If you were surprised by the last 30 min of trading action yesterday, analysts are blaming rebalancing. MS says that pensions would need to sell $22bn in global stocks and buy $17bn in fixed income to get to prior allocation levels. 60% of this year’s gains in the US have come from 6 stocks: NVDA, MSFT, META, AMZN, LLY, and AVGO. Can you blame anyone for diversifying and getting back to target allocations?
The ECM window is fully open, and blocks keep on coming. Yet corporates are in their blackout period, which GS says means -30% less buying from the typically greatest buyer of equities. Plus, month- and quarter- end means pension funds sell and rebalance, per the prior note. CTA’s are in a holding pattern for now, but GS expects them to start selling a little lower. What’s the sum of this? Not a great supply picture.
Lots of investors are focused on upside and not downside, per the chart below. Action in Reddit, DJT, GameStop…well, it has the “feel” of 2021. Yesterday’s action was due to small lots, which means individual investors are partying. Bitcoin is up 65% YTD. Should I continue the list?
JPM is saying that AAPL phone sales in China are hitting a wall, and there is chatter that the co will have to preannounce results next week because of the issue. If it’s true, expect any co with heavy China sales to suffer. Consider getting that hedge on. Other scuttlebutt is that AAPL is talking with Baidu about using its AI tech. That would certainly put a fire under investors to reconsider China tech shares. The co has its WW Dev Conference on June 10, when it is supposed to reveal its AI strategy. Something makes me think this cake is not fully-baked yet.
China’s industrial profits supposedly rose +10.2% y/yr. They have been known to fudge the numbers, but even if directionally this is right, then China could drive global growth (and markets) in 2024. Also, the new trade recommendation everyone seems to be giving (bet on materials) could work out.
Through its acquisition of Acceleron, Merck got the rights to Winrevair, which just got approved by the FDA. It treats a rare, fatal lung condition called pulmonary arterial hypertension. In other hc news, Moderna is headed into late stage trials with 3 vaccines.
Citi posted a positive catalyst watch on chipmaker Marvell before its April 11 AI event. Investors are hoping focus is on new stuff and not legacy declining stuff.
Gen X, we’ve got to cut this out. Too much credit card debt, alright? Americans owe > $1trn in credit card debt, and this isn’t where we want to be winning.
Yesterday I met with a key equity analyst at a major research shop, and I asked the tough questions. Why did your process get the macro call so wrong in the last 2 years, and was there anything you could do to adjust your process? Interestingly, most shops just focused on what they got wrong, but not whether and how they changed their process. I left unconvinced they improved. So, then the focus turned to whether their current calls (moving from bearish to bullish on equities) was now at the exact wrong time—so what were they recommending was non-consensus now? There was not really an answer. So, for the bulls out there, I showcase one area that has woefully underperformed this rally: US small cap stocks. They’ve had the worst performance run vs large cap peers in more than 20 years, per the FT. If you think things are great, you should look there. Another non-consensus play? Putting on protection now, since others aren’t.
Axios is out with a story about the Chatbot letdown. So, if you want a measured look at generative AI, it’s a quick read.
There’s only so much devaluation a country can take. For those riding the equity wave over in Japan, make sure you’re ready when the yen strengthens. That’s been a key part of the story this past year (yen declining). The yen dropped to a 34-year low.
S&P downgraded 5 regional lenders to negative because of their real estate exposure, per Reuters. Moody’s is considering downgrading Boeing because of safety and cash flow concerns, per Bloomberg.
I don’t care how you plan to vote, so don’t give me grief for this note. This is about trade odds. There’s a working paper that shows that the USD on ave increased +4.2% a year when Dems were in power and declined -1.3% when Repubs were in power. So, if you’re betting Repub + USD strengthens heading into Nov, then the data is not on your side for that specific trade.
None of this goes together, so be forewarned. First, Fisker chopped the price of its super cool Ocean by almost -40%. Can someone please buy this car company (hey, AAPL), since they make cool designs. Second, BBG is out with a story about the gov’s decarbonization plans incenting farmers to plant soybean versus corn. That is a huge shift for farmers. Third, Italy has been keeping the EZ afloat. Yet the Superbonus, a tax credit for eco-friendly home renovations worth 110% of their cost, has been a key contributor. It’s being pared back, so expect growth to suffer.
