Uddag fra Goldman:
“The intensity of this market environment remains striking,” says Goldman Sachs head of hedge fund coverage, Tony Pasquariello, in a brief note reflecting on a rough week (or few days) following weeks of incessant climbing.
Away from the trading floors of 200 West St., many of the folks I speak with believe this is the most fundamentally dynamic period they’ve ever seen.
Now, for the first time since March, this week brought a sharp retracement, with notable pressure on consensus positions.
To illustrate this, the long leg of our flagship momentum basket (which had rallied over 50% off the recent lows) dropped 10% yesterday alone…
Here’s a quick check-down on where we stand:
1. Flow-of-funds / Positioning.
Here’s how I’d characterize a few of the large muscle groups:
i. retail: the biggest sponsor of the market continues to buy. this is clear in weekly fund flows (including levered ETFs) and at the single name level (one third party argued that recent activity rivals the bonanza of early 2021). while I don’t think the tachometer has fully gone into the red just yet — and most of the capital today is flowing into the most profitable companies in the world, not meme stocks — households have added to their plate.
ii. hedge funds: heading into yesterday, per GS PB, gross exposure was in the 99th percentile and net exposure was in the 96th percentile. in addition, CTAs have carried a significant amount of length. finally, before Friday, there had been very little interest in downside protection (hence the meltdown in put-over-call skew).
iii. corporates: yes, a chop of new issue is coming off the assembly line. with that said, I’d flag that our buyback activity is running around 2x the standard pace of recent years. I’m not saying the net balance isn’t shifting — I’m simply saying that company demand should continue to outweigh supply this year.
2. The US.
Wednesday brought the single largest capital raise in US equity market history (nearly $50bn).
The stock traded well and closed the week above deal price.
So, as we wade into a period that will bring more new issue, I’d characterize that as a good start.
3. Korea.
The KOSPI was not immune from some consolidation this week.
Along the way, two items stuck out to me:
i. YTD, domestic investors have bought $69bn of Korean stocks … while foreigners have sold $75bn (including $10bn this week).
If that second part is confusing given most everyone you know has some skin in this game, I was too.
Here’s what I learned: single stock concentration limits have forced long only managers to consistently trim the names at the very top of the index.
ii. Bigger picture, KOSPI is up 95% YTD.
Predicated on the durability of this memory cycle, Tim Moe raised his 12-month price target to 12,000 (+47%).
It’s here I’ll underline his expectation of — ahem — 320% earnings growth this year.
4. Japan.
Kioxia is a company that went public as recently as December of 2024 (on a $5.6bn valuation).
I confess to knowing virtually nothing about the name; given the Outlook spellchecker also didn’t know it, apparently I’m not alone.
After a 3,216% rip over the past 12 months, it’s within striking distance of being the single largest company listed on the Japanese market.
What sector are they in? memory, of course.
My only point here is to register how quickly — and how significantly — the world is moving.
Three charts for the road:
i. in the wake of a firm run of US economic data — including the strongest employment report we’ve seen in at least a year — our US cyclicals-vs-defensives (ex-commodities) basket made higher highs this week:
ii. as you’ve probably heard by now, realized correlation within the US equity market had been collapsing (even on a day like yesterday, nearly half of S&P constituents finished higher):
iii. to follow on from that last chart, note the dispersion of returns at the GICS level 2 of the market (these skews were even more pronounced before yesterday’s reversion):
* * *
So with all that in mind, given the recently torrid pace of the rally, perhaps a breather was in order – and it underscores two instincts:
i. when the market offers cheap insurance to protect your longs, take advantage of it.
ii. keep a close eye on the rising volatility of the momentum factor.
So, as we head into another big week, I agree with those who have been-there-and-done-that: this is a historic time to be engaged in the markets.
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