Goldman Sachs: Trading Desk 01/31/2025
It was a challenging (and long) week. For the week, the S&P 500 fell 1% (EW -54bps), the Nasdaq rose 1.4%, and the Russell 2000 dropped 87bps, while the 10-year Treasury note fell 7bps to 4.54%. Before this afternoon's headline on tariffs ( WHITE HOUSE SAYS TARIFFS ON CANADA, MEXICO AND CHINA WILL BEGIN FEBRUARY 1 ), stocks were primed to close the week flat to slightly higher.
It was a week marked by three main factors:
Tariff fatigue
Deep search for opportunities
Better business results despite high expectations.
Flows on our desk were balanced: traditional mutual funds (LOs) ended as net buyers with +$1 billion, while hedge funds (HFs) were net sellers with -$1.5 billion. Our desk closed with a buying bias in Consumer Discretionary, Technology (especially Software), Industrials, Energy and Healthcare (in that order of magnitude). There was no sector that stood out materially in sales despite the volatility.
Best sectors of the week: Expensive software, secular growth and obesity drugs (+2-3%), along with Chinese ADRs and regional banks (+1.5%).
Worst sectors of the week: Bitcoin (-10%), natural gas (-6.5%), copper and infrastructure (-5%).
Technical highlights (Bartlett):
The biggest selling pressure occurred on Monday and has been easing since then.
Most are still in “data collection mode,” but the belief in AI operations remains very strong.
Buyers are positioned higher (i.e. price can dictate sentiment in these thematic areas).
Micro data points are driving changes in sentiment (example: AVGO over NVDA).
Leveraged ETFs have exacerbated price action.
Earnings season:
The earnings bar is higher this quarter: 8% year-over-year growth is expected for the S&P 500 (vs. 3% consensus ahead of 3Q24 reports). So far, 4Q is tracking at 9%. More companies are beating expectations and fewer are missing compared to usual. Positive surprises are being rewarded, but misses are being punished severely.
The 14% market cap of the S&P 500 is scheduled to report next week, with a bias toward Consumer Staples, Healthcare and Materials. We will also be watching for increased Fed statements as the group emerges from the blackout period following this week’s FOMC meeting.
Upcoming macroeconomic events:
Monday : US ISM Manufacturing
Tuesday : JOLTs (job openings in the USA).
Wednesday : US Services ISM
Thursday : Bank of England decision (25bps cut expected).
Friday : Employment report (NFP).
PB Trading Flows:
Hedge funds sold US stocks for a fifth consecutive week (-1.3 standard deviations from the last year), driven by short selling and, to a lesser extent, long selling (1.8 to 1).
Industrials : One of the worst performing sectors in the US this week and posted the largest net selling in over five months (-1.4 standard deviations), driven by both long and short selling (~7 to 1).
Energy : Increase in short position activity over the last five sessions and net selling for the fifth consecutive week (6 of the last 7, -1.8 standard deviations), with both short and long selling (4 to 1).
Overall, industrial results have been mixed. 2024 trends remain in place (strength in aerospace/airlines/data centers; weakness in chemicals and transportation). Lots of idiosyncratic developments at companies like UPS, PPG, LMT, JBLU, ASH, OLN , with upside surprises at GE, KNX, NSC, TOL, RCL, MMM, PH .
Expectations are focused on Monday's ISM, the final third of the earnings season and the February conference in two weeks.
For the week ahead: CMI, APD, CNH are the most crowded long positions; HON, ODFL the most short, and TDG, BALL, EMR the most discussed. (Novak)
