The Glass Is More Than Half Full
Much fuller positioning
1. GS sentiment indicator flashing a 1.4 (anything north of 1.0 reflects stretched positioning)
2. GS PB nets show 97th percentile on a 1 year look back, also PB data shows gross creeping back up and now at 93rd percentile.
3. the often used AAIIBULL metric just hit a 1.5 year high and the CNN fear/greed speedometer remains firmly in the greed segment.
4. any uptick in volatility would/could trigger CTA and risk parity selling.
5. 85% of the S&P are in blackout and as such the buyback ‘greenshoe’ is temporarily removed from the market….(GS trading desk)
Positioning
Gross at extreme highs. Nets have come up too.
Source: JPM PI
Goodness how much greed
The stock market fear and greed index is currently in extreme greed, now at 85/100.
Mislav says caution as FOMO is in full swing
Mislav says that the overall US index could struggle to advance further in 2H:
1. The cushion of consumer excess savings is being eroded, profit margins are peaking and money supply in the US and Europe keeps contracting. China could keep stalling, unless there is a significant support package unveiled.
2. The Fed is set to stay “higher for longer”, until the potential market/consumer weakness forces them to reconsider, in our view. Yield curve remains strongly inverted.
3. We held a view over the past two years that corporate earnings will be resilient, but this is likely to start changing into 2H. Profit margins are rolling over at present.
4. At 19-20x, US forward P/E is stretched, especially vs real yields.
5. Bull-Bear has moved into positive territory, VIX is near record low and positioning has increased, there is no more safety net, FOMO is in full swing.
(JPM Equity strategy)
The Glass Is Not Even Half Empty
KKR on positioning
KKR strategist Henry McVery on positioning:
"After multiple trips across Asia, Europe, and the United States to pressure test our macro frameworks in the first half of the year, we think investors are still too conservatively positioned for the path forward we are seeing for the global economy...Importantly, we do not think that a CIO can broadly go risk on and/or risk off."
Still can’t determine where any supply will come from short term...
"The supportive supply/demand dynamics remain intact next week, now add July seasonality and another potential risk runway post NFP Friday and the question becomes can the L/S community continue to only catch 25% of index upside? That creates another pocket of demand and we still can’t determine where any supply will come from short term, despite most shorter term traders feeling like we are at the top of the range." (MS trading desk)
Dry Powder
Alts are sitting on a $2.5tr cash pile, but are facing challenges with higher market volatility, wider bid/ask spreads, stagnating corporate earnings, and difficult access to leverage that's weighed on deployment activity. Challenges in the banking industry, tightening of lending standards, scarcity of capital have led to questions around the potential, magnitude, and pace for Alts to put their dry powder to work. (Morgan Stanley)
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