Goldman Sachs: Tactical Flows
We are seeing all-time highs again in US stocks after low participation and a very random week in week 1. Investors are incredibly engaged and actively trading in the market, which was not the case last week. Investor performance against benchmarks has been strong to start the year as clients looked for any weakness to add to. Four incoming themes:
I. Fastest Non-Fundamental Trading Community Stock Investors Position Is Near Long High. The assets under management are small, but the impact on the market is large around the opening and closing.
II. The position of investors in household stocks is not long and they are exiting the money markets. Assets under management are massive, but market impact is low, with trading behavior of VWAP. This group is investing capital in stocks through active mutual funds LO, we've been busy.
III. The position of the fastest trading strategies can remain in an extended state, as long as there is no sudden volatility, while everyone else comes into play. I'm seeing a steady rise rather than a sudden jump.
IV. Resurfacing? My favorite long-term expression from here is Chinese and emerging market stocks. There are new vibes in China that started today.
Tactical Funds Flow: Checklist
Week 1 Offer Faded: Week 1's 2024 tax-related offer faded (something that actually carried over from 2024 after the year-end $1.5 trillion in mutual funds) and funds pensions finished their rebalancing out of stocks and into investment grade bonds to start the year (by the way, LQD saw the largest net inflows ever recorded this week). Equity exposure is now at historic lows for this group.
Gamma, this is new. The S&P 500 Index gamma is now long only ~740 million, this is the smallest long position since November 1st. The gamma reached almost $10 billion long at the end of the year. This was one of the largest two-day gamma drops in our data set. This is important. The market can finally move more freely (up or down, but we should expect the market to move more frequently and more volatilely). The trading outlook is that brokers will be sold short if there is a chase for all-time highs.
Earnings: The earnings expectation for Q4 is too low and there is some bullish FOMO behavior as the net exposure is not long enough on these releases.
Corporations begin to come out of the silence window starting tomorrow. Currently, 85% of the S&P's market cap is in the silent window. The GS silence window opens again on 01/29/24. Today is the peak of the window of silence. This triggers a $5 billion VWAP per day behavior later this month.
January equity inflows into M7, CES conference euphoria and retail enthusiasm have created huge demand for winners. NVDA traded 1 million call options on consecutive days.
US Gross Fundamental Exposure is near all-time highs, while net exposure is too low.
Long Only Demand for GS has been strong, we have seen demand for large cap technology. There is no tolerance for losing the benchmark so early in the year.
KEY LEVELS: CTA trigger levels are way off, but systematic exposure is close to long maximum. This is disturbing, but perhaps not for today.
By Scott Rubner