Stocks Extend Momentum Meltdown As Trump Admin Mulls Massive China Export Ban
Update (1235ET): US equity markets were already down notably, dragged down by momentum weakness, when Reuters reported the Trump admin is mulling broad software curbs on chip exports to China.
The United States has ordered a broad swathe of companies to stop shipping goods to China without a license and revoked licenses already granted to certain suppliers, said three people familiar with the matter.
The new restrictions - which are likely to escalate tensions with Beijing - appear aimed at choke points to prevent China from getting products necessary for key sectors, one of the people said.
Products affected include design software and chemicals for semiconductors, butane and ethane, machine tools, and aviation equipment, the people said.
The Commerce Department said it is reviewing exports of strategic significance to China, while noting "in some cases, Commerce has suspended existing export licenses or imposed additional license requirements while the review is pending."
This sparked an immediate drop in all the US Majors...
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As we detailed last night, the market is experiencing a strong degrossing in recent narrative themes, and that is most evident in Goldman's high-beta momentum basket which is getting slammed again this morning...
It appears that momo meltdown is finally bleeding over into the broad markets...
The outperformance from the momentum factor this year (pure factor up 7% our baskets up between 15 and 35% depending on the pair) has been driven by the long leg...
...which could be at risk of giving up more of the gains as clients protect performance going into year end...
The last six days have seen momentum longs dumped and momentum shorts bid (until today), hitting the overall momentum market with a double whammy.
The drawdown in Momentum may be at risk to continue as November through January is the worst 3 months period for Momentum...
For a tactical market hedge Goldman likes limited loss on their X7 (Top 500 Ex Mag 7) index, given hedges are outright cheaper than S&P 500 hedges.
More here from the rest of Goldman's Sales & Trading team available to pro subs.