New Year, New Low!
After a shallow rally, Chinese hashtag#equities just made a new low. Down 15% from their peak in May last year, down 22% from their 2021 peak. Sources: Jeroen Blokland, Bloomberg
Long positioning by CTAs is extreme and creates some downside risk for the market.
According to UBS: "ES1 (sp500 futures) is already 100% long with first meaningful sell triggers @ -4% to -6%. NQ1 (nasdaq) is 92% long with first meaningful sell triggers @ - 4% to 6%". Source: TME, UBS
ENERGY STOCKS SINCE 1926 (relative to S&P)
Source: BofA, The Daily Shot
Goldman believes that the 5% EPS forecast for sp500 is too low as a strong economy and falling interest rates should lead to positive surprises
Source: Bloomberg
BofA Harnett: "...new 'BRICS 10’= 51% of global CO2 emissions, 46% of population, 45% of energy consumption, 45% of oil production, 37% of GDP (at purchasing power parity)…
yet <25% of global market cap, and EM equities also at 52-year low vs. US" Source: BofA, TME
This year is just the fifth time that the S&P 500 has started the year with back-to-back declines of 0.5% or more
Source: Bespoke
One of the major risk for equity markets in the short-run is Euphoria that prevailed at the start of the year. In other words, positioning is uber-bullish and can only go down from here
As Goldman trader Cullen Morgan writes, after 9 consecutive weeks higher in the S&P (quite a rarity), sentiment and positioning in US equities is very stretched. On the positioning front, US futures length (see chart below) now stands near record highs. In past instances when non-dealer positioning has been greater than $130bn, near term returns have been strong, while returns further out (3-months to 1-year) tend to skew more negative… With the latest data at +$158bn, Goldman traders are very wary of this now being a larger headwind. Similarly, CTA positioning in US Equities is approaching 2023 highs. Bottom-line: any geopolitical or macro news (e.g too hot US jobs print) might lead to higher bond yields might might put some downside pressure on equity markets.
Correlation between Equity and Bond returns
Source: BlackRock, Ayesha Tariq, CFA
