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Three Reasons Stocks Keep Frustrating The Bears
As you might've noticed, some of the most recognizable names on the sell-side are adamant about the elevated odds of a renewed selloff in risk assets, and particularly in equities.
At the least, it's fair to say many well-known, top-down strategists believe the risk-reward for stocks is asymmetrically skewed to the downside given a variety of factors, including 2023's S&P re-rating (to ~19x again), high recession probabilities, the prospect of "higher for longer" rates and what many insist
The comments from McElligot you posted yesterday explained it all. $70 billion of buying from the vol control gang in the first three months of the year.
In fact, I briefly read a reference to a Goldman analysis which suggested that based on other real money flows, stocks “should” be 3% lower. (I need to track it down.)
Vol control and trend following systematic strategies have a finite pot to invest before they get to 90th percentile net exposure. It would be interesting to know how much they have left.
According to BAML, CTAs, risk parity, and equity vol control are all buyers of the S&P 500 this week and a stop loss (full unwind) is not expected during the same time.
In 1994, interest rates moved up far and quickly. Stocks did not sell off like I expected- The money was in shorting the belly of the curve not in shorting stocks. All I know right now is the market is not acting like it wants to sell off…Who could blame people for buying 2 yr or shorter treasuries? As to Goldman’s 3% overpricing of stocks- to someone like me, that’s a rounding error….
Depends on your time horizon. The vol-control folks are not long-term buyers.
My quick read was that the market “should” be down 3% year-to-date, rather than up 8%. So, based on this flows model, 11% overvalued.