YOUR QUIVER | January 20, 2023

Today's Rundown

CIO | Nadine Terman @SolsteinCapital details what she's seeing in global financial markets.

Running With the Bulls

AAII revealed that investors who classify themselves as “bullish” increased to the 2nd highest reading since Aug. As of yesterday, though, the S&P fell to roughly the midpoint between its Dec trough and Jan’s top. The recent equity decline reflects a market landscape that makes it more difficult for investors to gain conviction to buy the dips with their sidelined cash. I tend to agree with UBS’ assessment. A significant percentage of folks who bought into the market this year are quants or have a high water mark from 2022 they have to recover. If the market moves lower, these types of investors can quickly shift portfolios, so it’s not sticky money.

Into Perspective

Putting into perspective the recent market rally, the S&P was up only +17.5% versus rebounds during the GFC and post-Dot Com Bubble which were a lot greater (before they both printed their respective bottoms, FYI). UBS notes that the S&P may have to move about the Aug level of 4325 before its technical narrative improves.

Waffle House

That’s what the S&P did yesterday, waffling around 3900, which folks are saying is related to today’s options’ expiration. Yesterday, traders with a “short gamma” portfolio were just sitting around as the benchmark waffled through the session. Vol compression may be short-lived once we get past the double witch event. Yesterday, 8 of 11 sectors were lower—led down by industrials, consumer discretionary, and financials. Roughly $797 bn of single stock options are expiring today, the largest since Jan 2022 and the 4th largest on record. On indexes, $1.3 tn of options roll today, the largest non-quarterly expiration on record. The relative cost of puts has hit a 3 mo high.

Overnight Action

Asia Pac was mostly higher ahead of the week-long Lunar New Year holiday: Hang Seng Index +1.8% gain and returning to its May 2022 peak. Shanghai Composite +0.2% nearing its 4 mo top. Nikkei +0.6% despite Japan’s December CPI printing +4.0%, double the central bank’s target and the fastest pace in 41 years. Kospi +0.6% with strength in tech and fins. The Eurozone was up too. STOXX +0.3% and staying near its high since Mar. FTSE +0.3%. DAX +0.5% despite hawkish PPI stats. CAC +0.8%. 

Energy Update

WTI is up and is trying to stay above $80/bbl on the back of China reopening themes. Supposedly China is past peak covid levels, with their local media giving stats on lower numbers of patients hospitalized in critical condition (-44% versus peak on Jan 5). Not sure if that would be my metric to hang a hat on…They better hope that cases are down because as of Jan 18, passenger travel had increased 47.1% y/y (hence the oil px increase).

In the News

$NFLX is up after posting more subs than expected, even though the co missed estimates. Also, Reed Hastings its stepping down as CEO. Good guy, so I am sure he will be missed. $GOOG/L is up after announcing layoffs of 12k folks they “hired for a different economic reality than the one we face today.” I imagine folks on that list wished they had a macro person on staff and had forecasted things better….but for shareholders, profits will increase. They had hired a ton of folks in their cloud area during the last few years, so most likely they are getting costs under control there. The FDA rejected $LLY’s experimental Alzheimer’s treatment due to not providing enough trial data.

Brainard

She said monetary policy will be “sufficiently restrictive for some time.” She is also believed to be quite on the dovish side of things. Right now traders are not betting on this, so if the Fed really stays restrictive, then longer-dated UTS yields would probably rise sharply (which could cause the market to turn lower again). Remember 1Q22?

Don't Push That Button

The FAA says a contractor unintentionally deleted files before its recent outage which delayed roughly 10k flights. Seems like they need to have a dual-confirmation system before key files can be deleted, so that someone who had their first cup of coffee might eliminate mistakes like this.

Spinning Red Light

BBG is saying that the global real estate market is looking at a nearly $175 bn debt spiral, with that amount already distressed, pointing out that the level is about 4x that of the next biggest industry. They also point out that as the real estate downturn moves from resi to comm’l, spend will decrease, and jobs and growth will decline.

Book of Genesis

The book might be closing. Genesis filed for Chapter 11. It wants to sell assets/raise money and deal with creditors.