Daily Chartbook #306

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1. PBOC cash infusion. "The People’s Bank of China handed lenders a record sum of cash via a short-term liquidity tool on Friday, as an indicator for funding costs surged to the highest since April."

2. WACC. "Cost of Capital for the median company in our coverage has risen to 9.6% currently vs. 8.5% on average during 2022."

3. Debt burdens. "Russell 2000 companies carry about four times the amount of debt relative to their earnings, compared to 1.4 times for S&P 500 companies."

4. Economists' optimism. "Economists raised their US growth projections through early 2024 and trimmed recession odds to a one-year low."

5. Inflation expectations. "It looks as though the market’s confidence that inflation has been beaten might be beginning to shake."

6. Taylor rule. "Taylor rule now says Fed should be done. That is, as long as consensus is right that inflation slows and unemployment rises."

7. Yield curve. "The curve is now closer to disinverting...than it has been in more than a year. That means traders are more confident that there are no hikes in the near future, but also much less confident about more cuts in the longer term."

8. UST flows. "36th straight week of inflows ($5.3bn), longest streak since Aug’10."

9. MMF outflows. "Cash: largest weekly outflow ($108.9bn) ever."

10. Risk appetite. "The risk appetite indicator currently stands at a neutral level, implying that market participants are neither excessively risk-seeking nor risk-averse."

11. Bull & Bear Indicator. BofA's indicator is "at 'extreme bearish' 1.9, contrarian buy signal for risk assets triggered: median 3-month returns post buy signal imply = US stocks 5.4%, global stocks 7.6%, stocks vs IG bonds 9.1%, HY bonds vs Treasuries 6.4%."

12. Global Equity Risk-Love. The contrarian sentiment indicator "slid to the 33rd percentile of history from the 81st percentile in July, as investors grapple with the ramifications of a higher-for-longer interest rate regime."

13. Equity fund flows. "Another flat week of equity flows."

14. Private client flows. "Private clients buying energy, bank loan, munis and selling utilities, staples, TIPS ETFs past 4 weeks."

15. HF trading flow (I). "Hedge funds reduced net length in mega cap tech but have been selling other US stocks at a much faster pace."

16. HF trading flow (II). "Sector positioning has gotten broadly more bearish so far in October, with hedge funds net selling TMT, Cyclicals, and Defensives."

17. Global HF flows. "In terms of global hedge fund net flows, the 4-week selling is approaching an extreme."

18. HF short flows (I). "Single stock short flow make up ~75% of all US shorting activity since the start of August and is at a YTD high."

19. HF short flows (II). "HF short additions slowing from a peak pace. Gross flows have tended to fall from elevated levels as markets rebounded (and vice versa)."

20. HF exposure (I). "Overall book Net exposure has decreased further to one-year lows."

21. HF exposure (II). "Overall book long/short ratio is at fresh five-year lows following the recent decrease, while Fundamental L/S long/short ratio is in the 24th percentile."

22. HFs vs. Staples. "Consumer Staples is among the most net sold sectors in October, driven by short sales outpacing long buys ~2 to 1."

23. HFs vs. Tech. "Info Tech is the most notionally net sold sector so far in October, driven almost entirely by long sales which suggests de-grossing behavior."

24. SPX skew. "SPX 1m Skew (25dp vs 25dc) has steepened dramatically over the last few sessions," which suggests investors are paying up for downside protection.

25. VIX backwardation. The $VIX entered backwardation for the first time in a year, "a telltale sign of mounting distress, as traders anticipate more volatility in the near-term than further out in the future."

26. Weak bull. "Most unconvincing and worst new bull market for the S&P 500, equal-weight index, and Russell 2000."

27. Q3 earnings update (I). With 17% of $SPX companies reported, "eight of the 11 sectors are reporting (or are expected to report) year-over-year earnings growth, led by the Communication Services, Consumer Discretionary, and Financials sectors."

28. Q3 earnings update (II). "73% have reported actual EPS above the mean EPS estimate ... [which is] below the 1-year average (74%), below the 5-year average (77%), and below the 10- year average (74%)."

29. Q3 earnings update (III). "Six sectors are reporting a year-over-year increase in their net profit margins in Q3 2023 compared to Q3 2022, led by the Communication Services (12.2% vs. 9.8%) sector."

30. Q3 earnings update (IV). And finally, “the market is punishing positive earnings surprises reported by S&P 500 companies on average.”

Have a great weekend!