Credit Underperforms As Stocks End Unch (At Highs)
Equity markets rallied into the close (pre-OPEX and
index re-weightings tomorrow) to end near their highs for the day but this
was only enough to get back to practically unchanged. The Dow
was the only index to manage a green close on the day-session (as AAPL
dragged NASDAQ lower and the S&P couldn't get above Tuesday's or Wednesday's
closing levels). With the CDS market rolling today (and indices being
recomposed), we saw a somewhat unusual selling pressure into the roll -
suggesting many credit longs were less than willing to roll that long
into the new index (though technicals do make this uncertain). HYG
underperformed. Stocks seemed to levitate back up to track Gold
and the afternoon's weakness in Treasuries (unch on the day but 3-4bps higher in
the afternoon) and strength in Oil dragged risk-assets more in sync with stocks
(after suggesting weakness in the middle of the day). VIX and stocks are in line
(with VIX low absolutely but maintaining a high risk premium to realized vol).
US strength continued until after the European close when FX markets drifted
gently USD lower.
Credit (especially IG) underperformed stocks as the afternoon wore on...
But Stocks (second only to MTGs in their exuberance) remain well above FX and Bond post-FOMC reactions...
and the gap between the Trannies and the rest grows wider (is this the high-beta reach? seems not given sectoral moves?)... a 660bps performance diff in 6 days between Dow Transports and NASDAQ...
but as usual it's a tail of the P/E tape... as Transports have been derated and the NASDAQ uprated...from the Draghi 'Believe' speech, the Russell 200 has seen a 2.6x rise in Fwd P/E, a full turn more than the Nasdaq and more than double the valuation changes of the other indices... see Bottom-line below...
On the week, stocks played catch-up to Gold for most of the afternoon; meanwhile, the USD and Treasuries hooked up...
and while most will be talking about how low VIX is (though it closed small green today just above 14%), it remains near the highs relative to realized vol - which is a far more important relative value (lower pane) means of judging 'fear'...
Notably there has been a bifurcation among the financials since FOMC. GS and MS are now notable underperformers...now both opractically unchanged as the sector remains up 1.4% and the peers around +3%...
Bottom-line - the P/E changes chart above suggests that the argument that high-beta chasing will support stocks into year-end as PMs play catch-up is fallacious. It has already occurred - look at the Russell!! It would appear that in fact for a rally to be supported the rest of the market (defensives - which have outperformed in absolute terms) need to play significant catch up to valuation changes... so low-beta chase?
Charts: Bloomberg
Bonus Chart: S&P Sectors are diverging again - Utilities remain the big post-FOMC loser but interestingly Financials/Energy/Industrials are notably underperforming the rest (that remain closely correlated)...
Credit (especially IG) underperformed stocks as the afternoon wore on...
But Stocks (second only to MTGs in their exuberance) remain well above FX and Bond post-FOMC reactions...
and the gap between the Trannies and the rest grows wider (is this the high-beta reach? seems not given sectoral moves?)... a 660bps performance diff in 6 days between Dow Transports and NASDAQ...
but as usual it's a tail of the P/E tape... as Transports have been derated and the NASDAQ uprated...from the Draghi 'Believe' speech, the Russell 200 has seen a 2.6x rise in Fwd P/E, a full turn more than the Nasdaq and more than double the valuation changes of the other indices... see Bottom-line below...
On the week, stocks played catch-up to Gold for most of the afternoon; meanwhile, the USD and Treasuries hooked up...
and while most will be talking about how low VIX is (though it closed small green today just above 14%), it remains near the highs relative to realized vol - which is a far more important relative value (lower pane) means of judging 'fear'...
Notably there has been a bifurcation among the financials since FOMC. GS and MS are now notable underperformers...now both opractically unchanged as the sector remains up 1.4% and the peers around +3%...
Bottom-line - the P/E changes chart above suggests that the argument that high-beta chasing will support stocks into year-end as PMs play catch-up is fallacious. It has already occurred - look at the Russell!! It would appear that in fact for a rally to be supported the rest of the market (defensives - which have outperformed in absolute terms) need to play significant catch up to valuation changes... so low-beta chase?
Charts: Bloomberg
Bonus Chart: S&P Sectors are diverging again - Utilities remain the big post-FOMC loser but interestingly Financials/Energy/Industrials are notably underperforming the rest (that remain closely correlated)...
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