For months, market participants were infatuated with the idea of “peak growth” and “peak profits.”
Toss in “peak policy” and the result was the “Triple Peaks” macro narrative.
Implicit was the notion that with the rate of change in global growth, earnings and stimulus set to slow, financial assets (equities especially) might lose their footing. When it comes to growth, earnings and stimulus, it’s not about levels, bears argued, it’s about the impulse. Posed as a question: Is momentum waning?
September’s shallow pullback notwithstanding, stocks managed to ignore the realization of the “Triple Peaks” thesis. The pace of growth did decelerate (both in terms of economic output and earnings) and central banks have indeed moved down the road to tighter policy, albeit in baby steps. Nevertheless, stocks rebounded in October on the way to what might fairly be described as a full-on melt-up.
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‘Animal Spirits’ Spotted In Never-Ending Stock Rally
By the end of last week, the S&P had logged 64 new records in 2021 on the way to closing around 7% higher than the most bullish year-end Wall Street forecast.
Fresh out of superlatives, journalists fell back on acronyms. Now, amid what Bloomberg described as a “YOLO feast,” it may be time to ponder a fourth “peak.”
“It seems that ‘peak FOMO’ is permeating speculative assets,” Nomura’s Charlie McElligott wrote Tuesday, before rolling out a variety of statistics which together underscore “how rabid the behavior is,” as he put it.
“The value of $1,000 invested one year ago in Shiba Inu was $740,259,740 last Friday,” he wrote, adding that $1,000 a year ago in Axie Infinity is now $1,082,920 and $1,000 a year ago in Telcoin is $130,144 today.
I’m not even going to pretend I know what “Axie Infinity” is. It sounds like shower gel.
Back here on Earth (an increasingly desolate place), a Nomura basket of meme proxies is up 150% YTD. Greeks are extreme (100th%ile), total US call option volumes are near the highs from January (when retail was running rampant) and the US put/call ratio is sitting near a two-decade nadir. The figures (below) illustrate what McElligott dubbed “Lite Rage.”
Charlie also updated his estimates on vol control re-allocation following the September pullback. Over the past two weeks, the figure is likely somewhere near $47 billion in US equities, a 93.4%ile exposure add. The one-month re-allocation is probably near $60 billion.
Apropos, one-month realized is in the 1.7%ile on a one-year lookback (figure on the left, below).
And, of course, equity fund flows are anomalous (figure on the right, above).
Do note (and this is ad nauseam) that spot equities are now a derivative of their own derivative. “The overall spot market move higher has actually been led by single-name Call-Wing going bid, as the ‘weaponized Gamma’ options phenomenon creates demand for upside crash tails from Dealers and MMs who are short those deep OTM Calls in a virtuous ‘delta grab’ spiral,” McElligott wrote Tuesday.
There’s an “ugly” side to that coin, though. I alluded to it first thing Monday in “Why Elon Musk’s Tesla Twitter Poll Matters.”
Recall that summer of 2020 was defined by a melt-up in big-cap tech, facilitated by a retail gamma squeeze and, relatedly, SoftBank. In early September of 2020, tech pulled back. The slump in Tesla on Monday and Tuesday was an echo of that. It “rhymes a bit,” Charlie remarked, noting that the summer 2020 melt-up ultimately crescendoed into September 2020’s “Delta unwind crash.”
So, where to from here? Well, sticking strictly to the “good” stuff (i.e., leaving aside, for now, the still palpable angst evident in various left-tail and crash metrics), McElligott cited the return of the corporate bid (as buyback blackouts roll off) as well as favorable seasonality on the way to suggesting that “folks are being forced into playing” the year-end, melt-up playbook.
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