US equities hit new records on payrolls Friday, scoring a sixth consecutive weekly gain in the process.
It’s the best run for the S&P since October of 2024. The Nasdaq 100 likewise logged a sixth weekly advance and US small-caps a seventh.
Headlines on Friday fretted about the resumption of open hostilities in the Strait, where the US blew up a few more IRGC speedboats and struck coastal positions in Iran. Donald Trump said the ceasefire’s still intact. He again urged Tehran to sign his one-pager so everyone can move on.
As the simple figure below shows, stocks “moved on” as soon as Trump pivoted.
US equities notched gains every week since I said Trump should “take the win” on March 29.
The rebound in close-to-close spot SPX, remarkable as it is, doesn’t do the move justice. The intraday low-to-high for Nasdaq 100 futures from the late-March lows to this week’s record was +28%, for example.
Under the hood, the single-name gains are breathtaking. “Those index-level moves are understating the insanity we’re seeing,” Nomura’s Charlie McElligott said, referring to the table on the left, below, which shows the trailing one-month move in the biggest gainers.
The figure on the right, above, shows you the largest contributors to the six-week big-cap rally.
“As long as the two core constraints in the battle for the new-world hegemonic order are compute and energy, this is gonna crash up before it eventually crash[es] down,” Charlie added.
As discussed here last week, mutual funds don’t (can’t) own enough of what’s working. Insult to injury is that in addition to comprising the lion’s share of the FOMO surge off the Iran war lows, that same “stuff” (your semis, your big-tech and other AI-adjacents, your oil & gas, etc.) is where the fundamentals are strongest in terms of EPS revisions.
But mutual funds aren’t alone in under-capturing and under-performing. Macro funds, whose rates bets are now just a derivative of any given day’s move in crude futures, which is in turn a function of Trump’s TruthSocial feed, are likewise missing out.
The figure above, also from McElligott, gives you a sense of the pain.
But the most eye-watering attestation to under-positioning comes courtesy of index options skew, where 100%ile (on a one-year lookback) steeps “went to zero,” so to speak.
The figures below are quite something. They illustrate what happens when an equity market that’s over-hedged for a left-tail calamity versus no interest whatever in “protecting” against a right-tail outcome meets a melt-up.
“People who don’t have the exposure on are grabbing into calls, while puts die,” McElligott remarked.
In the same note, Charlie revisited the up-day vol versus down-day vol ratio mentioned here on April 26. A fixture of so-called “crash-ups” is higher vol on days when equities rally.
The figure below constitutes the proverbial “chef’s kiss” from McElligott.
So far in May, realized vol on up days for big-tech is seven times that on down days.
That “evidenc[es] panic” capitulation into the rally, Charlie wrote. “It shows the grab into upside vol, and reminds me of the line in Top Gun: ‘Because I was inverted.'”
If you read Hassett’s propaganda this morning it basically says:
The “Warsh Put” is Now State Policy. Hassett declared “I think we’ll see rate cuts this year because of Warsh.” This is a breathtaking structural break. White House just went on record stating that the Federal Reserve will cut rates because of the incoming politically-appointed Fed Chair, explicitly stripping away the illusion of central bank independence. A market dip will be actively managed by the Government, suppressing market signals, crushing any bearish positioning.
So if you’re looking for a bear take, you may need to look down the road a pace for when State vol-suppression runs out of ‘umph’ and State statistics start to noticeably misalign with reality. That could take a couple years. It works for China… In the meantime, don’t fight the Fed (which is now the Treasury/CB as a combined politically controlled institution) and don’t fight the passive flows the Upper K is piling into Tech and Exxon.
Oh yeah, what about the lower “K” economy? Who cares! The poor don’t have any money so f*ck them…
Not to be abrasive, but this has been state policy since 2008. The statement, “A market dip will be actively managed by the Government, suppressing market signals, crushing any bearish positioning” describes every, single trading session looking back to Bernanke. This is another case where we’re pretending something’s new (or worse or more acute) just because Trump’s involved and we don’t like Trump. It’s the same thing with the Iran war. If you read some of the liberal media coverage, you’d think this Iran boondoggle was worse than Vietnam and Iraq.
Bernanke in WaPo ca. 2010: “With short-term interest rates already about as low as they can go, the FOMC agreed to deliver [more] support by purchasing additional longer-term securities, as it did in 2008 and 2009. This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate this additional action… Lower corporate bond rates will encourage investment [a]nd higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”
You reckon he wasn’t aware, by then, two years into QE, that those policies disproportionately benefited the people who owned the most corporate bonds and stocks? And you reckon Janet Yellen was likewise unaware?
I mean for Christ’s sake, at one point in the summer of 2019, €1.1 trillion of European corporate bonds yielded less than zero. That was half of the entire € IG corporate credit market! Point being, this isn’t a Trump’s America thing. This is a post-GFC, global advanced economy standard operating procedure thing.
I hear you, but GFC was nearly 20 years ago, and the US still has to stim like an Adderall addict to keep the plates spinning. I may have a long wait to see the stimulus run out. With any luck, I’ll be dead by then.
exactly. And quickly followed by march 2020 “every thing it takes” approach by the fed. I got severely burned by that one. Never again.
Madness is the operative word here. We are totally detached from reality on certain stocks!
For 10 days, I owned MU. By day 10, I felt like I was in Vegas. I don’t care if it continues to go up because I sold at what was already a nonsensical, overvalued price. The analyst community is expecting EPS decreases (not increases) for MU after 2028 (I’m guessing that many of those people/ machines pressing the “buy button” are clueless). At least with Microsoft, Nvidia, Broadcom etc. the growth line continues to go up over time. My MU lotto ticket was a winner and I cashed in at the window. Now, I’m back in SPY, where I can sleep ( along with the help of 250mg magnesium glycinate).
I’m not afraid of being fully invested in equities, either. I’ve been fully invested since 2012/13, except for Feb2020- August, 2020, when I was freaking out about covid. This, however, is nuts. I had to sell a stock that I’ve been in since 2012 because the price went up to over 150% of what I thought it was worth. They just announced earnings, which were good- but not out of this world, and the stock tanked almost 25% in the last 2 days. Now, I plan to repurchase. I have always been a “buy and hold” forever- but times, they are a changing and one better be prepared to change along with the current situation and go with the flow!
GLTA
🙂
Instead of “go with the flow”, I should have said “adjust your investment approach to account for the changes in the current investment environment“.
“Please note, the Captain has turned-on the ‘zero gravity’ sign, you may now feel free to float about the cabin.” “Please remember to: unbuckle slowly, push-off surfaces gently, watch-out for flying objects, and avoid colliding with other passengers.”