Charts of the Week

Happy Monday, friends! We’ve got quite an interesting week ahead of us, what with the Fed doing whatever they can to convince markets that they aren’t done hiking — with those same markets saying with some degree of certainty that they are!

Consumer Check-Up

How are consumers holding up? Some signs show increasing stress. Excess savings have been exhausted, for one.

Another sign is that more consumers are saying credit is becoming harder to access vs a year ago. The combination of depleted excess savings and tightening credit is something that could create a drag on demand, particularly from the bottom 50% in terms of wealth and income.

Price is Now Free to Move About the Cabin

After last week’s record $3.4 trillion OpEx, most of the gamma exposure in SPX rolled off, leaving the least remaining gamma exposure ever following a quarterly roll-off. That means that price is likely to be less constrained by options positioning and could move more freely.

Long Big Tech and Short China are the Most Popular Trading Themes

The latest BofA Global Fund Manager Survey shows that fund managers continue to favor the long big tech and short China trade, with increasing conviction on the latter. Interesting, long Japanese equities is barely on their radar. Another reason we remain bullish on that particular trade.

The consensus on China is about as bad as it can get, with a net 0% reading of fund managers expecting a stronger economy.

Hedge fund net exposure to China resembles what we saw in late 2022 before the reopening rumors began to flood the news. Is the hatred here a bit much? It’s possible.

Real Estate Review

Investor growth in real estate purchases fell 45% year-over-year to the lowest levels since 2008.

The cost of owning a home in the US hit all-time highs for most buyers in the US.

While the sales price of new homes continues to fall as home builders make larger concessions to move inventory with mortgage rates near the highest levels in 22 years.

Multifamily units have been all the rage among builders, with the US on track to build the most apartments ever this year.

There’s Alpha Out There in Leveraged Loans

Wouldn’t you know it? The riskier part of the fixed income market, leveraged loans, is seeing returns that leave junk and investment grade debt behind.

Extreme Flows

Money markets are set for a record $1.5 trillion inflow this year if inflows continue at this pace.

Equities also saw an extreme flow last week, the largest inflow since March of 2022 when there was a rather large bear market rally.

Time for a Breather?

S&P 500 buybacks are entering the blackout period, which intensifies as we approach earnings season. This will reduce passive flows into stocks with buyback programs about 4-6 weeks prior to their earnings reports.

With those supportive buyback flows gone, we’re also approaching the seasonal trough in volatility, suggesting that price action may experience wider ranges in the weeks ahead. Particularly with such a large gamma roll-off behind us after September OpEx last week.

Time for Fresh Blood?

The US Congress has an increasingly aged composition, particularly within ages 70 and up.

Energy in Focus

Despite drawing down the SPR to the lowest levels since 1985, gas prices are up from just over $2 to about $3.75 in the US over the course of this presidency.

Diesel fuel rose 41% last month, which is disconcerting to say the least given its importance for transporting goods as well as growing food. The knock-on inflationary impacts should this price firming continue could be rather significant.

Inflation Continues to Accelerate Globally

We’ve seen signs in other countries, including Turkey, Argentina, Israel, and South Korea where inflation is accelerating. Egypt is also seeing rather extreme levels, where year-over-year the rate of inflation rose to a staggering 37.4%.

Always Manage Your Risk

No matter how you trade or invest, risk should be given careful attention. It takes a lot more gains to make up for the pains if one sees a large drawdown.

In Closing

As always I hope that you enjoyed this Charts of the Week. If you have any questions or feedback let us know in the comments below!