Stocks 'Volumelessly' Soar But Credit Tells A Different Tale

Tyler Durden's picture

The headlines will crow of the resilience of the US equity market, of the outperformance of US financials today and the better-than-expected consumer sentiment print this morning but just below the surface in both European and US credit markets, something is stirring. Investment grade credit outperformed (not exactly as reflection of the need to add risk fast), European financials (senior and sub) were significantly weaker (day and week), high yield credit notably underperformed stocks and investment grade credit, US financial credit spreads have leaked notably wider from yesterday's early US session to the close today - not tracking the stocks higher at all, and just to rub some salt into the wound, sovereign spreads in Europe weren't exactly ebullient as basis swap spreads decompressed (worsened) to over one week wides. ES (the e-mini S&P futures contract) leaked higher and higher on low volume (accounting for the roll) supported by TSY weakness (and curve shifts) and Oil's exuberance as the S&P had two targets in mind it seems: the 200DMA and the YTD unch line. Commodities rallied with Gold clinging to the USD's weakness on the day but Gold underperformed on the week as Copper led the charge (though all ended the week lower). The squeeze and algo-driven (CONTEXT and ES were very closely correlated today) rally today remains worrisome until we see higher beta credit join the party - and that doesn't mean HYG which saw record inflows this week and helps explain its idiosyncrasies.

IG credit outperformed (beta-adjusted) equities which outperformed HY credit on the week but its very evident that the inflows into high yield bond ETFs are dislocating that market (and given the real HY bond and spread market we suspect will be fast money). The bid for non-financial investment grade credit makes good sense in an up-in-quality up-in-capital-structure environment that we think investors should be in, but does not support any risk-on thesis for sure.

The green dotted line is the YTD unchanged line for the cash S&P 500 which just happens to coincide closely with significant support and resistance levels this year, the current price, and the 200DMA. The low volume ramp today seems like a path of least resistance trade as many sat on their hands awaiting post-summit downgrades.

US TSYs had an interesting week with 30Y decompression the standout. The curve out to 7Y saw yields drop overall and a small rise for 10Y as 30Y ended just shy of the week's worst (highest yield) levels. Most of this sell-off occurred after the European close.


European sovereign spreads were mixed and hardly sending all-clear signals on the week.

US financials saw CDS spreads decompress non-stop from yesterday's early day tights. This widening is very notable for MS and BofA, especially in light of today's stock performance. It seems we have a disagreement and it is often proved that credit anticipates and equity confirms.

The same was evident in European financials. The French bank downgrades aside, senior and sub financials lost significant ground (as did XOver - the other higher beta credit exposure in Europe) as seen in the red oval above. Investment grade spreads rallied and it seems equities took their cue from that as we suspect traders used the tightness of XOver earlier in the week to reset hedges a lot tighter and place some new IG-HY decompression ideas.

Equities were relatively well-supported by broad risk assets as CONTEXT chugged along thanks in most part to TSY yields rising and steepening curves. Oil also helped juice the market a little as FX carry and Gold did little. TSY 2s10s30s jumped significantly and the slow leak gently higher in EUR after the European close makes on wonder if there is a drip-drip-drip unwind of overseas assets and equities are the tail of the repatriation dog.

Commodities all underperformed the inverse-USD strength this week with Gold worst, Copper best and Oil and Silver almost synced at the hip. The late day surge in oil helped maintain the bid in stocks (via risk factor correlations) and seems a little idiosyncratic. Gold remains by far the most stable of these risk factors.

Charts: Bloomberg

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kito's picture

....the more things change, the more they stay the same.........

Irish66's picture

how many times this year, have we hit 1255 and fallen back?

walküre's picture

we're in a closed loop and have officially entered the Japanese style deflation

kito's picture

my point was more low volume equity ramp up diverging from falling credit.....................

walküre's picture

I got that. You were also using one of my fav. lines

Today was pre-programmed to rally NO MATTER what the announcements were. Clearly no straight forward thinking carbon based INVESTOR would buy the S&P with both hands simply because 26 Euro nations agreed to a treaty that has yet to pass their respective parliaments.

Let 'em have at it. Redemptions will come soon enough.


LawsofPhysics's picture

I'd actually like to see that data.

JPM Hater001's picture

I just found this old magazine from 2043 where it talks about how after Ron Paul was elected to a second term he was actually able to eliminate the Fed and all the records in the audit showed how the few was buying up equities via backdoors and how only the savvy at Zerohedge properly noted that credit markets showed the true, though even this was still manipulated, condition of the bankiong system.

Oh cool.  There is an add on page 44 for a zeropoint energy generator converter for gas cars.  "If you want to drive your dads oldsmobile we can still make it happen.  RIP GM."


Western's picture

Now that's a utopian future I can look forward to. Except it won't happen because the world is too poor and we failed to provide proper financing to the banks.

Corn1945's picture

The market actually is very resilient. It simply will not crack. We have an entire continent (world's largest economy) at the brink and it is only 17% or so from all-time record highs. 17% off the largest spending orgy and economic bubble in history. Only 17% off!!!!

The Euro "solution" was an agreement to agree later and that was enough to rocket it higher. They clearly have no plan but that doesn't seem to matter.

That's the very definition of resilient.

JPM Hater001's picture

I thought Rod Blegoiovich was.

Now I'm confused.

WonderDawg's picture

I think what he meant to say was, after unprecedented central bank liquidity injections, purchases of trillions of dollars of toxic "assets", unprecedented economic "stimulus", the market is STILL 17% below its highs, real unemployment is STILL (depending on whose numbers you believe) hovering between 16%-22%, and and the economy is STILL slipping back into depression.

alien-IQ's picture

I can think of many words to describe what this market has been doing. "Resilient" is NOT one of those words.

NotApplicable's picture

I think he means "inflated."

J 457's picture

17% off all-time highs.  Yea, it doesn't quite add up.  Here's the problem, there are those (like me) that relaize this is all a sham, but continue to lose money every week.  Inevitably, I think the bears will prevail and have their day in the sun, but until then one has to seriously ponder if its time to go bullish. 

For example, as I understood S&P reported they would give serious consideration to multi-country/bank downgrades IF there was not a "solution" resulting from this latest summit.  I don't see any solution, yet the DOW jumps almost 200 pts.  How is that?



saints51's picture

I agree with everything you are saying. I will say that the Fed is definitly adding cookies(bullish) to the jar(market).

Boilermaker's picture

How is that?  You're asking a question as if the market is legit.  Lose that thought and you'll never have to ask "How is that" again.

Barry Freed's picture

Reslient, delusional, same shit.

ucsbcanuck's picture

You're being sarcastic right? Add the sarc to your post, and those downvoters would have been upvoters

dcb's picture

Ok, this was the most insane day of trading. I try to close shorts on thursday, because I know market like to go upfriday afternoon. we went past trends that should not have been broken though for the day.

I got my entry points also for yeaterday by doing a charts on weekly. so far so good. But this is a huge sell of in the offing for monday in europe. it really was a nonsense day. Note, byu the weekly  expected somethng and the friday, but not this.

dcb's picture

it also looks liek it is attempting to trade that bs channel like it did before from 10/19 to 11/14 It's so fucked up aqs usual.

slaughterer's picture

ES still leaking higher in after hours.  Above high of the day right now.  

Tommy5454's picture

It is pretty impressive. I've read several articles headlined "Europe Deal" or some derivation thereof.....I still don't know what the deal is other than Cameron not liking it.

Hansel's picture

I thought they agreed to say "fuck it" and deal with it in 2012.  This bullshit can't interfere with their month long winter holiday.  They'll be back second week of January.

walküre's picture

They're telling us the "deal" is a "treaty" between the EU nations except the UK.

The EU nations are agreeing to sign up to a common fiscal program. Nothing has been actually voted on inside each nation.

Once the plebs understand the treaty and get the idea that all tax dollars supposedly go to one budget, the gloves will come off.

Everyone has a poor and lazy brother, sister or cousins. Imagine your income is pooled and you bailed them out (which you might do anyway but reluctantly) and you get to spend less on yourself and for your own improvement. Now take that example from a family level to a level of nations that are not all that friendly with each other in most cases.

Then ask yourself, just who the fuck would dream this up and furthermore, who the fuck would sign on to this program unless of course you're the poor lazy slob that has nothing to loose except maybe some sovereignty (the will to decide how poor you want to be for yourself).

I'm doing my part and explaining to Germans that they are potentially now bound by a treaty (like Versailles) where they are covering the debts of other nations. At least Versailles could be argued was signed due to the fact that Germany had lost the war and was asked to capitulate. Now this time Germany was supposedly in the driver's seat and gets shafted again?

Then I wonder, who is on the receiving end of this and why are debts not being cut and/or forgiven? And the UK a.k.a. the Windsors and the Rothschilds and that entire filthy banking cabal in the City are vetoeing the treaty FOR THEIR OWN GOOD.

Riddle me that BATMAN.


ZeroPower's picture

Firstly, the City > all.

Agree with your comment up above that this day was painted green before the cash opened in the US.

As for Germany, one point i will argue with you is they very much are in the driver's seat, and i definitely dont think them 'succumbing' to any agreement is bad. A devaled EUR grants them even more exporting power which they desperately seek and, i would agree, is their be-all end-all.


Marge N. Callz's picture

Market was worried about nothing coming out of EU meeting.  Nothing (nothing good) came out of EU meeting and stocks rally back to the highs of the week on low volume.  I call bullshit.  If anything came out of the meeting it was Britain telling the rest of the EU to go fuck themselves.  If S&P doesn't downgrade all of Europe next week, I'll be amazed.  Bottom line stay short.  After Santa fills up on bonuses and milk, he'll be puking down everyone's chimney.

Amused2Death's picture

S&P downgrade is considered good news last time I checked, AMIRITE?

J 457's picture

Up is down, left is right, and bad is now good.  Is that the new investing logic to follow?  How is S&P downgrade good?

alien-IQ's picture

after news of the failed summit which was supposed to be, according to Merkozy "the end of the world" or some such bullshit, the /ES has gone straight up gaining 31.25 points since 2am to the close today. Meanwhile...the Euro is up and the dollar is down on this news?...WTF????????????

this is just fucking mind-numbing.

YesWeKahn's picture

Rumorless rally could be real, where is RoboTrader?

sabra1's picture

last i saw, he was cutting the expiry dates off of coupons! 

ACP's picture

Um, yeah. All that will mean something when Madman Ben gets run over by a truck. Not a second before.

Boilermaker's picture

<virtual cigar being handed to the winner>

walküre's picture

Netherlands entered recession today. The story went under among so much hyped bull(SHIT) sentiment.

Greece in Depression.

Italy in Recession, possibly in Depression next year (with 400+ billion debt coming due)

Germany with 80% of goods exported across the globe and much of it in austerity driven Europe - definitely entering Recession next year


sabra1's picture

and timmy g. is recessed in janet napolitans' butt, and little does the crack addict know, is that she had 5 burritos for lunch....and beer!

Hungry For Knowledge's picture

DuPont lowers guidance for 2011 and 2012.  Mega-caps are lowering guidance......that's my clue that a slow and steady leakage of this balloon in on the way.  Have downside protection in place.

walküre's picture

I have alot of patience. Knowing full well that the shysters can pull the plug any given moment without forewarning and probably when we least expect it but when we're all prepared regardless - thanks ZH.

So many balls in the air, so many dominoes to fall ...

LarryDavis's picture

Must be time to buy stocks. Markets are getting exciting about economy getting worse because that only seems to drive corporate profits higher thorugh layoffs and stealing. I'm shocked MF Global isn't still being touted. Financials are looking really good.

hugovanderbubble's picture

Thx Tyler, for posting this.


 Have a great week-N all ZHedgers

Amused2Death's picture

I gave up a long time ago, you're stupid if you even try to make sense of it all...

Boilermaker's picture

It isn't meant to 'make sense'.  It's meant to fleece investors and is just a fancy mechanism to do so.

slewie the pi-rat's picture

joe & mary will see their stock and investment portfolios begin to show a bit of green and get confident and spend more

both of them!

J 457's picture

Not according to the weekly outflows.

jonan's picture

where can one find charts like this without a bloomberg terminal?

dracos_ghost's picture

It's beginning to look a lot like Christmas:

Georgesblog's picture

More form without substance. This is the offspring of fiat currency.

Boilermaker's picture

That's alot of charts.

Thanks for that.  So, now, what does that have to do with the fact that the FED is able to ramp the shit out of the equities at will?