Goldman Sachs: Trading Desk 06/25/2024
S&P rose 39 basis points, closing at 5,469 with a $2.1 billion market-on-close (MOC) order to sell. NDX rose 116 basis points, closing at 19,701; R2K fell 44 basis points, closing at 2,043; and the Dow fell 76 basis points, closing at 39,12. 10 billion shares were traded across all U.S. equity markets, compared to the year-to-date daily average of 11.5 billion shares. VIX fell 368 basis points, closing at 12.84; crude oil fell 104 basis points, closing at $80.78; 10-year yields rose 1 basis point, closing at 4.24%; gold fell 57 basis points, closing at 2,331; The dollar index (DXY) rose 15 basis points, closing at 105.63; and bitcoin rose 4%, closing at $61,947.
The mood was eerily quiet with most waiting until the MU results after the lockdown tomorrow (the next big AI data). Market volumes decreased by 16% compared to the 20-day moving average. The highlight was the rally in IA/Momentum, with NVDA rising 7% returning to its usual upward path (as a result of the disappearance of several technical dynamics that had been pressuring the sector in recent days). AI and Bitcoin sensitive sectors rose between 2-3%, while Value, Beta and some consumer segments, especially Housing, fell between 1-3%. Big brands (such as HD, LOW, TSCO, etc.) were under pressure due to notable weakness in POOL (-8%).
End of month pension rebalancing has -$11 billion to sell (no significant impact). Technical advisors have -$1.4 billion of US stocks to sell for the rest of the week, and corporate demand has slowed a bit as we are in the middle of the blackout period (0.87x the nominal daily average for the year executed). It's worth noting that our PB data yesterday showed the largest net selling of individual stocks since December (1-year Zscore of -3.2), driven by both long and short selling (2.5 to 1). 8 of the 11 sectors were sold net, led by Information Technology, Consumer Discretionary and Healthcare, while Materials, Real Estate and Industrials were the only ones bought net.
We are active in 3 ECM transactions in WBTN (IPO), LB (IPO) and BIRK (O/F). Our trading desk was a 4 on a scale of 1 to 10 in terms of overall activity levels. The flow executed on our desk ended with a selling bias of -913 basis points today compared to the 30-day average of +93 basis points, driven by approximately $1 billion in supply from the long-term technology investor community of information and discretionary consumption. Our desk noted a material reduction in institutional bidding on NVDA today (this action remains the “tone setter” for the broader group). Hedge funds ended balanced, with an increase in risk in Momentum; The sectors purchased net by this group were energy and communication services, while the best sellers were financial and health.
CCL rose 9%, a pleasant surprise as cruise stocks are finally reacting well to positive updates. AFTER THE CLOSE: FDX up 15%, with a low bar ahead of today's report. Q4 EPS was $5.41 compared to $5.34, guiding FY 2025 EPS to $20-22 compared to consensus of $20.85 and expectations in the $20 range by the midpoint.
DERIVATIVES: Lower volume session today, with 37.6 million options traded compared to the one-year average of 42.4 million. The flows consisted mainly of volatility selling, specifically in the space of 1 year. This was seen in 2 ways: real money accounts buying put spread collars and players in the volatility arbitrage community selling strangles. The SPX range was 48 basis points as dealers are currently long >5 billion SPX gamma locally. It is important to note that this length doubles to ~10 billion with just a 1% move to the upside. In the individual stock space, one trade we like is AMZN's July upside, especially in the form of calls and call spreads. Volatilities look attractive and the premium should hold given the proximity of Prime Day on July 16-17. The straddle for the rest of the week is at 82 basis points. (h/t Braden Burke)