The Market Ear with more.
What could go wrong?
Steve Cohen expects a significant correction. Warren is hoarding more cash than ever. Some valuations metrics say that this is the most overvalued market ever. Hedge funds, long-onlies, retail and CTAs are all close to max long. What could go wrong…?
Retail Retreat
Retail investors turned into small sellers last week. The size of selling is too small to explain the market move on Friday but suggests retail investors were not buying the dip on Friday (=change of behavior). And there is a lot of potential to sell….
Source: GS
Retail: Look out below
Retail’s favorite stocks flirting with 2021 levels. Downside potential…
Source: GS
At late 2021 pandemic equity boom levels
Net call volume climbed, taking the put/call volume ratio to late 2021 pandemic equity boom levels.
Source: Deutsche
Tech positioning very elevated
Heading into NVDA’s earnings release this week, positioning in mega-cap growth and Tech remains very elevated (97th percentile) and well above levels implied by earnings growth.
Source: Deutsche
Systematics
Systematics are at an overall 82%-tile, with volatility control the most extreme at 98% and risk-parity the least extreme at 40%.
Source: Deutsche
Challenging CTA dynamics
Equities and CTA dynamics are increasingly unstable, says GS trading desk.
“A 10% drop in equities could unleash approximately $200 billion in systematic selling over a one -month down tape, with a third of that coming from US markets.” (GS)
Source: GS
Steve’s speaking
On Friday, billionaire Steve Cohen, founder of Point72 Asset Management, described a bearish outlook at the Future Investment Initiative Institute’s summit in Miami Beach. He pointed to sticky inflation, slowing growth, and the possibility of retaliatory tariffs as drags on the US economy. “I’m actually pretty negative for the first time in a while,” Cohen said. “It may only last a year or so, but it’s definitely a period where I think the best gains have been had and wouldn’t surprise me to see a significant correction.” Cohen also accentuated the possible negative effects of the Musk-led Department of Government Efficiency. (Yardeni)
Warren’s hoarding
Berkshire Hathaway is holding over 27% of their assets in cash, the highest percentage on record.
Source: DOW
Most overvalued ever
US stocks are at the most overvalued level in history, according to this combined metric.
Source: Elliot Wave
‘Tis a bubble, for sure. But where is the army of spruikers saying it can only go up?
