There’s trouble in market paradise. By all accounts, progress on the tax cuts should be propelling equities higher. After all, the tax deal was supposed to be a “free call option” on further gains.
And as far as “Mueller risk” goes, that was always lurking in the background and while we think it should have been cause for some kind of correction by now, that hasn’t materialized just like none of the other myriad political risks have managed to knock this market’s hustle so why should it start now? Perhaps – just perhaps – some folks are starting to come to terms with the idea that “Mueller risk” has morphed into “impeachment risk.”
U.S. HOUSE HAS ENOUGH VOTES TO REJECT EFFORT TO IMPEACH TRUMP
that's ok. give him another week to tweet himself out of office. he's trying hard.
— Walter White (@heisenbergrpt) December 6, 2017
Meanwhile, the tech jitters are palpable even if the rout took a break in the U.S. on Wednesday. One issue with this idea that tech (and growth in general) is going to be able to pass the baton to the sectors that would benefit the most from tax cuts is that the market leadership shoes are big ones to fill. So the question becomes whether the “rotation” everyone’s talking about can possibly be a net positive. What seems more likely is that while some sectors will get a lift and while portfolios positioned to benefit disproportionately from the passage of the GOP tax bill will indeed outperform, the broad market isn’t going to be able to stomach any kind of a drawdown in the big-cap tech names that have acted like Atlas when it comes to holding up the entire world.
The hope is that if, as Bloomberg’s Dani Burger (now the “best Burger in London”) contends, this is a factor freakout, then the weakness in tech will be short-lived once whoever (or whatever algo) is behind the systematic flows gets done doing whatever the hell it’s doing.
Whatever the case, none of this is great for active managers who have been relying on a handful of high-flying names to best benchmarks (benchmarks that themselves rely on the same stocks – there’s Howard Marks’ perpetual motion machine again):
Stocks were basically a wash stateside today, although as noted above, tech did manage to meander slightly higher which is better than nothing in light of recent events. Once again, small-caps underperformed.
The dollar (which we discussed at length in Tuesday’s wrap) was up again, and is now sitting near two-week highs, reflecting what may be misplaced optimism for all of the reasons cited in the linked post above:
2s10s just barely hanging on above 50bps (Cue Walter – not White, but Sobchak):
Europe has hardly been immune from the ongoing tech rout. The SX8P has fallen some 5% since the November 29 bloodbath on Wall Street that started the ball rolling in earnest on the global tech tumble.
And speaking of global tech, Tencent looks like it’s in trouble. It’s come off 17% since triumphantly joining the half-trillion club last month:
Don’t look now, but EM equities more broadly are looking vulnerable, having abruptly slumped to two-month lows where they’re now testing the 100-DMA:
It’s worth noting that the CBOE’s volatility gauges for the EM ETF and for the China ETF are trending markedly higher:
The BoC came out cautious on Wednesday, triggering a steep decline for the loonie:
Oil is suddenly a horrible piece of shit as the OPEC extension was apparently already baked into the cake and although Donald Trump is trying his best to engineer more war in the Mideast, it appears that for the time being concerns about U.S. production are the controlling factor. Here are the EIA numbers out today:
- Cushing crude -2,753k
- PADD 3 crude -1,128k
- Gasoline +6,780k vs est. +2,555k
- PADD 1B gasoline +1,997k
- Distillates +1,667k vs est. +1,100k
- PADD 1 Distillates +125k
- Refinery utilization +1.2 ppt vs est. +0.3 ppt
- Refinery crude inputs +192k b/d
- Crude imports -127k b/d
- Crude production +25k b/d
Obviously, the problem there is the gasoline build, which was the largest since January. As you can see, this is deteriorating quickly:
Bitcoin hit $12,000 on Wednesday, which would have big news were it not for the fact that it subsequently hit $13,000 in the same goddamn day:
And Bitcoin isn’t the only thing retail investors are all-in on. According to TD Ameritrade’s proprietary idiot-tracker (they don’t call it that), mom and pop pushed their chips in November like never before: