The Nasdaq 100 just had a very, very bad day.
July 24 counted as the single worst session for big-cap US tech of the year so far. In fact, it was the worst day since October of 2022, when equities troughed for the cycle.
The 3.6% one-day rout pushed the benchmark nearer to a technical correction. From the highs seen earlier this month, the gauge is down nearly 8%.
Big-tech’s worst 2024 one-day swoon came on the heels of the index’s second-worst week of the year. As documented here, the Magnificent 7 suffered mightily in the wake of Tesla’s fourth straight profit miss and amid concerns about the lag time between AI capex and revenue realization.
The Nasdaq 100 closed well below a key trigger level for trend-following strats, according to Goldman’s Scott Rubner. “Today mark[ed] the first time that the short-term threshold is broken since April,” he wrote.
If you’re curious, that threshold for SPX is 5,472. Sorry, was 5,472. Past tense. Rubner said he was “watching” that level “closely to see if it is breached.” Consider it breached.
As the figure on the right, above, shows, CTA positioning in US equities was loitering up near the longest levels in three years, according to Goldman’s estimates.
So that’s CTA trend. What about other systematics?
Note that the S&P went a very long time without a 2% selloff (well more than a year). That streak’s history now. The distribution of daily outcomes may be on the cusp of widening. If we do get some sustained movement, it could spell de-leveraging for vol-control cohorts.
I’ve written voluminously on the extent to which vol-selling — from buy-write ETFs to dispersion books to any and all manifestations of VRP-harvesting — has squelched index vol in almost tyrannical fashion. But vol reset higher last week, and implied moved up pretty sharply into Wednesday’s equities downtrade.
“Volatility-control strategies and vol-selling ETFs are no longer a coach on the field. They are QB1,” Rubner went on, in the same note, adding that Goldman puts vol-control exposure at the top of the range. “We are in a new volatility regime and gross exposure will need to be reduced given these elevated levels of vol,” he said.
Overall systematic exposure to US equities, inclusive of CTAs, vol control and risk parity, was the highest since prior to the first Fed hike, according to Goldman. Theoretically anyway, there’s a lot of exposure to cut, de-leverage, de-allocate and de-risk.
The elephant in the room is the US election and the shifting odds of a Trump victory, which is no longer seen as a sure bet. Kamala Harris is in the process of reenergizing a left-for-dead (almost literally) Democratic ticket.
“From a bearish ‘tail’ [perspective], the market does not want Harris and her strategically swing-state VP pick to storm into outright leads,” Nomura’s Charlie McElligott said Wednesday, calling a prospective blue wave “the antithesis of the bullish ‘DC gridlock’ trade.”
Goldman’s Rubner weighed in too. “The odds markers no longer see this is a landslide,” he wrote. “The S&P 500 has been super correlated to Trump win odds lately [so] I would imagine there is some hedging required… given the change in election probability and recalibration among portfolios.”
The Orange Man extracts his fee and leaves everyone else holding the bag. I’ll happily trade a short-term sell off, for long-term prosperity and stability.
Traders and investors aren’t the same thing, so for investors, feel good about the opportunity to add to great companies at discounted prices. At least “discounted” compared to where they’ve been recently. A lot of Biden market highs that few appreciate. That Biden bull market spoiled us all.
I’m confuzzled here. I’d like Mr. Rubner to explain how higher borrowing costs (funding higher deficits), higher labor costs (thanks to mass deportations) and higher input prices (tariffs) are benefical to corporate earnings.
Or is he counting on a repeat of 2020? Does he really think that CEOs and consumers are that stupid? Maybe that’s not a bad bet.
Nah, you’re not confused, you’re spot on. Wall St “analysis” is getting lazy. And that’s been the right tactic in recent times, the Biden Bull Market has rewarded a lack of insightfulness. It’s also a sign that major players are getting lazy and will be caught wrong eventually. Some time soon, Michael Wilson will be avenged!!!
Folks, just by way of clarification, Mike Wilson (David Kostin, Savita Subramanian, etc.) aren’t comparable to Scott Rubner and Charlie M. We’re talking about two different “departments” here. They don’t have the same job description. I try to emphasize this from time to time because I know there’s no way for readers to know otherwise, but trust me when I tell you that there’s no comparison between folks like Charlie and Scott on one hand and Mike Wilson, Kostin, etc. on the other. Let me put it like this: Any first-year MBA student can read and understand a Mike Wilson or a David Kostin note. There are seasoned market veterans who aren’t capable of reading, let alone summarizing, a Charlie M. note. The same’s generally true of Rubner, although he goes a lot shorter on the word count. I don’t think a lot of folks have any conception whatsoever of this difference. Guys like Charlie and Scott know what they’re talking about. They’re markets guys. They live it and they breathe it. And their mandate’s entirely different from someone like Mike Wilson or David Kostin. I suppose it’s clear enough what I’m telling you here, and I don’t want to say it too explicitly because I don’t want to hurt any feelings, but suffice to say if I had to choose between getting Charlie / Scott -type notes and Mike / David / Savita -type notes (i.e., if I couldn’t have both), I’d never read anything from Mike, David or Savita again.
Just to kind of extend this, readers don’t seem to have a good grasp of how sales and trading notes are structured. When you say things like “I’d like Mr. Rubner to explain…” you’re unwittingly saying something that’s out of context. These notes aren’t really “notes.” They’re not “research” and they’re not “analysis,” really. It’s just ad hoc desk commentary, and it’s not generally amenable to debate because there’s no argument being made. In this case, for example, Rubner wasn’t making any claims at all about anything other than how the market’s been trading. Here’s what appears at the bottom of his notes: “All references to ‘we/us/our’ refer to the views and observations of the desk.” Again: This isn’t Mike Wilson. Or David Kostin. We’re talking about two entirely different kinds of color and commentary here.
” …if I had to chose between getting Charlie/ Scott type notes and Mike/David/ Savita- type notes..”
The company I work for has an acronym bot that helps new people decipher what all the alphabet soup means when trying to understand a more tenured persons notes. Sometimes I feel like that or something like it would be helpful to decipher the notes from Charlie and Scott… you know for the uninitiated amongst your readers. (Side Note- been a loyal subscriber for a while and still feels that way at times but I’m getting better… most likely a me problem 🙂 )
Not to give you any new business ideas that I’m sure you don’t need but I would pay for something like that as an addition to the site to make sure I am able to utilize all the many insights you bring us daily.
I’m choking on this, but good point on Rubner’s role! Thanks I did not catch that important nuance.
I put most weight on McElligot’s analysis because the flows he speaks about totally dwarf the price impact of flows from the dwindling numbers of fund (and hedge fund) managers who rely on “fundamental” analysis.
It seems a test of the 100-day MA is almost certain and with the nature of the last 5 trading days, I’d say chances of a test of the 200-day MA (meaning the 100-day MA fails to act as meaningful support) is better than 50/50. That’s where the real test is.
I don’t expect this to be the “big one”, but I wouldn’t be surprised if we drop >20% (from the ATH) over the next4” 4-10 weeks in pre-election/seasonal weakness. I also expect a swift recovery through year end into H1 of 2025 and new ATHs. I don’t see an actual recession yet without an exogenous event.
The market should be ashamed of its so-called correlation to Trump. Would investors collectively sellout their country for the perceived sake of an up market? If so then capitalism is in more trouble than one imagines. Investors are supposed to be prudent assessors of management talent: What’s up if the market collectively thinks Donald Trump is fit to serve as CEO of the USA on any grounds?
Nobody cares about anything (e.g., democracy) or anyone other than themselves. That’s the way of the world. And it’s not just capitalism. It’s self-preservation. I hear all the time about how people would take a bullet for their spouse or leap in front of an oncoming train to save their children, but if I’m honest, I’ve only met a few people who I’m absolutely sure would sacrifice their lives at the drop of a dime to save someone else. Those few people all had one thing in common: They were all dogs.
Ooooh, ouch. (And my daughter has two very smart field dogs I’m not sure would do anything crazy at the drop of a hat.)
The market thinks if Trump wins the market will (continue) to go up. Considering Trump follows the market as a personal scorecard, it’s seems like a decent bet. Nothing else really factors into it.
Yeah, that’s a popular narrative. But that hearkens back to a time in office when he was anxious to be reelected. This time he will not face that constraint.
Trump’s policies will raise prices for the average consumer and push inflation higher, cut taxes for corporations and the well-off, and increase the debt and deficit. With his plans to close the border and deport millions of working-age people, it will also put upward pressure on labor costs for SMEs. All of that will mean higher rates across the boad for longer. Higher labor costs, higher rates, more borrowing — I wouldn’t assume that overbought markets will respond favorably to that formula.
Since 1957, the average growth in the S&P has been ~1% better under democrats than republicans. The median growth has been ~1% better under republicans than democrats. Don’t bet the house on any of this. In the end it’s a tossup.
I think today’s Democrats look more like back-in-the-day Republicans than today’s Republicans do.
Agree completely, and you’re very far from the first person to make that observation… In fact it was old when this guy said it: https://thehill.com/policy/finance/137156-obama-says-hed-be-seen-as-moderate-republican-in-1980s/
Pretty sure the first time I heard it was about 2000, when a friend of mine founded the “Billionaires For Bush Or Gore” satirical “activist” group.