Goldman Sachs: Trading Desk 07/23/2024
S&P +108bp closing at 5564 with a $3.2B Order on Closing (MOC) to sell. NDX +154bp at 19822, R2K +171bp at 2221 and Dow +32bp at 40415. 10.8B shares traded on all US equity exchanges vs. the annual daily average of 11.5B shares. VIX -987bp at 14.88, Crude Oil -44bp at 79.78, 10Y Yields +2bp at 4.25, Gold -6bp at 2399, DXY -7bp at 104.32 and Bitcoin +55bp at 68117.
Markets ended broadly higher today with tech leading the way, the desk view is that the increased speed of divestment could be behind us as we have ticked several “boxes” in the past week. It was a quiet day, trading activity virtually stopped after the European close. The L/S Fundamental Hedge Fund community spent the morning in reinvestment mode after last week’s epic sell-offs in individual stocks – the highest (notionally) since March 2022 (99th percentile compared to the past five years). Asset Managers were pecking at tech and communication services. Some long buying in China ADRs after the People’s Bank of China cut its seven-day reverse repo rate in a surprise move to support the economy, followed by banks cutting lending rates. Focus this week will be on earnings (29% of S&P 500 reporting) and PCE the rest of the week.
Biden news has the market believing that a Republican sweep is now less likely than on Friday but still the most likely scenario. Our Democratic policy pair (GSP24DEM) is up +143 basis points today (now +40 basis points on the year vs. the Republican pair +570 basis points). TSLA and GOOGL after tomorrow’s close are the two with the potential to move the entire market. TSLA is up +525 basis points today, we have marked it as a “4” on the positioning scale (10 being max long) and Feiler is not convinced that the quarter matters much for the ultimate direction of the stock before the Robotaxi event later this year.
We believe that if majors start reporting numbers that pass the sniff test, we will start to see Asset Managers go back into re-investment mode (they have mostly been on the sidelines this past week). This week is the last week of the blackout period – starting July 29th, on the demand side, corporations will be back in full repurchase mode and on the supply side we will see an increase in recorded block trades. Total market volumes were 6% vs. 20-day daily average compared to GS executed flow +11% vs. 20-day daily average. ETFs 34% of volume vs. 29% annual average… macro hedges traded around 1.5%.
Our desk was at a 4 on a scale of 1 to 10 in terms of overall activity levels. Executed flow on our desk ended with a selling bias of -1% today versus the 30-day moving average of 16 basis points. Limit Orders (LO) ended +1.7% net buyers driven by Consumer Discretionary, Communication Services, and Healthcare (in that order). Hedge Funds ended +1% net buyers led by scattered demand in Consumer Discretionary and Technology (feeling pressured). Hedge Funds were net short Industrials (short ratio in Industrials raised to 56% of total sales), Financials, and Healthcare.
AFTER THE CLOSE: NXPI -8% (stock up 5.5% today) on BELOW Street guidance at +4% q/q vs consensus +7% q/q… CDNS +3% on outperformance and upside.
DERIVATIVES: Last week we saw panic in the volatility market with our US Panic Index rising from 0.86 to 6.96, one of the largest 5-day increases in our dataset. Reminder: the “Volatility Panic Index” is the 2-year equal-weighted percentile rank of (1) the SPX 1-month at-the-money implied volatility (2) the SPX 1-month normalized volatility deviation (3) the VIX 1-month delta 50 implied volatility (4) the SPX 1-month vs 3-month volatility term structure. Little to no follow-through today with our flows significantly quieter. Only 42M options contracts traded all day with calls accounting for ~59% of volume. Our flows consisted mostly of restructuring and/or volatility sellers (albeit in low volumes). Friday's straddle on the SPX traded at 1.13%. (h/t Cullen Morgan)
S&P -16 basis points (bps) closing at 5555 with a $1.25B Market On Closing (MOC) to buy. NDX -35 bps at 19754, R2K +122 bps at 2247 and the Dow -14 bps at 40358. 10.2 billion shares traded across all US equity markets compared to the YTD daily average of 11.5 billion shares. VIX -181 bps at 14.64, Crude Oil -145 bps at 77.26, 10Y Yields -1 bps at 4.24, Gold +44 bps at 2407, DXY +15 bps at 104.47 and Bitcoin -353 bps at 65740.
Weak price action for NDX and SPX (down 15-35 bps) as investors digest microeconomic reports. RTY rose another +111 bps. The momentum reversal from last week’s drop continued into yesterday and again today (High Beta Momentum Pair +200 bps). We saw asset managers sell stocks with disappointing results in cyclicals, specifically UPS, FCX, PCAR, JCI, and NXPI. We had passive L/O demand in Mag 7 ahead of TSLA and GOOGL reports. There were positive signals in regional banks, internet (SPOT +11% on results), software, and insurance (BRO +5%), while consumer-related sectors showed weakness due to weakness in CMCSA parks. Semiconductors were weaker throughout the session (NXPI -7.5%) – Q2 results were mostly in line, although Q3 revenue guidance (+4% quarter-over-quarter) was below Wall Street expectations and normal seasonality; some early analysis pointed to continued weakness in the automotive sector.
Our floor activity was a 4 on a scale of 1-10 in terms of overall activity levels. Flow executed on our desk ended with a +575 bps buy bias today compared to the 30-day average of +22 bps. Limit orders (LO) ended -375 bps better for selling after turning from net buyers mid-day. They stood out as buyers in healthcare, versus sellers in technology and financials. Hedge funds were better buyers in all sectors except energy. Demand was notably concentrated in technology and industrials, along with long buying in banks and insurance.
Results after closing:
*GOOGL (first impression): Beat headline expectations, however Search and YouTube results were slightly below high expectations. The stock rose 2% after the report. Total revenue $71.36bn vs. cons $70.70bn Google ad revenue $64.62bn vs. cons $64.53bn YouTube ad revenue $8.66bn vs. cons $8.95bn EPS $1.89 vs. cons $1.84
*TSLA: (first impression) With gross margins seemingly down around 200 bps, it falls short of what we thought would have been necessary for another bullish push in the stock. We have never been convinced that this quarter will drive the stock much beyond tomorrow. This just doesn’t “feel” like enough. The big focus was going to be on profitability and how much impact they would have in achieving the delivery surplus they unexpectedly announced for 2Q. EBITDA looks about 6% down and FCF came in below as well. Neither is a total surprise, but it is a reminder that they are struggling to grow both deliveries and margins at the same time.
Q2 EPS of $0.52 vs. consensus $0.61 and EBITDA of $3.67 vs. consensus $3.90B. Revenue was $25.5B vs. consensus $24.4B but that's not the focus as deliveries were already announced (better) for the quarter.
The focus of most investors we spoke to was on 2Q gross margins. Total GAAP gross margin was 18.0% vs. consensus 17.3%. Automotive (excluding credits) was 14.6% vs. consensus 16.6% (but GS's estimate was at 15.3% and we thought the target was around 16%).
They maintain the comment about “volume growth” in 2024 being lower than in 2023. It still implies volume growth.
*TXN (first impression) +2%: Q4 revenue guidance spans consensus ($3.94-4.26bn vs. cons $4.14). Probably better than feared after NXPI report (TXN -4% intraday today).
*V (-/=): F3Q24 EPS of $2.51 was in line with slightly lower revenues (driven by declines in International and Data, partly offset by Services and Other, while customer incentives were in line). Softer trends in the US were well reported, but international trends look disappointing… payment volume growth in the rest of the world was +5% vs. 10% consensus.