Uddrag fra Zerohedge:
The so-called ‘broadening out’ trade was beaten with the ugly stick today with markets higher, led by AI favorites, Semis, and a big bounce in momentum (completely ignoring Trump’s Canada tariffs).
Given the biggest gainers, it is no surprise that Nasdaq led (followed by Small Caps – squeezed) the US Majors higher (and this time sustained gains, unlike yesterday’s give back, as 0-DTE traders supported the rally all day). The Dow was the laggard but all the US majors ended green on the day (helped by the ‘old levered etf rebalance panic bid’ into the close…
Breadth is thin with S&P Ex-AI flat while AI Leaders led the way…
Goldman’s traders noted that exchange volumes remain light, currently tracking -17% vs the 20DMA. ETF % of tape has eased from last week’s ~30% level, currently sitting at 26%. Top of Book Liquidity sitting at $6.83M.
Activity levels are at a 3 out of 10 on the desk with the floor skewed 6% better to buy
- LOs are currently for sale with supply in comms svcs, materials, and cons disc vs demand in info tech and energy
- HFs are currently skewed 3% better to buy with demand in info tech, hc, and cons disc vs supply in cons staples and macro products
Semis soared over 5% today – the best day in six weeks…
…but remain below the 50DMA (for now)…
Momentum rebounded dramatically (up over 9% after failing to rebound during yesterday’s session) back above its 200DMA…
…with its best day since March 2021…
Today’s outperformance in large part due to the long leg of mo/ 12 month winner themes…
All amid a major short-squeeze (biggest in over a month)…
The strong gains today in high-beta momentum stocks, led by AI-capex winners, shows positioning had become too negative after the sector’s worst week in more than a year.
But, as Bloomberg macro strategist, Michael Ball, notes, it is too early to declare the correction complete.
Put demand remains elevated across semiconductor ETFs and former AI winners, while negative gamma in the Nasdaq, semi-ETFs and many related single stocks leaves dealers chasing moves rather than suppressing them.
Monday’s rally and today’s follow-through so far show that dynamic can also amplify buying.
Historically low correlation has contained the momentum selloff heading into earnings, and extreme dispersion should persist as company-specific results dominate.
Yet, dealer positioning has become less supportive around 7,400 and 7,500, leaving the S&P 500 more prone to larger swings.
Monday’s momentum rebound helped cushion the index but rising demand for downside protection shows investors are growing less confident that a rotation out of past AI-winners is enough to hold up the tape.
Before we leave equity-land, we would be remiss if we didn’t highlight the fact that earnings season is really heating up this week: 113 names (18% of S&P market cap) report…
GOOGL Wednesday is the print of the week with all eyes on the full-year ’26 CapEx guide, where a raise is expected and should give insight into the trajectory of AI spend this year.
Rates
The hyperscaler world is not all sunshine and rainbows, however, as despite some stability in the mega-cap tech stocks, credit spreads hit a new high…
Goldman’s IG Credit boss, Kevin Boova, warned that “things feel a little fragile again in hyper/AI/DC world.”
1/ Top down … We just raised our supply forecast from 2trn to 2.15trn
2/ Return of the jumbo deal – In just ~half the year we have seen 10 deals of $20bn or more, that compares to only 11 over the previous 7 years combined. 9 of the 10 jumbos deals were in TMT.
3/ End in sight? No. Still think early innings.
Additionally, while SPCX had a good day in equity-land, its bonds did not…
Rising oil prices are weighing on the rates market (amid a very quiet macro week) with both July and September rate-hike odds rising today…
“As we have seen, energy prices have been volatile and realized data – not just projected headline CPI moves – should dominate the Fed’s decision making calculus,” said Christopher Hodge, chief US economist at Natixis.
“That said, the reaction function of the Fed under its new leader is far from certain.”
Yields surged higher again today (led by the short end, 2Y +5bps, 30Y +2bps), erasing the Treasury price gains that followed the softer-than-expected inflation report released last week…
Some of the market’s move has also been exacerbated by lower-than-normal trading volumes.
The long-end of the curve is now trading at two month highs…
“Today’s move is largely just a function of the continued rise in energy prices,” said Izaac Brook, a rates strategist at RBC Capital Markets. “The rates move has been exacerbated by the break back above highly-watched technical levels” — of 4.20% in two-year yields and 4.60% in the 10-year’s — “and typical summer trading conditions.”
With Bloomberg’s Cameron Crise suggesting the long bond is on the verge of cementing 5% as a floor instead of a ceiling.
With the 50-day moving average yield now over 5%, and the 100-day average not far behind, 5.5% is the next obvious target.
It’s also a level that would roil equities, particularly as upside economic surprises drive yields higher and create a resulting negative impact on stocks.
Everything Else
The dollar rallied strongly today (to the upper end of its recent post-Warsh-spike downtrend) as oil prices dragged yields higher…
The Loonie weakened modestly on Trump’s new tariffs (and also a cooler than expected Canadian CPI)…
The Yen puked to 163/USD, prompting more chatter regarding risks of intervention…
Despite the dollar strength, gold rallied back up to $4080…
…and as ETF inflows continue to build again…
Bitcoin rallied up to $67,000 before fading a little…
Finally, returning back to equity-land, both Goldman Sachs and UBS were out with notes suggesting the momentum meltdown is over.
After its best day in over five years, Goldman’s Julia Mensch reminders readers that they flagged last week that the Momentum Meltdown appeared to be in its later innings.
With positioning now materially cleaner (GS PB momentum exposure is at 64th percentile over 1yr and 93rd percentile on 5 yr lookback ) and no new fundamental catalyst behind the selloff, we believe momentum has room to re-trace towards its long term trend and the selloff could be a good opportunity to add momentum exposure or buy the dip in AI given the high correlation between AI and the Momentum trade.
Goldman’s sector specific TMT Unconstrained Momentum Pair is also posting its best day on record (+11.5%) and the GS Broad AI Pair is up 7.3%, its best day since the launch of ChatGPT…
Michael Romano, head of hedge fund equity derivative sales at UBS, confirmed Goldman’s optmism in a note to clients, saying that improving AI fundamentals are a signal to buy the dip.
He advised investors to gradually enter into positions rather than rush back all at once.
“The momentum de-risk was and remains a conviction call,” Romano wrote.
“Scaling into a position is prudent.”
He expects the momentum unwind to bottom by the end of July, if it hasn’t already.
“I’d expect a liquidity bubble to the upside when things turn,” Romano wrote.
However, Goldman is a little more conservative, stating that given the potential for continued volatility (extremely elevated vs history) in the near term (earnings bonanza imminent)…
…they continue to favor limited-loss structures to gain exposure.
