TME Weekend: Duration has no friends until the data dumps

Lower growth = calm yields = equity melt-up

Seven points of wisdom from the ultimate macro guru, Dom Wilson of GS:

1. We had more softness in the data, so that slowing in growth we’d been waiting for has finally become visible

2. we’ve had refunding announcements better than feared

3. the BOJ was less aggressive

4. Fed was a bit more explicit about the impact of the tightening in financial conditions on their thinking.

5. sharp rally in risk, particularly in areas like VIX and IG CDX that seemed to have embedded most risk premium.

6. Positioning has clearly played a big role in the sharpness of the squeeze

7. very clear break back above the 200-day MA for the SPX is going to make the technical crowd happier and probably renew the focus on seasonals.

Equities just need some stability (ie lower MOVE)

"As usual, we’ve moved a long way very quickly. I think it may get harder to keep pushing yields a lot lower, but for equities you probably just need to have more stability. To keep that relaxation theme going, we would ideally need to see continued signs of some softness in the data. That would help to cement the narrative that the Fed is likely to done, keep rate volatility heading lower and push people back towards equities." (Dom Wilson, GS)

Duration

“Duration has no friends until the data dumps”....but it looks like it’s starting to happen

Source: Nomura

Glass half full on HF leverage

Beginning of last week we showed how "clean" hedge funds were in terms of net leverage. This week we cherry-pick the data and show some pockets of "stretched". Overall gross leverage at 99%-tile (1-year lookback) and fundamental L/S net leverage at 80%-tile.

Source: GS Prime

Source: GS Prime

Lowest proportion in of positive EPS guidance tweaks since 1Q20 

With 3Q reporting season getting down to the final week or so, we had a look at the changes mgmt’ teams have made to forward guidance. In sum, most tweaks – for both 4Q EPS and revs – have been flat or lower. We’ve seen the lowest proportion in of positive EPS guidance tweaks since 1Q20 and for positive revenue tweaks, the lowest proportion in the entire history of our data (2015 start).

Source: Jefferies

Source: Jefferies

Sector revisions

Over half the sectors have had revisions exceed 1% on an absolute basis, and clearly the tech complex – with a little help from energy – is the real reason the SPX revisions are positive. Don’t forget, AMZN is in discretionary. As for materials, REITs and healthcare, those sectors might be much closer to one of those opportunistic bottoming of revisions.

Source: Jefferies

Worrying

Next year EPS -numbers SPX and SX5E

Source: GBM

Excited about last week's move in rates?

Don't forget that we are just coming off 5,000-year lows in rates...

Source: BofA quant

Will this chart tickle your contrarian fancy?

Large caps vs small caps has been on a tear. It always starts with one big bang week like last week (that you cannot see on the chart).

Source: Goldman

P/E for small back to ’12 levels

With the RTY down >30% from its YTD high, the fwd. P/E is now just 15.1x, the lowest level since 2012.

Source: Jefferies

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