Daily Chartbook #259

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1. Weakest Links. "Weakest Links are loan issuers rated B-minus or lower with a negative outlook. The number of US leveraged loan Weakest Links continues to increase, driven by higher costs of capital and costlier financing terms."

2. No more hikes. "The latest inflation data support our expectation that the core trend will have slowed enough by November for the FOMC to conclude that a final hike is unnecessary...we expect the first cut in 2024Q2 with core PCE inflation below 3% YoY and 2.5% MoM annualized."

3. Inflation soft patches. "We have seen three prior soft patches for UScore inflation during the pandemic era. Each time gave way to a sharp acceleration."

4. Everday inflation. "This chart shows price gains for items consumers buy every day."

5. Inflation expectations. "Expectations declined across all three horizons, falling to 3.5 percent at the short-term horizon and to 2.9 percent at the medium- and long-term horizons...Year-ahead price growth expectations for food, medical care, and rent declined to their lowest levels since at least early 2021."

6. Unemployment expectations. “Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—decreased by 1.0 percentage point to 36.7%, the lowest reading since April 2022.”

See:

7. Healthy households. "Consumer debt as % of GDP have declined to 2001 levels."

8. Gold ETF flows. Gold ETFs have seen net outflows for 10 consecutive weeks.

9. CTA positioning. CTA positioning across futures markets.

10. New duration supply cycle. "The supply of duration in the Treasury market is set to rise in a big way."

11. T-Note trader sentiment. "FWIW 10-week average of 2-year T-Note trader sentiment recently hit the lowest level it’s ever recorded."

12. SPX dividends vs. Treasuries. "The S&P’s dividend yield towered over the entire Treasury curve three years ago.  Now it looks puny next to short-term rates in the mid-5s and long-term rates above 4."

13. US bond flows. After attracting $5.8bn last week, US bonds have seen inflows for 32 consecutive weeks.

14. TLT flows. "-$1.8b outflow from $TLT last week -- biggest weekly outflow since March 2020."

15. Risk appetite. “Professional money managers got bullish in a hurry during the back half of July 2023, with the risk appetite index going from -46 to +36 percent in the space of less than 3 weeks.”

16. Sentiment Indicator. "The GS sentiment indicator is still positive."

17. Sector fund flows. Tech and Healthcare funds led flows last week ($1.4bn each). Energy, Telecom, and Industrials saw inflows while Financials, Real Estate, and Materials experienced outflows.

18. Levered Long vs. Short. Flows into levered long ETFs relative to levered short ETFs have reversed sharply after a spike up.

See: ,

19. HFs vs. Energy. "HFs net sold US Energy at the fastest pace in 2 months amid [last] week’s price rally." 

20. HFs vs. Staples. "Consumer Staples was the most net bought sector on the global prime book [last] week...Prime book is now U/W Staples by-4.7% vs. the MSCI World Index (%), which is in the 84th percentile vs. the past year and in the 90th percentile vs. the past five years."

21. HFs vs. Discretionary vs. Staples. "Active funds’ relative weight in Consumer Discretionary is at all-time lows in our data history for both long-only funds and hedge funds. Meanwhile, funds have added exposure to Staples since 2021, with hedge fund positioning near 6+ year highs."

22. Equity positioning. Aggregate positioning (59th percentile) is now at a 2-month low led by a sharp unwind in discretionary positioning. Systematic strategies have been creeping higher since mid-June but declined slightly last week.

23. Systematic positioning. "Vol control funds kept their equity allocation around the 69% mark [last] week (59th percentile)...CTAs cut their aggregate equity longs (76th percentile)…as volatility increased across equity markets."

24. Puts vs. calls. "Total net call volume (call minus put) flipped to negative [last] week, and was also the lowest in four months (18th percentile), driven by both a decline in call volume and an increase in put volume."

25. Put volumes. Index put volume is rising.

26. Tech leadership. "In recent years [Tech leadership] has often coincided with the latter stages of a rally, before a correction is seen (either one that is on the small side, as in early 2018, or a larger one as in 2022)."

27. Q2 earnings (I). Ex-energy, S&P 500 EPS have grown 3% YoY in Q2.

28. Q2 earnings (II). Ex-energy, "underlying earnings at new high."

29. Q2 earnings (III). "Discretionary is tracking the biggest top/bottom line beat so far this earnings season (+3%, +20% respectively). Consensus estimates for Discretionary have finally started to catch up to Staples, pointing to a better consumer outlook." 

30. SPX vs. EPS conraction. And finally, “the ~6% Y/Y contraction in quarterly SPX earnings coincides with relatively poor forward performance for the SPX. Looking back over the past 30Y, the SPX tends to have somewhat shaky performance over the 3 Qs following a small earnings contraction.”

Thanks for reading!