Morning Roundup

By Mark Masterson on June 21, 2024

Good morning,

Below are the news items moving markets today:

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Executive Summary:

Happy Friday!

I mentioned on Monday that it would be a strange week.  We had the mid-week holiday, and today we have the largest options expiration in history. 

According to TierOneAlpha, we have a record $3 TRILLION in S&P 500 open interest will expire or roll on Friday’s June Options Expiration.

The total options expiring are over $5 trillion. 

Zerohedge 6 21 24

We had some economic data today……

• SERVICES PMI (FRI.)
• MANUFACTURING PMI (FRI.)
• EXISTING HOME SALES (FRI.)

We continue to see the economic data getting weaker.  In fact, the Citi US economic surprise index has fallen to about the most negative since 2022

@daniburgz 6 21 24

You can see that it has been much more negative in the past – so while the trend is down – its not at extremes yet.

Win Smart, CFA 6 21 24

Interesting overlay of the 10 Year Treasury yield versus the economic surprise index.

This implies that bond yields should move lower – with bonds rallying into a slowing economy. (if the correlation holds as it has in the past)

Lawrence McDonald 6 21 24

Interesting that as the economic surprises have come in weaker, the expectations for a soft landing have risen.  Only 5% expect a hard landing or recession at this point…..

BofA 6 20 24

It is clear to me that most of the growth is driven by government spending and deficits – especially in an election year.

Here is Janet Yellen in an interview yesterday…….

• https://www.breitbart.com/clips/2024/06/21/yellen-we-have-normal-national-debt-interest-burden/
• During an interview aired on Thursday’s broadcast of the Fox News Channel’s “Your World,” Treasury Secretary Janet Yellen stated that the current interest burden of the national debt is at a “normal” level, but President Joe Biden wants to cut the deficit “and doing that would be compatible with making investments in the economy that are necessary to support its growth. But we’re going to have to let important pieces of the Tax Cut[s] and Job[s] Act expire.”
• Yellen said, “Well, the debt — the ratio of debt to GDP — we have a very large economy, and the ratio of debt to GDP is about 100%, which is high in historical terms. But real interest rates are lower than they have been throughout much of our history. And so, right now, the interest burden of the debt is at what I would call normal historical levels. To stay there over the next decade or more, it’s necessary to contain deficits and to counter what would otherwise be an increase in the burden of the debt.”
• She added, “I think it’s necessary to contain deficits, and the President’s budget is full of proposals to do exactly that. He’s proposed three trillion dollars in deficit reduction over the next decade, and doing that would be compatible with making investments in the economy that are necessary to support its growth. But we’re going to have to let important pieces of the Tax Cut[s] and Job[s] Act expire. The President wants to protect households making under $400,000, but that was a huge deficit-increasing tax cut and it has lowered our tax revenues and resulted in a huge increase in debt.”

Always interesting to see Yellen talk about the need to contain deficits – while running the largest non-wartime deficits in history.

Much more below in the charts……

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Articles of Interest:

• Central banks:
  • Richmond Fed’s Barkin wants more conviction on inflation path before cutting rates (Bloomberg)
  • Fed’s Goolsbee sees Fed in position to cut rates if inflation continues to cool like it did last month (Bloomberg)
  • Fed’s Kashkari says could take up to two years to achieve 2% inflation (link)
• Markets:
  • AI frenzy drives record inflows into tech funds (Bloomberg)
  • Nvidia record rally leaves investors wondering whether to sell and cash in, or buy on hopes for more upside (Reuters)
  • Tech investor trimming his Nvidia holdings after questioning earnings growth prospects (Bloomberg)
  • Friday’s Triple Witching will see ~$5.5T of options expire (Bloomberg)
  • Yen falls to 34-year lows, nears level that triggered suspected intervention in April (Bloomberg)
  • PBOC’s stronger-than-expected yuan fixing signals intent to manage decline (Bloomberg, Reuters)
• Economy:
  • US mortgage rates fall to lowest since early April (Bloomberg)
  • American tourists becoming Europe’s new economic engine but locals have to deal with rise in costs (link)
• Washington:
  • US election debate seen as moment for Biden to shift momentum against Trump (FT, Reuters)
  • Trump erases Biden’s cash advantage in fundraising (NY Times, Politico); will be factor in VP pick (Axios)
  • Biden pouring millions into swing states Democrats have not won since Obama in 2008 (link)
  • Supreme Court upholds US tax on American-owned business’ foreign profits (Bloomberg)
• Geopolitics:
  • US-China resume semi-official nuclear arms talks in March for the first time in five years (Reuters)
  • Canada preparing to follow EU in imposing new tariffs on China EV imports (Bloomberg)

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Charts of the day:

There is a great deal of complacency in the markets today.

The latest BofA survey shows that investors are the most bullish in 31 months…..

• BofA’s latest Global Fund Manager Survey showed investors most bullish since Nov-21, though still said sentiment still not yet extreme despite FMS cash level of 4.0% lowest since Jun-21.
• Investors most overweight stocks and underweight bonds since Nov-22 as soft landing has become consensus call and hard landing views hit new lows.
• Inflation remains biggest tail risk, though fell m/m as geopolitics and US election increased. Mag 7 among most crowded trade on record at 69%, though report also noted allocation to tech fell to 20% overweight, lowest since Oct-21 and off 36% peak in Feb-24.
• Report in line with bullishness across Street as a number of strategists have raised outlook on US stocks (Bloomberg), though contrasts with increasingly cautious stance from hedge funds over Fed’s reluctance to cut, uncertain economic data, narrow market breadth, and growing geopolitical risk (Bloomberg).

Why not?  The market has been historically calm.  In fact, it has been 333 trading sessions since the S&P 500 last experienced a 2% decline in a single day.

Lance Roberts/ Daily Shot 6 20 24

This has pushed up the tech heavy Nasdaq.  In fact, the Nasdaq index is now the most overbought since February 2018. 

Bloomberg 6 20 24

It’s interesting to see the Nasdaq and its advance/decline lines disconnect.  They historically move together.

You can see below there are disconnected today.

I attribute that to the major concentration in just a few names.  While the index goes up, many stocks are losing ground.

Swordfish Trading 6 20 24

It’s the same for the S&P 500.

They have disconnected because fewer and fewer stocks are powering the index higher.

All Star Charts 6 20 24

As BofA points out, “Long Magnificent 7” remains the most crowded trade for the 15th consecutive month and is now the most crowded trade at 69%.

BofA 6 20 24

We have just seen the largest weekly flows into tech….ever.

BofA 6 21 24

As Morgan Stanley points out, just 19% of US stocks have managed to outperform the wider market in the last month, the worst breadth in at least 20 years

Morgan Stanley 6 21 24

Nearly all of the returns have come from 10 names…..

The top 10 S&P stocks have contributed to 74% of the return in the market this year

Markets and Mayhem 6 21 24

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Quote of the day:

“In the business world, the rearview mirror is always clearer than the windshield.”

— Warren Buffett