Stocks End Unch (At Highs)

Tyler Durden's picture





 

Equity markets rallied into the close (pre-OPEX and index re-weightings tomorrow) to end near their highs for the day but this was only enough to get back to practically unchanged. The Dow was the only index to manage a green close on the day-session (as AAPL dragged NASDAQ lower and the S&P couldn't get above Tuesday's or Wednesday's closing levels). With the CDS market rolling today (and indices being recomposed), we saw a somewhat unusual selling pressure into the roll - suggesting many credit longs were less than willing to roll that long into the new index (though technicals do make this uncertain). HYG underperformed. Stocks seemed to levitate back up to track Gold and the afternoon's weakness in Treasuries (unch on the day but 3-4bps higher in the afternoon) and strength in Oil dragged risk-assets more in sync with stocks (after suggesting weakness in the middle of the day). VIX and stocks are in line (with VIX low absolutely but maintaining a high risk premium to realized vol). US strength continued until after the European close when FX markets drifted gently USD lower.

 

Credit (especially IG) underperformed stocks as the afternoon wore on...

 

But Stocks (second only to MTGs in their exuberance) remain well above FX and Bond post-FOMC reactions...

 

and the gap between the Trannies and the rest grows wider (is this the high-beta reach? seems not given sectoral moves?)... a 660bps performance diff in 6 days between Dow Transports and NASDAQ...

but as usual it's a tail of the P/E tape... as Transports have been derated and the NASDAQ uprated...from the Draghi 'Believe' speech, the Russell 200 has seen a 2.6x rise in Fwd P/E, a full turn more than the Nasdaq and more than double the valuation changes of the other indices... see Bottom-line below...

 

On the week, stocks played catch-up to Gold for most of the afternoon; meanwhile, the USD and Treasuries hooked up...

 

and while most will be talking about how low VIX is (though it closed small green today just above 14%), it remains near the highs relative to realized vol - which is a far more important relative value (lower pane) means of judging 'fear'...

 

Notably there has been a bifurcation among the financials since FOMC. GS and MS are now notable underperformers...now both opractically unchanged as the sector remains up 1.4% and the peers around +3%...

 

Bottom-line - the P/E changes chart above suggests that the argument that high-beta chasing will support stocks into year-end as PMs play catch-up is fallacious. It has already occurred - look at the Russell!! It would appear that in fact for a rally to be supported the rest of the market (defensives - which have outperformed in absolute terms) need to play significant catch up to valuation changes... so low-beta chase?

Charts: Bloomberg

 

Bonus Chart: S&P Sectors are diverging again - Utilities remain the big post-FOMC loser but interestingly Financials/Energy/Industrials are notably underperforming the rest (that remain closely correlated)...


 


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Thu, 09/20/2012 - 16:35 | Link to Comment Robslob
Robslob's picture

Old McDonald had a market EIEI-OH...

Thu, 09/20/2012 - 16:36 | Link to Comment Hedgetard55
Hedgetard55's picture

The "market" is a fugazy. Bernanke is a fugazy.

Thu, 09/20/2012 - 16:48 | Link to Comment SemperFord
SemperFord's picture

Forget 'bout it

Thu, 09/20/2012 - 16:38 | Link to Comment slaughterer
slaughterer's picture

Healthcare (and clean energy) will be shorted to 000 if O loses the 'lection.  But what is the chance of that? .01% with MITTENS just fuking up everyday.  

Thu, 09/20/2012 - 16:45 | Link to Comment Blasé Faire
Thu, 09/20/2012 - 16:45 | Link to Comment slaughterer
slaughterer's picture

Today should be SHORT (Janjuah/Kass/Faber, etc.) capitulation: Potter showed up for work.  The day should have been RED, but it was GREEEN.   1450 is support.   What is resistance 1530?  1560?  1600?  1700? Some ruler line extrapolated into the sky?    

Thu, 09/20/2012 - 16:53 | Link to Comment Conman
Conman's picture

How was today any different than any other day? We have bee nwatching the market miraculously come off the lows every trading day for the past few years.

Thu, 09/20/2012 - 16:50 | Link to Comment spekulatn
spekulatn's picture

Street Freak

 

Nice title. 

Thu, 09/20/2012 - 16:55 | Link to Comment Rainman
Rainman's picture

The PPT machines won't be the first to die an ugly death chasing gold.,,,,dats for damn sure !

Thu, 09/20/2012 - 22:10 | Link to Comment IMA5U
IMA5U's picture

here we go again.... 

 

credit is falling apart

 

we re doomed

Thu, 09/20/2012 - 22:13 | Link to Comment intric8
intric8's picture

We all know it doesn't make sense and the numbers arent adding up. Why so many rallies into the close? Aside from the PPT theory, im beginning to wonder if a market making scheme is also at work, where after lunch, half of those on the buy side disappear till the close. IOW, they create artificial demand somehow. Maybe some other explanation why this dickhead market keeps marching up against all reason. Its obviously being manipulated somehow.

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