The heaviest weekly loss (down 2%) in the S&P 500 since
mid-December and largest two-week drop since the rally began in
November was dominated by losses in financials (and energy). The major
financials most notably have been crushed from the start of April (MS
-13%, Citi/BofA -11%, GS -8.5% since the European close on 4/2). Credit broadly
underperformed on the day (after ripping to pre-NFP levels yesterday) but HYG
(the high-yield bond ETF) outperformed surprisingly but this appears to be
related to an equity-credit (SPY-HYG) convergence trade as HYG looks
very rich now once again to its NAV. The dismal close in ES (S&P
futures) on significantly heavier volume and block size. VIX pushed back above
19.5% and we worry that the violent swings that we saw in
credit and equity markets this week are very reminiscent of the
beginning of the chaos mid-Summer last year - and perhaps rightfully so
given the European situation that is escalating. FX markets were much more
active today with EURUSD breaking back under 1.31 and AUD leaking lower after
gapping down on China GDP news last night. Interestingly the USD ended
basically unchanged from last week's close while Gold managed
to hold onto its gains for the week (+1.5% at $1655) despite drops in
Silver and Copper also today (Silver and Gold retracing the spike highs from
yesterday). Copper kept sliding -4.7% on the week. Treasuries slipped
lower in yield from late last night exaggerated by China's news with
the entire complex notably lower (5-9bps on the week) in yield and flatter as
the long-end outperformed. Stocks pulled back towards CONTEXT with broad
risk assets at the close today though it remains rich to Treasuries and credit
on a medium-term basis.
Biggest weekly drop in the S&P since mid-December...
led by financials - where the majors have been crushed so far in April (with even sacred JPM -6.5% though MS managed to double that down over 13%)...
Credit underperformed after screaming tighter yesterday - seemingly on index arbitrage (as the skew between the index price and its intrinsic value collapsed) - but today's reality checkl after checking back in with pre-NFP levels was a shocker with the best compression of the year in two-days leading to the biggest decompression today. HY notably underperformed IG credit but as is clear HYG (the high-yield bond ETF) outperformed notably post-NFP...
The apparent strength in HYG appears to have been 'technical' though as is clear from the chart below, since the month began, HYG's intrinsic value has been dropping (leading HYG down) as HY saw outflows for the time this year. HYG got a little cheap to its fair-value on Tuesday (perhaps helping exaggerate the rip tighter) but it is the disconnect between HYG (red below) and SPY (green below) - which began as the month began (orange oval) that was clear and today saw HYG outperform up to the SPY level - removing that technical. The richness of HYG relative to its fair-value now (and cheapness of HY) suggest (as the dump into the close did) that HYG has room to drop here...
Equities (orange below) tried to escape the reality of broad risk assets this week, as proxied by our CONTEXT model below (black below), but by the close had pulled back close to that reality...
And with 10Y Treasuries back under 2%, near 5 week lows, equities remains little rich here - though played catch up to bond market reality today...
Gold remains the week's outperformer post-NFP and Copper the clear loser. Today saw Gold and Silver give back their spike gains from yesterday. Oil drifted ending just under $103 and marginally lower on the week - in line with Silver...
Perhaps the most worrying is the violence of the swings this week - which are very reminiscent of the start of the chaos last summer. Most specifically, in financials, for the first time since early August, we flip-flopped from a +2 standard deviation gain to a -2 standard deviation loss day after day after day...
Charts: Bloomberg and Capital Context
In summary Everyone who shorted, shorted, bought, bought, then shorted stocks this week can now take the rest of the year off. Everyone else most likely lost money.
Biggest weekly drop in the S&P since mid-December...
led by financials - where the majors have been crushed so far in April (with even sacred JPM -6.5% though MS managed to double that down over 13%)...
Credit underperformed after screaming tighter yesterday - seemingly on index arbitrage (as the skew between the index price and its intrinsic value collapsed) - but today's reality checkl after checking back in with pre-NFP levels was a shocker with the best compression of the year in two-days leading to the biggest decompression today. HY notably underperformed IG credit but as is clear HYG (the high-yield bond ETF) outperformed notably post-NFP...
The apparent strength in HYG appears to have been 'technical' though as is clear from the chart below, since the month began, HYG's intrinsic value has been dropping (leading HYG down) as HY saw outflows for the time this year. HYG got a little cheap to its fair-value on Tuesday (perhaps helping exaggerate the rip tighter) but it is the disconnect between HYG (red below) and SPY (green below) - which began as the month began (orange oval) that was clear and today saw HYG outperform up to the SPY level - removing that technical. The richness of HYG relative to its fair-value now (and cheapness of HY) suggest (as the dump into the close did) that HYG has room to drop here...
Equities (orange below) tried to escape the reality of broad risk assets this week, as proxied by our CONTEXT model below (black below), but by the close had pulled back close to that reality...
And with 10Y Treasuries back under 2%, near 5 week lows, equities remains little rich here - though played catch up to bond market reality today...
Gold remains the week's outperformer post-NFP and Copper the clear loser. Today saw Gold and Silver give back their spike gains from yesterday. Oil drifted ending just under $103 and marginally lower on the week - in line with Silver...
Perhaps the most worrying is the violence of the swings this week - which are very reminiscent of the start of the chaos last summer. Most specifically, in financials, for the first time since early August, we flip-flopped from a +2 standard deviation gain to a -2 standard deviation loss day after day after day...
Charts: Bloomberg and Capital Context
In summary Everyone who shorted, shorted, bought, bought, then shorted stocks this week can now take the rest of the year off. Everyone else most likely lost money.
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