MUST READ - US Equities Weekly Rundown 9-22-23pdf
MUST READ - US Equities Weekly Rundown 9-22-23pdf
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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 September22, 2023US EquitiesWeekly RundownPositioning, Flows, and Observations Across the FloorPortfolio Manager’sSummaryUS stocks sawbroad-based declines this week with the S&P 500 finishing down-2.9%, asbond yieldstouchedfresh highs in reaction to the revised dot plotfornext yearthat implies fewer rate cutsthan the FOMChad previously indicated.Bond Proxies, Quality Growth, and Low Beta namesoutperformed, while Non Profitable Tech, Most Short, and High Retail Sentiment stockswere among the worst performers.Prime:US Fundamental L/S Net leveragesaw the largestweek/weekdecline since Mar ’20as HFs ramped up the pace of shorting. US equities were net sold for a 3rdstraight week and saw the largest net selling since Jan ‘22, driven almost entirely by short sales.Consumer Discretionarywas by far the most net sold sector, while Energy was among the most net bought. SharesSales Trading:LOswere net sellers of US stocksagain, and on a cumulative basisLOnet flow hit another new low for net selling since the peak of buying in Mar‘22.Fund flows data also continue to reflect un-easiness in the market. Derivatives Sales Trading:US equities appear vulnerable from a technical perspective.Our desk believes dealer short strikes will play a role on a sustained move lower from here, and the latest internal metrics suggest a ~2% selloff will exacerbatethis short gamma dynamic while positioning is not expected to change much on rallies.Futures Sales Trading and Strats: Positioning in equity futures lookedstretched onthe long sideandlikely saw some mean reversion post FOMC as volumes picked up meaningfullyand funding spreads compressed. CTA length liquidation also likely added to selling pressure, as short-term trend signals in our models for US indices flipped from positive to negative.ETF Trading:Post Fed, thedesk has seen a large uptick in flows and overall ETF volumes.Alongside a demand for defensives, we also sawoutright demand in equal weight large cap products.Separately, Japan funds have continued to see real demand, with activitythroughout the week from LO and RIA buyers.Baskets& Macro Themes:This is the time of year where the desk begins to field the most inquiries on tax loss selling, specifically in the mutual fund space.Our 2023 Mutual Fund Tax Loss basket (GSCBMF23) is composed of equities most held by mutual funds that have sold off the most year-to-date and is liquid at $500m per day with no name exceeding 10% of ADV.Sector Specialists:This week was characterized by the catch-down on ‘higher for longer.’ Office REITs were particularly weak, and we think in part because of the relative strength coming intothisbut also increased concerns about what higher rates mean for the outlook of the asset class.Higher rates and capital markets jitters not a great combo for the hopeful ‘green shoots’ theme. What We Are Readingand Listening toThis WeekGS Exchanges:The impact of rising oil prices(link). US Sector Views: Late-cycle investment strategies for the early-cycle Consumer Discretionary sector(link).Internet: Framing Current Industry Trends and Investor Debates(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 22-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 FutureBitcoinLevel4,320.0614,701.101,776.50453.2632,402.413,738.9331.8%17.204.43%105.6190.281,926.5026,537.68WoW Chg-2.9%-3.3%-3.8%-1.9%-3.4%0.8%4.5 pp24.7%0.10 pp0.3%-0.5%-0.1%0.5%YTD Chg12.5%34.4%0.9%6.7%24.2%-3.4%-24.0 pp-20.6%0.56 pp2.0%12.5%5.5%60.1%BasketTickerWoW Price ChgYTD Price ChgBasketTickerWoW Price ChgYTD Price ChgCapex BeneficiariesGSXUCAPX-1.48%17.46%MegaCap Tech vs Non Profitable TechGSPUMENP7.71%31.58%Bond ProxiesGSXUBOND-1.76%-9.53%HF VIP vs Most ShortGSPRHVMS4.81%18.83%Quality CompoundersGSXUCOMP-1.97%0.05%China vs US InternetGSPRUCIT4.75%-26.13%Low Beta SensitivityGSXUBFBS-2.05%-1.67%Low vs High Stock Based CompGSPUSBCP4.52%-13.70%Expensive DefensivesGSXUEDEF-2.11%-6.26%GARP vs Expensive SoftwareGSPUSOFT4.40%4.92%BasketTickerWoW Price ChgYTD Price ChgBasketTickerWoW Price ChgYTD Price ChgNon Profitable TechGSXUNPTC-10.83%16.30%Long vs Short DurationGSPUDURA-2.64%3.40%Liquid Most ShortGSXUMSAL-8.15%8.07%Secular Growth vs Bond ProxiesGSPUSGBO-2.53%38.49%MemesGSCBHRSB-7.95%58.94%New Tech vs Expensive DefensivesGSPUNEXT-1.97%42.09%Most Short RollingGSCBMSAL-7.24%4.11%China vs US Sales ExposureGSPRCHSL-1.51%9.52%High Beta 12M LosersGSCBLMOM-7.00%5.82%Infrastructure vs HedgeGSPUINFS-1.21%-5.21%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 9/21/23)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 5thstraight week by+0.7ptsto 195.4% (97thpercentile one-year), while Net leveragedropped-4.2pts –thelargest week/weekdecrease since Mar ’20–to 50.1% (42nd percentile one-year). Aggregate long/short ratio fell -4.8%to 1.69(3rdpercentile one-year).Trading Flows: Overall US equities were net soldfor a thirdstraight weekand saw the largest net selling since Jan ‘22(-2.5SDs vs. the past year),driven almost entirely by short sales.Hedge funds have been pressing US shorts for 3 straight weeks (5 of the past 6).In cumulative notional terms over any 6-week period, the amount of shorting in US equities since mid-August is the largest in six months and ranks in the 98thpercentile vs. the past decade(link).•Macro Products–Index and ETF combined–saw the largest net selling since Dec ‘22(-2.0SDs),driven mainly by short sales.•Single Stocks were net sold for a thirdstraight week(-1.2SDs), driven almost entirely by short sales. o8of 11 sectors were net sold on the week, led in notional terms by Consumer Discretionary, Financials, Health Care,and Info Tech, while Comm Svcs, Energy, and Stapleswere the only net bought sectors.oConsumer Discretionary stocks saw the largest net selling since Dec ’21 (-3.9 SDs), driven by short-and-long sales (~3 to 1). Automobiles, BroadlineRetail,and Specialty Retail were the most net sold subsectors. oOn the other hand, Energy stocks saw the largest net buying ina year (+1.4 SDs),driven byshort covers and to a lesser extent long buys (1.8 to 1).LeverageGross %Net %L/S Ratio (MV)Current195.450.11.69WoW Chg0.7pt-4.2pt-4.8%MoM Chg5.3pt-5.2pt-7.2%YTD Chg4.9pt0.7pt-0.7%Current 1-Yr %ile97%42%3%Current 3-Yr %ile99%20%1%Current 5-Yr %ile99%43%12%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 22-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 2023-12%-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%JanFebMarAprMayJunJulAugSep2023-5.0-4.0-3.0-2.0-1.00.01.02.03.0Standard 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.comOn Thursdayamid the market drawdown, we saw shorts press more firmly in the back half of the session (finished with 59% of HF sales being Short Sales up from 53% in the morning). LOs were net sellers on Thursday as they have been for the prior 5 Thursday sessions. In fact, LO managers have net sold an average of $1b net for the last 6 Thursday sessions but were net neutral for the average of the last 6 Friday sessions. On Friday, LOs proved to be more net neutral, as they have been for the last 6 Friday sessions.But hedge funds once again picked up the pace of short selling in the back half of the session, finishing with shorts at 61% of total sales. On a cumulative basis, LOsnet flowhit another new low for net selling since the peak of buying in March of '22.Separately, fund flowsdatacontinue to reflect un-easiness in the market with equity funds reporting net cash outflows of -$7.8billionon the week (lipper data). Source:Goldman Sachs FICC and Equities data as of 22-Sep-23. Past performance is not indicative of future results.
  5. Futures Sales Trading and StrategiesRobert Quinnrobert.quinn@gs.comPaul Leyzerovichpaul.leyzerovich@gs.comMason Fennellymason.fennelly@gs.comPositioning in equity futures going into FOMC was starting to look stretched to the long side -length in the majorUS contracts was actually at the highest levels since early 2022 (Chart 1). We likely saw some mean reversion on this front post-FOMC as volumes picked up meaningfully (Thursday volumes in E-Mini’s were +46% vs. the 3dma) and funding spreads compressed slightly (SPX implied funding is down ~5bps on the week). CTA length liquidation also likely added to selling pressure as short-term trend signals in our models for US indices flipped from positive to negative(key short/medium/long term trend levels in SPX futures are 4462/4355/4293). Our models now call for ~20B of selling in US indices over the next week in a flat market environment on top of the ~14B of simulated sales over the last week.Looking across to the rates space, SOFR futures repriced sharply lower on the back of the more hawkish FOMC on Wednesday. The median projection of only 50bps of cuts in 2024 vs. the previous projection of 100bps was arguably the most hawkish surprise from the committee and the Dec23-Dec24 SOFR futures spread rallied as much as 20bps after the announcement (effectively taking 20bps of cuts in 2024 out of market pricing). The back end of the UST curve was hit hard towards the end of the week as the curve bear-steepened. The large hedge fund short position in Treasury futures has garnered some attention recently and implied repo rates continued to tick lower this week (chart 2), making the carry on new short positions incrementally less attractive. Chart 1Source: CFTC, Goldman Sachs FICC and Equities, Futures Strats Group as of Sep-23. Past performance is not indicative of future results.
  6. Chart 2Source: Goldman Sachs FICC and Equities, Futures Strats Group as of Sep-23. Past performance is not indicative of future results.
  7. ETF TradingSerena Tchorbajianserena.tchorbajian@gs.comJackson Isaacsjackson.isaacs@gs.comCyclicals vs. Defensives –RSP/QQQE InflowsPost Fed, the ETF desk has seen a large uptick in desk flows and overall ETF volumes. ETFs as apercentage of the tape averaged 33% from Wednesday onward (September MTD volumes are 27%). Alongside a demand for defensives and a bid for cyclicals (GS Cyclicals vs. Defensives pair index hit its lowest point since July), the desk has been seeing outright demand in equal weight large cap products. In these periods of divergence, the desk has historically seen outright expressions as well as switch requests for beta replacements on long side / portfolio hedge adjustments on shorts. -RSP(Equal Weight SPX) has had inflows in 11 of the last 13 sessions...now home to +$8.1B in flows YTD (top 10 in overall YTD ETF league tables).The inflows have been a combination of broad-based hedges away from Megacaps (an uptick in short interest) and real length. The product has a has a 49% overlap to SPY –the desk can trade this tight to screens on a risk and NAV basis as well as show pricing on switch trades vs SPY (trade scales well on large sizes). -QQQE(Equal weighted NDX) has also seen an uptick in interest...with the fund inflows approaching $300m YTD.This product also has a ~48% overlap to NDX; thus pricing also comes tight to the screen and can be sized on risk or vs NAV. Source:Goldman Sachs FICC & Equitiesas of September 2023. Past performance is not indicative of future results.
  8. Source:Goldman Sachs FICC & Equitiesas of September 2023. Past performance is not indicative of future results.Japan InflowsJapan funds have continued to see real demand (YTD inflows just surpassed $5.9bn), with desk activity throughout the week from LO and RIA buyers. One pocket of theJapan equity funds that has seen particular interest is JPY-hedged equities. Take a look at the growth story of WisdomTree’s DXJ: the fund has had $700m in inflows YTD. September marks a turning point for this product –DXJ inflows surpassed the velocity of EWJ inflows (the largest Japan equity fund by AUM). DXJ has a 57% overlap with EWJ and contains an inherent hedge to JPYUSD fluctuations. We are axed sellers across the Japan suite and can access liquidity in the underlying markets through Japan proxies. Source:Goldman Sachs FICC & Equitiesas 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.comUS equities appear vulnerable from a technicalperspective. As we approach quarter-end, a lot of attention is now being paid to the Street’s short gamma position on the downside. Our desk believes dealer short strikes will play a role on a sustained move lower from here, and thelatest internal metrics suggest a ~2% selloff will exacerbate this dealer short gamma dynamic while positioning is not expected to change much on rallies.4355 area is a key S&P level to watch for the systematic community. This is medium-term threshold which will bring more supply. In our baseline scenario, we estimate CTAs will sell $20bn of S&P futures over the next 1-week, which would cut about 2/3rds of their existing long position.Flow wise, post FOMC we generally saw an impulse to fade the selloff from a delta perspective, with buyers of year-end calls and a decent amount of short-dated downside structures getting unwound / restructured. From an options perspective, we haven't seen vols significantly react on down days. We still think the market would have to go a bit lower before we see a meaningful vol reaction. SPX front-month implieds are ~14 vol, keeping in line with recent realized. The cost of owning right or left-tail protection is not expensive. PCE next Friday 9/28 is next key macro data release. S&P 29Sep ATM straddle is only ~1.7%.SPX Historical Gamma at Spot ($mm)
  10. SPX Gamma Profile Across Spot Levels ($mm)From a micro vol perspective, single stock implieds have been dragged down with index and looks attractive compared to realized ahead of a busy stretch of catalyst over the next two months (earnings, analyst days, etc.). TMT has an especially packed upcoming catalyst calendar, especially for the mega caps (META Connect next week is next big focus). We are tactically biased toward owning single stock optionality in the front parts of the curve to express directional views around these events.1-month ATM implied vol for the average S&P stock is near 3yr lowsSource: Marquee PlotTool Proas of 22 Sep 2023, past performance is not indicative of future returns, access plot HERE
  11. On a normalized basis the move in 1 month ATM vol has been extreme (biggest move basically since 2022).But on an absolute basis the vol market is still extremely complacent.Source:Goldman Sachs FICC & Equitiesas of September 2023. Past performance is not indicative of future results.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.comThis is the time of year where the desk begins to field the most inquiries on tax loss selling, specifically in the mutual fund space. Last year, October marked the year’s largest active mutual fund fiscal year-end month per GS research, reaching nearly 24% of total assets under active management, followed by December (~20% of total). This could adversely affect (or already be affecting) price action in popular mutual fund overweights, with potential tax-loss selling of ytd underperformers and trimming/profit taking in ytd outperformers.Our 2023 Mutual Fund Tax Loss basket (GSCBMF23)is composed of equities most held bymutual funds that have sold off the most year-to-date and is liquid at $500m per day with no name exceeding 10% of ADV. Thebasket is down -16.5%ytd whereas the S&P 500 is up +16%.Performance of GSCBMF23 and S&P 500 year-to-date:Source:Goldman Sachs Global Markets Division, Bloomberg, as of 20-Sept-2023. Past performance is not indicative of forward results.Last year, GSCBMF22 underperformed the S&P 500 through October and outperformed the benchmark in the new year:Source:Goldman Sachs Global Markets Division, Bloomberg, as of 20-Sept-2023. Past performance is not indicative of forward results.
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