Mark Newton, head of technical strategy at Fundstrat, tells clients that stock selling of late has been “very orderly” and merely a “short-term pullback, which should lead to a resumption of a rally.” But he cautions that this may not happen until after the Fed’s Jackson Hole summit in late August.
Meanwhile, Goldman Sachs’ managing director Scott Rubner notes a “clear shift in sentiment over the past few weeks” across his trading calls. “This is no longer a buy-the-dip market,” he says in our call of the day.
In a note to clients, Rubner highlighted some market happenings that have got him worried. Among them, the S&P 500
SPX
closed Tuesday through the bank’s short-term commodity trading advisor threshold trigger of 4,462.10 for the first time since May 24th and below the S&P500 50-day moving average of 4,475. CTAs are a group of hedge funds that are guided by algorithms.
He said Tuesday also marked an all-time high for volumes of options linked to the S&P 500 with extremely small lifespan, known as 0DTEs. As MarketWatch’s Joe Adinolfi highlighted last week, a recent surge in those “zero-day until expiration” options has raised concerned among some market participants of a market selloff. The S&P finished 1.1% lower on Tuesday.
What else? Rubner says so-called “top book liquidity,” which he describes as the ability to transfer risk quickly, in S&P 500 e-mini futures has dropped by 56% over the past two weeks.
“This is new. Investors have shifted their trading behavior from a BTD ‘Buy the dip’
market to STR ‘Sell the Rally’ market. This is a new change in tone and sentiment. This is something that I have not said often,” he writes.
The Goldman pro, who has studied flow data for two decades, also frets that already jittery markets are about to face vacation headwinds.
“This Friday starts the most common ‘two-weeker’ of the whole year for global Wall Street returning to trade on September 5th (post U.S. labor day holiday on 9/4),” he writes.
“This matters because there is low risk tolerance to add into any potential negative headlines,” he says, pointing to news on China and next week’s Jackson Hole conference and Nvidia results. “Is NVDA the most important stock world right now for market sentiment? I think so, this is a single stock microcosm of everything that went right in the first half. The mood is defense, not offence,” he says.
Rubner fears September’s seasonality gloom will get pulled forward ahead of that vacation period. He notes the median return for the S&P 500 in September since 1928 is a negative 1.56%, and 1.21% for the Nasdaq 100 Index,
NDX
making it “the worst month of the year.”
The chart
The San Francisco Fed says that U.S. households will run out of COVID-era extra savings, credited for helping keep retail sales afloat in recent years, by the third quarter of 2023.
Also weighing in on when the excess savings will disappear was a team led by JPMorgan’s Dubravko Lakos-Bujas, head of U.S. equity strategy, who offered up this chart:
“Currently we estimate excess household liquidity adjusted for inflation at [approximately] $1.4 trillion to fully drain by May’24 assuming a steady depletion rate,” the JPMorgan team wrote in a note on Thursday. “Our concern is whether excess liquidity will even support above-trend consumption for that long.”
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