US equities headed into payrolls Friday gunning for a sixth consecutive weekly gain.
That’d be the best run for the S&P since October of 2024. The Nasdaq 100 was likewise tracking for a sixth weekly advance and US small-caps a seventh.
Headlines on Friday morning 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 +26%, 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?