YOUR QUIVER | December 19, 2022
Today's Rundown
CIO | Nadine Terman @SolsteinCapital details what she's seeing in global financial markets.
Friday's Dance
Not to be overshadowed by Wednesday’s Dance (still not sure why this keeps popping up in my ads), Friday’s market dance brought the S&P down -1.1% and below its 50 DMA (3864) for the first time in 5 weeks. The eq volume (17.9bn) was the highest in 6 mo, although the triple witching and index rebalances were key drivers of that number. BBG is reporting that traditional hedging isn’t doing its job; as of Fri morning, the S&P incl dividends was -16.9% YTD versus the CBOE PPUT index was -19.6% YTD. The latter tracks the S&P plus mo put options to hedge 5% selloffs, and it didn’t work because hedges need bigger moves over shorter periods to pay off, versus slow grind downturns.
Friday's Flows
Per RBC, Friday flows were better to SELL on a notional basis of 55%. HFs were the most active, then MF and Intl flows. Interestingly, MFs were better to BUY, HF’s were doing a lot of shorting, and Intl flows were in SELL mode. Investors were buying Defensives as well as MLPs, Industrials, and Util/REITs, and they were selling Tech and E-commerce plus other high multiples. Shorts were focused on mining and energy (ouch—see China Hope is Alive below), plus the stuff they were buying (Util/REITs, MLPs) and Finls.
US Hope is Alive
Investors are still doing an internal tug of war, battling what they heard from Powell about higher for longer and what they want for the holidays: inflation turning to a degree that changes Powell’s mind. But buying the dip has not worked, as RBC noted. The ave stock move for the week post a -1% decline is -0.7%, which is the worst performance post selloff since 1979.
Staying Tight
JPM and StoneX are saying that big money managers will be offloading $100bn of equities in the final run-down of 2022 when they rebalance towards bonds to hit their 60-40 ratio, which will exacerbate the recent selloff. So, we look at that as a potential opportunity for selective buys.
Wilson's Worries
MS’s Michael Wilson is back out again with his predictions…calling for an earnings recession similar to that of the GFC with a market decline worse than investors expect.
Bankers' Blues
IPOs are having their worse time since the GFC, with just $207 bn this year so far, down -68% versus 2021. GS’s is saying that things look better for 2Q23 because we should have more clarity around IR hikes and inflation by then.
China Hope is Alive
Chinese leaders vowed to boost economic growth in 2023, by spurring consumption and supporting the private sector—a shift from the last few years—plus a scaling back of fiscal stimulus. A PBOC leader is saying that monetary stimulus will be at least at 2022 levels next year. Although more negative Covid news reversed market gains, the government’s pledge increased energy and metals prices. Those sectors also were strong in the Eurozone.
Japan Reconsidering
Local press is saying that the BOJ may edit its 2% inflation goal, driving the USD down.
Gas Cap
EU members are talking about a gas px cap roughly one-third lower than what they discussed originally. Oil is up post last week’s 5% rally, as the US is going to refill its state reserves.
Rallying the Troops
Strikes in the UK are forcing the gov to send in 1,200 troops to cover key positions. UK nurses start tomorrow, then 10k ambulance workers on Wed, Border Force and Royal Mail on Friday.
Macro Minutia
Tuesday: BOJ decision
Friday: PCE
Plus, earnings from $FDX and $NKE on Tuesday and $MU on Wednesday may provide additional insights into consumers, businesses, and tech.
Did You Vote?
While not as exciting as the Midterm elections, Musk asked Twitter users to vote Yes/No whether he should remain as CEO. 57.5% voted for him to step down.
