Goldman Sachs: Trading Desk 07/19/2024
CRWD/MSFT…CROWDSTRIKE SUFFERS MAJOR OUTAGE AFFECTING CUSTOMERS WORLDWIDE – CNBC… “Amid widespread global technology outages reportedly related to Crowdstrike’s most recent update and affecting computers and IT systems in nearly every part of the world, major US airlines grounded all flights, some US bank employees are unable to log in, the UK’s LSE and major oil and gas trading platforms experienced technology issues, airports in the EU and Asia reported system incidents with some flights failing to land, while UK supermarkets, key Australian banks, energy firms, media companies and government offices were also experiencing outages, and Australia’s National Emergency Service is holding a meeting. Crowdstrike is now reportedly globally rolling back the update; It is currently unclear whether the return of Sky News to the air and the lifting of the grounding order by American Airlines are related to a successful solution. Amazon's AWS made a statement that A…
TONY P MACRO… “Is the character of the market changing? The combination of two powerful forces in a short period of time – a CPI-induced shift in Fed expectations and a turnaround in the election outlook – lit a spark in the unpopular parts of the market mentioned above. Perhaps the most unpalatable example was small caps, which experienced their largest short-cycle rally since COVID and the largest outperformance over the NDX in several decades. I admit I’m having a hard time with the RTY at the moment – it had broken out and is in a position to benefit from a friendly interplay between growth and inflation, but I’m not sure the surge was more than a moment in time (similar to what we saw in late 2023, when the market went nuts on the prospect of tapering). My conclusion: If you need to have upside protection in the out-of-favor parts of the market, I don’t have a huge problem with that — again, the cost of protecting either end is still reasonable these days — however, I don’t think one should commit to low-quality exposures at this point in the cycle.”
GS PB UPDATE… Here’s a quick rundown of yesterday’s major US flows. Risk-off continued, although our data suggests the full speed of risk-off may be behind us for now.
Overall, US stocks saw risk-offs for the seventh consecutive session (but at a slightly slower pace compared to Tuesday/Wednesday), driven by long selling > short covering in a ~3 to 1 ratio.
Macro products (indexes and ETFs combined) sold off moderately, driven primarily by long selling. ETF shorts rose 2.3% (the largest increase in a month), led by short selling in large-cap, small-cap and technology ETFs.
Individual stocks sold off net gains for a 10th straight session, albeit at a slower pace compared with Wednesday, driven by long selling > short covering in a 2.5-to-1 ratio.
All 11 sectors saw divestment activity, led by information technology (long + short covering), financials (long > short covering), industrials (long > short covering), healthcare (long and short) and consumer discretionary (long and short).
FOCUS ON FACTORS…
OFFICE ACTIVITY… Total executed flow on our desk ended with a selling bias of -3% today compared to the 30-day average of 28 basis points. Limit Orders (LOs) ended as net sellers of -$1.2 billion, driven by supply in tech and discretionary. Limit Orders were net buyers of macro, energy and financials. Hedge Funds (HFs) ended as net sellers of -85 basis points, driven by supply in commodities and tech compared to scattered hedges in discretionary. HFs VIP Longs versus Shorts ended at +292 basis points (GSPRHVMS), driven by short leg work. Shorters -340 basis points (GSCBMSAL).
AMZN…Amazon.com Inc: WLWT Reporter: Amazon officials at KCVG tell me there have been NO flight delays due to the Microsoft outage. This is just two days after Prime Day concluded. That hub at NKY is the largest air hub in Amazon’s network. Multiple flights at CVG have been affected.
TODAY’S EXPIRIES… Today is $2.7 trillion worth of US options expiring. Biggest July expiry ever: AM=$1.3 trillion / PM=$1.4 trillion. Gamma moving next week. One of the biggest Julys on record (thanks, markets). That said, July tends to be one of the smaller expiries of the year; January, March, June, September, and December are the biggest expiry months. SPX straddle for today is around 60bps (implied move was 50bps yesterday). Dealers have lost a decent amount of gamma now — latest measure is at +$4.3bn (peak of +$16bn on July 5)… Dealers long higher/short lower from here. Finally, we saw a rise in the VIX // S&P skew // S&P variance – so there is a bit more scope for protection overall given that Wednesday’s selling turned into a more than one-day event – h/t Rubner.
FED SPEAK… Fed prepares for September rate cut as Powell shifts focus to employment. Officials are increasingly confident that price stability is in sight. Fed chief Powell is focused on achieving a soft landing for the economy. – BBG
CONSUMER… ALV (-7%) is down due to results before the season really kicks off next week, but overall, the retail/discretionary sector continues to underperform due to weaker results and pre-announcements. FIVE, LESL, NKE, PEP, CAG and airlines are examples of companies that have talked about recent slowdowns, while expectations are also down for favorites like CMG, DPZ, CELH, which hasn’t helped performance. Housing names are an exception (GSSIHOME +20% over the past two weeks) helped by better results (DHI), recent data (housing starts beat expectations on Wednesday) and continued momentum from lower CPI/rates (we’ve seen more investors looking to fade moves in builders and products, with HD/LOW being exceptions where we’ve seen demand pick up). Most active in the trade yesterday: CMG, CZR, FIVE, GM, RIVN, MCD, SBUX, MNST, BJ, LOW, ROST.