Goldman Sachs: Trading Desk (01/13/2025)
The S&P rose +16 basis points, closing at 5836, with a MOC of $1 billion buy side. The NDX fell -30 basis points, closing at 20784; the R2K rose +24 basis points, closing at 2194; and the Dow rose +86 basis points, closing at 42297. 14.9 billion shares were traded across all US exchanges, versus the daily average for the year of 16 billion. The VIX fell -154 basis points, settling at 19.24; crude oil rose +281 basis points, reaching 78.72; the US 10-year Treasury bond yield rose +3 basis points, closing at 4.79; gold fell -105 basis points, settling at 2661; the DXY rose +18 basis points, closing at 109.84; and Bitcoin fell -78 basis points, closing at 93,577.
The session was intense (with SPX finally ending +16bps; flat weight +82bps) following the continuation of Friday’s sell-off following the higher than expected jobs data, as higher yields continue to weigh on sentiment and crude oil breaks higher (~$78+) following the latest round of US sanctions against Russia last week (WTI back to October highs). Airlines fell -3% due to rising crude oil prices, which is starting to create a headwind for EPS in the near term. Counterintuitively, given the moves, last week’s PB data stands out: US energy stocks were net sold in each of the last 5 sessions and experienced the largest net selling in over three months (-2.5 standard deviations). Long-term nominal net selling in US energy last week was the largest in over eight years.
The decline in tech was driven by a correction in longer-duration segments within TMT (such as unprofitable tech, growth assets, etc.), which makes “directional” sense given the rate developments we’ve seen. NVDA fell -2% on reports of Blackwell issues and AI chip restrictions by the White House. It seems most TMT investors are trying to gauge what is priced in to Q1 guidance and 2025 outlook, given the challenging macro backdrop and modeling variables… ‘wait and see’ (buy) approach. Investors remain cautious ahead of CPI (and more broadly on inauguration/tariff risk in the week ahead). We estimate a 0.25% increase in core CPI (seasonally adjusted monthly), which would leave the YoY rate unchanged, rounded, at 3.3%.
Our overall activity level was 6 on a scale of 1-10. Overall executed flow ended at -48 basis points versus +12 basis points for the 30-day average. Limit orders (LOs) ended as net sellers of $600 million, driven by macro expressions in technology and lower supply in staples. LOs were net buyers of financials, consumer discretionary, and healthcare. Hedge funds (HFs) ended broadly balanced, being net sellers of technology versus buyers of communication services, healthcare, and financials.
In the healthcare sector (HCare), positive signals were seen during the JPM HC conference. This was most evident in subgroups with elevated fundamental uncertainty or near-term overhead, with (1) Managed Care (UNH, HUM, CVS, all up) following a better than expected initial MA Advance Notice – the desk bias was 3:1 better to buy on MCOs today following MA advance rates. (2) Life Sciences/Tools up – RVTY +7% (outperformed with 6% organic growth vs. 4%) and TXG +1% (outperformed on instruments). A similar dynamic of reversal of recent laggards was also observed in some segments (see NVRO +22%, OPCH +15%, PGNY +8%, etc.), while more popular long names lagged despite positive updates (see MDGL -11%, NTRA -3%, ISRG -1.8%, Distributors).
There were several retail updates from ICR, which were generally better (though not unanimous), although the winners vs. losers theme is still very much present after some dispersion in trends. Some quick points from Feiler: 1) Most stocks are down significantly, with either good or bad results; 2) The problem is that the disappointments (ANF -15% and Macy's -7%) stand out more than the good results (BOOT/LULU), which were already expected to be good. 3) URBN -2% and AEO -5%, despite clear good revenue results for both. (link)
Derivatives: Intraday price action remains very similar to what we have seen over the past few days, but possibly even more dramatic than on Friday. The market fell overnight, with volatility and bias to the upside leading up to the open. After the open, volatility moves have been completely unidirectional as volatility and bias have continually declined. On Friday, that move ended up reversing towards the close, but so far today we have seen almost zero bounce in volatility as it returned to the 100-day moving average on SPX spot. The desk recommendation remains the same: we prefer spread trades over outright option trades, and we like short volatility and bias positions here as both are still at elevated levels compared to where they have traded over the past year. (h/t Joe Clyne)