Q1 macro was characterized by a vast divergence between 'soft' surveys crashing as 'hard' data drifting higher...
Source: Bloomberg
The strong 'hard' data - and sticky inflation - along with endless jawboning, drove rate-hike expectations drastically lower in Q1. 2024 expectations for The Fed crashed from almost seven cuts to less than three...
Source: Bloomberg
...and stocks did not even blink!
Source: Bloomberg
With the S&P 500 surging to its best start to a year since 2019 (outperforming Nasdaq)...
Source: Bloomberg
That's the 5th green month in a row...
Source: Bloomberg
And stocks are up for 18 of the last 22 weeks (it hasn't done more than that since 1989)...
Source: Bloomberg
Notably, and perhaps surprisingly, Q1's best performing sector was not tech... it was Energy (with Real Estate the only sector red in Q1). In fact in March, Energy stocks are up 10% while Tech is unchanged...
Source: Bloomberg
Some have argued that Q1's market strength reflects a growing belief that Republicans will win in November...
Source: Bloomberg
And don't let anyone tell you this has not been a multiple expansion - tech is now back at over 28x - its post-dot-com bust highs...
Source: Bloomberg
MTUM (momentum) saw its best start to a year... ever....
Source: Bloomberg
In fact, as Goldman shows in the chart below, High Beta Momo - the big Q1 outperformer - reversed its laggard performance in 2023...
Thematically, Bitcoin-Sensitive stocks, AI stocks, and anti-obesity drug stocks all outperformed in Q1, continuing the trend of 2023 gains...
AI-related stocks soared 24% in Q1 while stocks at risk from AI fell around 3% in Q1...
Source: Bloomberg
Anti-Obesity stocks soared in Q1, actually outperforming AI stocks and even GLP-1-at-risk stocks (e.g. WW) managed gains in Q1...
Source: Bloomberg
'Magnificent 7' stocks added a stunning $1.7 trillion in market cap in Q1...
Source: Bloomberg
Notably, the implied vol of the Mag7 is once again very elevated relative to the implied vol of the S&P 500. In July of last year, this signaled a big reversal (demand for hedges). In Jan of this year, it was a signal of chasers buying levered bets on the upside. What does it mean this time?
Source: Bloomberg
The strength in stocks and credit has dominated any rise in yields and crushed financial conditions to their loosest since before The Fed started their rate-hiking cycle...
Source: Bloomberg
US Treasuries were dumped in Q1 as rate-cut expectations plunged with the short-end modestly underperforming...
Source: Bloomberg
And while survey-based inflation expectations (UMich) are sliding, the market's expectation for inflation is anything but...
Source: Bloomberg
The dollar rallied in Q1, erasing around half of the Q4 losses...
Source: Bloomberg
The dollar's strength was supported by yen weakness as the Japanese currency plunged to its weakest since 1990...
Source: Bloomberg
Not to be outdone, the yuan also tumbled in Q1...
Source: Bloomberg
Q1 was dominated by bitcoin headlines - as the newly minted ETFs saw unprecedented inflows...
Source: Bloomberg
Which helped push Bitcoin to a new record high (in USD)...
Source: Bloomberg
Ethereum also soared in Q1 (up 55%) but Solana outperformed...
Source: Bloomberg
Another alternate currency - gold - also soared to a new record high in Q1...
Source: Bloomberg
And just when you thought NVDA was the big winner, Cocoa hyperinflates in Q1, up 135% YTD!
Source: Bloomberg
Oil, wholesale gasoline, and pump-prices all ripped higher in Q1 (especially March)...
Source: Bloomberg
Finally, as Goldman's Chris Hussey notes, it's times like these – when 'everything is awesome' – when it is best to assess the risks that swirl around the investment landscape. Here are a few to consider:
A strong economic landing becomes a hard landing;
Inflation is sticky, not transitory, and the Fed pushes back;
The pandemic stimulus surge turns out not to be 'cost-less';
Concentration raises 'key company' risk;
Elections and geo-political risks.
And as a reminder, we've seen these 'everything is awesome' moments before...
Source: Bloomberg
And they never end well.
