The "what if" bull

The Market Ear Picture

The "what if" bull

One could argue that the two most important events / developments for the markets over the past few months have been:

1. Musk reducing Twitter workforce by 70% with the product still working....

2. AI. No comments needed.

Who have been the first early adopters / benefactors of this? Big Tech of course. They are actively reducing staff (well-needed, the organizations were becoming bloated) and there is much more to go. And Big Tech are leading in the AI race so far.

This has resulted in a massively bifurcated market where Big Tech is carrying the whole rally themselves.

What if Big Tech are the leaders on these 2 themes and the rest of the market will follow? Suppose the prevailing assumptions regarding "peak margins" are entirely incorrect, and instead, we are currently witnessing a structural trend where margins are steadily reaching unprecedented levels.

NASDAQ - the slo-mo break out?

NASDAQ broke above the resistance yesterday. Volumes remain dull (and work both ways), but an extension of the break out will force people to chase tech. Zoom out for some chart perspective.

Source: Refinitiv


It is narrow out there

The strong continue getting stronger and the weak are getting weaker. The NASDAQ vs Russell ratio is getting very close to the post Covid mania levels. Second chart shows just how extreme the US dispersion is.

Source: Refinitiv


Source: GS


The "decorrelation" chart

Financials and tech have seen a huge break down in correlation. Tech saving markets, again.

Source: Soc Gen


Equity volatility - thank you bank failures

Equity volatilities have puked lately, especially tech related vols. SoC Gen writes: "We argue that the fallout from regional bank failures in the US has led to lower equity volatility – by boosting the long duration sectors which have a much larger weight in the US large cap index."

Source: Refinitiv


You don't... trending assets to mean reverting assets over time, but the chart still shows you some of the latest "extreme" in tech volatility imploding. "Last time VXN was here..."

Source: Refinitiv


Not all recessions are equal

Financial recessions are the biggest, but there are other recessions to focus on as well. The next recession looks different. TS Lombard on the upcoming "one": "The ultimate depth and duration of this downturn will depend on the speed of the policy response – which could be rapid."

Source: TS Lombard


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