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Peppesrtone, Chris Weston: The unstoppable US equity markets – The biggest risk to the momentum juggernaut

https://preview.redd.it/l5bay08ovn7d1.png?width=1200&format=png&auto=webp&s=36457b425a06c42f30a9e17689e5dcd4c5a28a71 Authored by Chris Weston With US markets closed for the Juneteenth holiday, and as we look ahead to a massive US quarterly options expiration on Friday, which could have big implications for equity markets and volatility next week, we look at the current trend in US large-cap indices and what could spur a lasting reversal of fortunes. S&P500 YTD gains coming predominantly from six stocks When could we see Nvidia reverse its bull trend? The big risk to markets Why market positioning is a factor to consider With the NAS100 eyeing 20k and the S&P500 pushing 5500, and with the knowledge that July is typically a solid month for returns in the NAS100 (the NAS100 has closed higher in July in all 15 of the last 15 years), the question of what derails this momentum move is one we hear ever more frequently from clients. Granted, all is not so rosy under the hood, where index market breadth has been poor, with participation underwhelming, suggesting the rally has been built on a shaky foundation. (NAS100 returns per month) https://preview.redd.it/a52jqhnyvn7d1.png?width=1384&format=png&auto=webp&s=4e039886f6d6e9a0637246cb31c42e7cdbb4f385 As many who have tried to short these indices – at least outside of a scalp or a day trade – will attest to, bearish directional trades have been tough, as we rarely get follow-through after a 1-day down move. Naturally, the question comes down to what rocks Nvidia, Apple, Microsoft, Meta, Alphabet and Amazon, given these six names alone have accounted for 60% of the S&P500’s 15% YTD gains. Conversely, only 30% of S&P500 constituents are outperforming the S&P500 YTD – the lowest read in two years. It has simply been a tough trade to bet against AI in its various guises – so until we lose these behemoths then pullbacks at an index level will likely be shallow and well-supported. https://preview.redd.it/kyx6gfp6wn7d1.png?width=1384&format=png&auto=webp&s=f48476d9f390b790b9142984fe6c3bc663209315 Nvidia remains the most important stock in the world, having now eclipsed Microsoft as having the largest market capitalisation globally. There has been some focus that corporate insiders (within Nvidia’s upper ranks) have recently been selling down holdings, but judging by the price action, few in the investment or trading world have seen this as a signal to reduce exposures – in fact, given the daily massive level of short-dated call (option) buying relative to puts, most market players continue to chase the intraday rallies. Maybe this dynamic changes as we head into US Q2 earnings, where Nvidia report on 23 August. Perhaps should Nvidia trade on a 55x-60x forward PE multiple (currently 50x) and where this quarterly earnings report should see a decline in gross margins into 75%, then perhaps this could be the time to rotate into other areas of the market. The big overriding concerns that could impact The scenario which would cause a lasting reversal in risk would be a trend towards deteriorating economic data flow, with labour markets cooling far quicker than many expect, consumption metrics pulling back rapidly and business and consumer confidence falling hard. If this was to occur, especially if inflation remains at current levels, or even rises, then all bets are off and we think about the Fed having to ease rates to stimulate the economy. However, if the US economic data flow is really going to deteriorate increasing the prospect of a recession, which would impact corporate earnings, then it isn’t going to happen overnight and could take months to fully evolve. We also know there is Fed insurance that supports risk sentiment, with the central bank ready to ease rates to a more neutral setting (considered to be 3.5% on the fed funds rate), should conditions warrant such action. We also know the Fed can very effectively utilize its balance sheet should it need to. Why sell equity exposure when the Fed have your back? The French election risk rolls on and there could be further volatility going into the second-round vote on 7 July, but it is not going to spur a correction in these big US tech names. Quite the opposite in fact, where capital will likely come out of EU assets and head to the US tech plays should we see increasing concerns. The threat of France leaving the EMU is also very low, even if the right-wing RN party get a working majority. The US Presidential election is not until 5 November, and it’s still too early to be expressing a view at this point. Again, it is early days, but the probability markets (and recent polls) currently suggest that Trump will likely be re-elected as President, with the Democrats flipping the House and the GOP getting the Senate. Granted, Trump will go hard on tariffs, but he’ll be just as hard on deregulating industries and that could be…dare I say it…. The trumping factor that sees US equity outperform. We can go on looking at the risk factors that could spur a lasting trend reversal, but one aspect that makes me nervous is equity and volatility positioning. Now positioning alone won’t be the cause of a more prolonged drawdown in the US500, US30, US2000 or even NAS100, but it would exacerbate the pace at which any sell-off happens. Positioning is the clear consideration The recent Bank of America Fund Manager survey, which canvasses some 238 money managers and accounts for assets under management of $721b, highlighted that fund managers’ cash levels are now at 4% – the lowest since 2021, arguing against the notion of ‘cash on the sidelines’ still ready to come into the market. Systematic trend-following funds (known as ‘CTA’s or Commodity Trading Advisors) are positioned max long of equity futures. While ‘risk parity’ funds – i.e. pension & insurance funds whose exposure to the equity market is calibrated to the level of realised volatility in the S&P500 – are also fully invested. We see the weekly CFTC report showing net positioning in VIX futures sits at -37k contracts – the biggest net short position ever. When in doubt sell equity volatility (vol), but as vol stays low,… Continue reading Peppesrtone, Chris Weston: The unstoppable US equity markets – The biggest risk to the momentum juggernaut

‘Awaken Your Madness’ By Nike

Mar Vista Investment Partners, LLC, an investment management company, released the “Mar Vista Focus strategy” first quarter 2024 investor letter. Hereby what was stated regarding NIKE, Inc. (NYSE:NKE): “NIKE, Inc.’s (NYSE:NKE) recent earnings report was a mixed bag. While revenue met expectations and earnings exceeded them, the stock price dipped due to management’s cautious outlook for fiscal 2025. The company is currently undergoing a period of internal restructuring and product line adjustments, which is expected to lead to flat revenue growth in the first half of the coming fiscal year. However, this transition aims to position Nike for long-term success. Our conviction in Nike remains high, and we expect it to emerge stronger and more competitive once the restructuring is complete despite the softer revenue forecast. Nike still anticipates earnings will grow around 10% in calendar 2024 and will accelerate to 15% in 2025 as execution normalizes.” Analysts and investors alike will be keeping a close eye on the performance of Nike in its upcoming earnings disclosure. The company’s earnings report is set to go public on June 27, 2024. Meanwhile Nike Football unleashes star-studded ‘Awaken Your Madness’ ad as the EURO kick off: https://www.youtube.com/watch?v=2xdXKNQYN2o Where to trade? You know 👉 https://track.pepperstonepartners.com/visit/?bta=38408&brand=pepperstone submitted by /u/FXgram_ [link] [comments]

First Merge, Then Acquire

The year 2021 turned out to be a record-breaking year in the history of mergers and acquisitions. Worldwide, deals worth a total of $5.7 trillion were concluded. The most high-profile acquisitions included Microsoft’s purchase of video game developer Activision Blizzard for $68.7 billion and Broadcom’s acquisition of cloud solutions developer VMware for $61 billion (including debt, which at the time amounted to $8 billion). Elon Musk also made headlines with his $44 billion purchase of Twitter. Additionally, Amgen bought pharmaceutical manufacturer Horizon Therapeutics, ProLogis acquired warehouse operator Duke Realty, and many other smaller deals – ten billion here, twenty there. What’s the gist? Both the number and volume of these deals are significant. Partly, the amounts are increasing due to inflation, but such deals are generally a sign that even huge companies are confirming the trend of merging and becoming even larger. The consolidation of corporate power into monopolies drives up prices and reduces quality. So why is no one fighting against this? submitted by /u/XGramatik [link] [comments]