Sell low, buy high agony continues
Sell low, buy high
What a difference a week makes. Last weekend (here) we wrote: "According to GS PB, the macro shorting activity was the largest in almost a year." The latest from GS is basically the inverse to last week: "In notional terms, this week’s short covering in US Macro Products is the largest since Nov ’20 and ranks in the 100th percentile vs. the past five years". Are these people trading short gamma, without the theta checks?
Source: Refinitiv
Buy buy buy
With US equities rallying this week, funds continued to position themselves directionally longer, as evidenced by net leverage across US Equity L/S funds rising by +5% to 50% this week (the first time nets have broken 50% since February 2022 and the largest WoW move YTD). Though it is important to note, a general sense of trepidation still lingers among the fund community… most of the long positioning coming in the form of short covers. (MS PB)
Chasing the rally...
...is basically chasing tech. We just saw the largest inflow in 4 weeks.
Source: BofA
Tech facts to digest
It is hard to find bigger superlatives, but here are a few via BofA's great quant team. The top 7 stocks:
1 … drove 73% of S&P 500 gains in 1H, each up 90% on average in 1H
2 … have a market capitalization of roughly equivalent to half of US GDP
3 … trade at a Price to Trailing Earnings (P/E Trail) ratio of ~40x. The S&P 500 Ex-7 trades closer to 15x
4. … is expected to represent all US corporate earnings growth and then some in 2Q – a 21% YoY gain vs. a 10% YoY loss for the rest of the S&P 500
5 ... TMT represents 8% of US GDP, 17% of S&P EPS and 40% of S&P market cap
Source: BofA
Tech dispersion
The high estimate dispersion for Tech, partially due to AI's unpredictable outcomes, indicates the difficulty for these companies to justify their valuations. Big Tech saw a similar EPS estimate divergence from the rest of the S&P 500 post-COVID, but they met expectations. It remains to be seen if they can repeat this success as US equities aim to fully recover from the recent bear market. Watching this closely.
Source: Barclays
But fewer funds can buy the top tech stocks
Interesting chart via Barclays showing the "critical mass in ownership". There are basically fewer funds left to chase these stocks.
Source: BofA
Two more weeks...
...and the buyback blackout period will end. Time to turn on the VWAP machines in early August.
Source: GS
Central bank balance sheet expansion rolls over
Back at levels from end of 2022.
Source: SEB X-Asset
Source: SEB X-Asset
Volatility into earnings
The volatility crush is pricing very small moves for the earnings season. Note that the gap between VVIX and VIX is very wide here (still big demand for VIX options). The 1 week atm SPX straddle is priced just above 1%...
Source: Refinitiv
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