MUST READ - US Equities Weekly Rundown 9-29-23pdf
MUST READ - US Equities Weekly Rundown 9-29-23pdf
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  1. Prepared by Prime Brokerage. In evaluating this material, you should know that it could have been previously providedto other clients and/or internal Goldman Sachs personnel, who could have already acted on it. The views or ideas expressed here are those of the desk and/or author only and are not an official view of Goldman Sachs; others at Goldman Sachs may have opinions or may express views that are contrary to those herein. This material is not independent advice and is not a product of Global Investment Research. This material is a solicitation of derivatives business generally, only for the purposes of, and to the extent it would otherwise be subject to, CFTC Regulations 1.71 and 23.605.Global Banking & Markets September29, 2023US EquitiesWeekly RundownPositioning, Flows, and Observations Across the FloorPortfolio Manager’sSummaryUSstocks fell for a 4thstraight week with the S&P 500down -4.9% in September (thelargest monthly loss YTD), asinvestors wrestledwith market technicalsand continued to digest the implications of a higher-for-longer rate environmentas well ashigher oil prices. Non Profitable Tech, Most Short, and Secular Growthstocksoutperformedthis week, while Bond Proxies, Renewables, and CRE Exposed nameswere among the worst performers.Prime:US equitieswerenet bought for the first time in 4 weeks, drivenby short covers in Macro Products and to a lesser extentlong buys inSingle Stocks.Hedge funds net bought Tech stocksfor the first time in 7weeksbut unloaded Energy longs at the fastest pace in more than 6 months.Consumer Discwas the most notionally net sold US sector for a second straight week.SharesSales Trading:There was a notable cessation of supply across all fund types: hedge fundshort selling as a percentage of total sales movedfrom over 60% to below 50% at the end of the week, and while we continued tosee selling by long onlymanagers this week, the magnitude was less than last week post FOMC. Derivatives Sales Trading:Dealers wereon averageshort -$2.6bn of SPX gammathis week (lowest reading on record), and post expiryon Friday the gamma dynamic is likely going to be significantly cleaner.We think the path of least resistanceinto October isa near term chase higher, and the desk sawclient expressions chasing upside via call options and adding risk via delta one.Futures Sales Trading and Strats: Oil markets tested new highs and rising futuresOIsuggests potential new outright and spread buying; on the flip side, various indicators flagged incremental bearish expressionin Copper.Leveraged equity positioning provedresilient, despite choppy price action and multiple headwinds, as quarter-end dynamics potentially explainthe disconnect.ETF Trading:ETF volumes picked up meaningfullythis week –hitting as highas35% of the tape –amid the increase in VIXlevels. “Risk on”was the theme of the week as we sawactive portfolio rotations out of US value and into growth, and the desk has also been active with bothlong onlyandhedge fundbuyers of miners.Baskets& Macro Themes:The GS wage pressure basket (GSXUWAGE) is underperforming its normal beta to wage growth, which is partly a function ofthestrikes in the news, a deteriorating consumer, and the move higher in oil.This basket has 3x the labor sensitivity as traditional indices and in our view is the best way to track whether the market cares about labor as an issue.Sector Specialists:Debates around the impact of growing use of GLP-1 drugs remainthe most topical theme in Health Care, with particular focus ondisruption risk to a broad swath ofsubsectors, and attention shiftsmarginally to the next generation of potential therapies.What We Are Readingand Listening toThis WeekGS Exchanges:The IPO market’s soft opening(link). What's Top of Mind in Macro Research: Higher for longer rates, oil headwinds to US growth, government shutdown(link).Commodity Insights: 10 Lessons Learned with Jeff Currie(link).Track these themes with the GS Custom Baskets Launchpadon BloombergFor access:please reach out to your sales coverage and gs-gssu-permissioning@gs.comSource: Bloomberg, Goldman Sachs FICC and Equities data as of 29-Sep-23. Past performance is not indicative of future results.S&P 500Nasdaq 100Russell 2000STOXX 600Nikkei 225CSI 300SPX 1-M Realized CorrelationVIX10Y USTUS DollarWTI FutureGold FutureBitcoinLevel4,288.0514,715.241,785.10450.2231,857.623,689.5229.0%17.644.58%106.1990.931,846.1026,883.24WoW Chg-0.7%0.1%0.5%-0.7%-1.7%-1.3%-2.8 pp2.6%0.14 pp0.6%1.0%-4.2%1.3%YTD Chg11.7%34.5%1.4%6.0%22.1%-4.7%-26.8 pp-18.6%0.70 pp2.6%13.3%1.1%62.2%BasketTickerWoW Price ChgYTD Price ChgBasketTickerWoW Price ChgYTD Price ChgNon Profitable TechGSXUNPTC4.32%21.32%Secular Growth vs Bond ProxiesGSPUSGBO5.49%46.08%Expensive SoftwareGSCBSF8X3.09%28.37%New Tech vs Expensive DefensivesGSPUNEXT4.61%48.64%MemesGSCBHRSB2.93%63.61%Cyclicals/Defensives ex-CommoditiesGSPUCYDE2.26%11.20%Liquid Most ShortGSXUMSAL2.70%10.99%China vs US Sales ExposureGSPRCHSL1.98%11.69%High Beta 12M WinnersGSCBHMOM2.64%2.53%Hedge vs Floating Rate Debt ShortGSPUHIFL1.25%1.98%BasketTickerWoW Price ChgYTD Price ChgBasketTickerWoW Price ChgYTD Price ChgBond ProxiesGSXUBOND-4.40%-13.51%GARP vs Expensive SoftwareGSPUSOFT-4.32%0.39%Expensive DefensivesGSXUEDEF-2.61%-8.70%Bond Proxies vs Rate Sensitive FinancialsGSPURATE-4.00%2.28%Quality CompoundersGSXUCOMP-1.88%-1.83%MegaCap Tech vs Non Profitable TechGSPUMENP-3.94%26.39%RenewablesGSXURNEW-1.81%-17.54%L/S StagflationGSPUSTAG-2.90%-6.06%Commercial Real Estate ExposureGSFINCRE-1.70%-3.88%Low vs High Stock Based CompGSPUSBCP-2.61%-15.95%Macro/Thematic Baskets: Top Perfomers This weekMacro/Thematic Pairs: Top Perfomers This weekMacro/Thematic Baskets: Bottom Perfomers This weekMacro/Thematic Pairs: Bottom Perfomers This week
  2. Prime Services(Week Ending 9/28/23)Vincent Lin, CFAvincent.lin@gs.comMarco Laicini, PhDmarco.laicini@gs.comErin Tolarerin.tolar@gs.comFreddie Parker, CFAfreddie.parker@gs.comRisk Exposures (US Fundamental L/S): Gross leveragerosefor a 6thstraight week by+1.1ptsto 196.5% (98thpercentile one-year), while Net leveragerose +3.0pts (after falling-4.2ptslast week)to 53.1% (71stpercentile one-year).Aggregate long/short ratio rose+3.1% (after falling -4.8%last week)to 1.74(49th percentile one-year).Trading Flows: Overall US equities were net bought for the first time in 4 weeksand saw the largest net buyingsince mid-July(+1.3SDs vs. the past year),drivenby long buys as well asshort covers (52%/48% split).•Macro Products–Index and ETF combined–made up~80% of the total notional net buyingin USequities(+1.2 SDs),driven byshort covers and to a lesser extent long buys (3 to 1).•Single Stocks were modestlynet bought(+0.4SDs, first net buying in 4 weeks), driven byrisk-on flows withlong buys outpacing short sales ~2.5 to 1. oInfo Tech, Industrials, Health Care,and Comm Svcs were the most notionally net bought sectors on the week, while Consumer Discretionary, Energy, and Financials were the most net sold.oHedge funds net bought US Info Tech for the first time in 7weeks, led by short coversin Semis& Semi Equipand Tech Hardwarestocks. On the other hand, managers unloaded US Energy longs at the fastest pace in more than 6months(link).oConsumer Discretionary was the most notionally net sold US sectorfor a second straight week(-1.2SDs), driven by short-and-long sales (~4to 1). US Consumer Discretionarylong/short ratio(MV) ended the week at 1.65, approaching 5-year lows in the 4thpercentile. LeverageGross %Net %L/S Ratio (MV)Current196.553.11.74WoW Chg1.1pt3.0pt3.1%MoM Chg3.9pt-1.5pt-2.8%YTD Chg7.7pt3.7pt1.9%Current 1-Yr %ile98%71%49%Current 3-Yr %ile99%37%17%Current 5-Yr %ile100%58%31%US Fundamental L/S (Asset Weighted)Gross Leverage (%, left) Net Leverage (%, right)US Fundamental L/S: Gross vs. Net Leverage1551601651701751801851901952004042.54547.55052.55557.56062.56567.57072.5JanJulJanJulJanJulJanJulJanJul20192020202120222023US Fundamental L/S: Long/Short Ratio (MV)1.61.651.71.751.81.851.91.9522.052.12.152.22.25JanJulJanJulJanJulJanJulJanJul20192020202120222023
  3. Source for all graphs and tables: Goldman Sachs FICC, Equities, and Prime Services data as of 29-Sep-23. Past performance is not indicative of future results.Long Flow Short Flow Net FlowPB Trading Flows: US Equities (Positive Value = Buy or Cover)% of Total US Net MV at Start of 2023-40%-30%-20%-10%0%10%20%30%JanFebMarAprMayJunJulAugSep2023Single Stocks Macro Products (Index + ETF)PB Net Trading Flow By US Product (Positive Value = Buying)% of Total US Net MV at Start of 2023-14%-12%-10%-8%-6%-4%-2%0%2%4%6%8%10%JanFebMarAprMayJunJulAugSep2023TMT Consumer Disc Cyclicals DefensivesPB US Net Trading Flow (Positive Value = Buying)% of Total US Net MV at Start of 2023-8%-6%-4%-2%0%2%4%6%8%10%JanFebMarAprMayJunJulAugSep2023-3.0-2.5-2.0-1.5-1.0-0.50.00.51.01.52.0Standard Deviations (1-Year)Prime Book: Cumulative US Net Trading Flow5-Day Net Flow20-Day Net FlowBUYINGSELLING
  4. US SharesSales TradingJoe Anastasiojoseph.anastasio@gs.comMatthew Kaplan, CFAmatthew.kaplan@gs.comThere was a notable cessation of supply across all fund types from Friday to Friday. This week we watched HF short selling as a percentage of total sales move from over 60% to below 50% at the end of the week. Our desk continued to see LO supply, albeit with less magnitude than last week post FOMC (net $2.5bn sold last week, -$350m for sale this week). Monday-Wednesday we saw consistent selling across Consumer Discretionary from both HFs and LOs. LOs were sellers of Info Tech early in the week, while HFs were more skewed to buy the space. This supply in both sectors abated Thursday and Friday. Cumulative LOsnet flowcontinues to ticklower and isat 18-monthlows. Source:Goldman Sachs FICC and Equities data as of 29-Sep-23. Past performance is not indicative of future results.Alongside the recent fundamental selling, CTA models suggests S&P length has dropped ~$40bn in less than 2 week. The set upin US equitiesfeels a bit cleaner from here.3,5003,7003,9004,1004,3004,5004,7004,900-60,000-50,000-40,000-30,000-20,000-10,000010,00020,000US Equities: Aggregate Institutional Net Flows (Cumulative Notional)Aggregate LO Net Flow (left)Aggregate HF Net Flow (left)SPX Price (right)
  5. Futures Sales Trading and StrategiesRobert Quinnrobert.quinn@gs.comPaul Leyzerovichpaul.leyzerovich@gs.comMason Fennellymason.fennelly@gs.comOil markets tested new highs and the curve signalled extreme tightness, especially in the US. Specifically, November-December WTI Crude exploded to $2.38, the highest level for the front spread in over 1 year. News outlets blamed the dangerously low levels of inventories at Cushing (link). Given rising futures aggregate open interest, new outright and spread buying potentially ensued. Physical players likely also engaged after a decent downtick in both longs and shorts surrounding October expiration (link). Source: Bloomberg, Goldman Sachs FICC and Equities, Futures Strats Group as of Sep-23. Past performance is not indicative of future results.Not all commodities gained.Copper originally suffered from ongoing China property concerns and US Dollar strength. Various indicators flagged incremental bearish expression via futures and options (link). The Dollar retracement on Thursday then forced some covering; Copper rebounded ~2% with OI falling $430mm. After month-end, China PMI data –released over the weekend –should dictate short-term direction.
  6. Source: CFTC, Goldman Sachs FICC and Equities, Futures Strats Group as of Sep-23. Past performance is not indicative of future results.Leveraged equity positioning proved somewhat resilient, despite choppy price action and multiple headwinds –including the supply induced oil rally. S&P 3 month funding versus Fed Funds traded back towards the top end of the September range. Quarter-end dynamics potentially explained the disconnect. That being said, Commitment of Traders data covering the initial stock wobble showed signs of bona fide demand. Asset Manager longs surged ~$15bn –an approximate 4 year record (link). Tonight’s COT update will only encapsulate flows through the 26th. Nevertheless, it should help explain whether purchases persisted.
  7. ETF TradingSerena Tchorbajianserena.tchorbajian@gs.comJackson Isaacsjackson.isaacs@gs.comSeptember ETF volumes are rounding out the month with an average of 29%of the tape, right inline with the YTD average. This week’s ETF volumes picked up meaningfully, hitting highs of 35% of the tape –as VIX levels increase, ETF volumes trend higher. The graph below showcases the correlation: Source:Goldman Sachs FICC & Equities as of September 2023. Past performance is not indicative of future results.“Risk on” was the theme of the week as the desk was active in portfolio rotations out of US value and into growth. US large cap growth funds saw a total of $662m in inflows, while large cap value funds saw a total of $505m in outflows. The biggest drivers of these primary flows came from a rotation out of IWD and into IWF from the wealth community: IWF (R1 Growth) saw $856m in inflows this week, while IWD (R1 Value) saw $815m in outflows. August signaled a potential turning point for growth funds–the velocity of the exodus from early January through March has eased and potentially shifted course. Worth noting –IWF has a 58% overlap with SPX and a 61% overlap with NDX, further stressing the growth tilt of broad US index products.
  8. Source:Goldman Sachs FICC & Equities as of September 2023. Past performance is not indicative of future results.The desk has been active with both LO and HF buyers of miners–with a focus on Uranium and gold miners (URA and GDX graphed below). Even as commodity funds continue to see outflows (precious metals funds saw another $1.3bn in outflows this week alone, URAand GDX have seen explosive AUM growth since the beginning of August. The desk can facilitate both risk and working situations in these names and can source underlying liquidity in the global basket. Source:Goldman Sachs FICC & Equities as of September 2023. Past performance is not indicative of future results.
  9. Derivatives Sales TradingErin Briggserin.brigg@gs.comBrian Garrettbrian.garrett@gs.comLee Coppersmithlee.coppersmith@gs.comCullen Morgancullen.morgan@gs.comGamma.The quarter-end gamma dynamic was the most talked about subject of the week. On average this week, dealers were short -$2.6bn of SPX gamma (lowest reading on record). This dynamic was evident in the intraday price action with the an average intraday move this week of 1.1%, yet on a close-close basis realized vol this week was just 14. Post today, we think the gamma dynamic is going to be significantly cleaner. We have seen a lot of supply and most of the residual short was concentrated on the month end 4210 strike.Source:Goldman Sachs FICC & Equitiesas of September 2023. Past performance is not indicative of future results.September/Outlook. S&P finished the month down -4.87%on an 11v, shaking out to be one of the lowest risk-adjusted returns we’ve seen in the last decade. The outlook from here appears to be substantially more positive. October seasonality, cleaner gamma dynamics, waning CTA selling pressure (CTAs sold -$34bn of SPX this week), and extreme negative sentiment/increased short base. We think the path of least resistance isa near term chase higher. We saw clients chasing upside via call options and adding risk via delta one. Today calls made up over 50%of the tape, and per GS PB, this week saw the largest notional net buying since mid-July (+1.1 SDs 1-year).
  10. YTD SPX has tracked seasonal patterns quite well. October is historically the one of the best months of the year. Click herefor our favorite upside trades. Source:Goldman Sachs FICC & Equitiesas of September 2023. Past performance is not indicative of future results.Vol. Post the reset higher this month, we like structures that net sell vol. NDX implied vol is trading 1.35x recent realized, near 1y highs. We like call spread collars out 1-3m. At the micro level, the average NDX stock implied vol trades 1.5x the index, lower end of the range vs the last 10yrs. With earnings season around the corner, we like using calls/call spreads for stock replacement, particularly in beaten down mega cap tech names.Source:Goldman Sachs FICC & Equitiesas of September 2023. Past performance is not indicative of future results.
  11. Bonus chart.VIX has spent 92 sessions below 20, the longest streak since Covid, yet low implied vol regimes can last significantly longer.Source:Goldman Sachs FICC & Equitiesas of September 2023. Past performance is not indicative of future results.
  12. Thematic Baskets and Macro ObservationsLouis Millerlouis.miller@gs.comFaris Mouradfaris.mourad@gs.comJulia Maschjulia.masch@gs.comOur desk is noticing that our wage pressure basket (GSXUWAGE Index) is underperforming its normal beta to wage growth (average hourly earnings Y/Y and other metrics). This is partly a function of all strikes in the news, a deteriorating consumer and the move higher in oil.This basket has 3x the labor sensitivity as traditional indices and is the best way to track whether the market cares about labor as an issue. They are the most sensitive because these companies have higher labor cost as % of sales and EBIT, lower median income per median employee, and have a history of trading on labor cost risk in the prior cycle, have low profitability factor exposure, and/or have brought this risk up in their earnings calls.The Wage Pressure Basket has underperformed its wage beta when paired with Top 500 ex Top 7.Source: Goldman Sachs FICC & Equities, Bloomberg, as of September 2023. Past performance is not indicative of future results.Median Labor Cost as a Percentage of EBIT is highest for the Wage Pressure Basket.Source: Goldman Sachs FICC & Equities, Bloomberg, Factset, as of September 2023. Past performance is not indicative of future results.
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