📈 5 Things You Need to Know to Start Your Week

11th August, 2024

August 12, 2024

Five Things to Start Your Week

Good morning. Our Alpha Portfolio is at +3.34% YTD.

  • Leading: SM Energy Co at +5.4%

  • Lagging: M/I Homes at -6.11%

Market Snapshot

In Asia, Taiwan Semiconductor (TSM) shows a significant gain of +11.52%, driving optimism in the tech sector, while Japan's automotive giant, Toyota Motor (TM), sees a decline of -2.56%.

In North America, Shopify (SHOP) stands out with an impressive +27.32% surge, highlighting strong investor confidence in e-commerce platforms.

Conversely, Tesla (TSLA) in Europe records a sharp decline of -5.08%, reflecting concerns over automotive and tech industries in the region.

The energy sector in South America shows resilience, with Petrobras (PBR) up by +4.56%, suggesting a positive outlook for commodity-linked stocks amidst volatile markets.

Overall, the market movements suggest a divergent approach by investors, focusing on growth in specific sectors and regions while exercising caution in others. This doesn’t look like a market of scared investors.

Turbulent Week

Stocks end a tumultuous week in a mildly positive fashion, with US futures emerging and European benchmarks gaining. The S&P 500 rebounded on Thursday, notching up its biggest one-day gain since November 2022 and sitting very close to retracing all the declines suffered in Monday’s meltdown. Treasury yields are marginally lower and the dollar a touch weaker, while the yen resumed its rise.

Stock and bond signals

The surge in the VIX, Wall Street’s fear gauge, is flashing a buy signal for stocks, according to UBS’s Solita Marcelli. She remains confident the upward trajectory for stocks will continue.

If you’re a paid subscriber, you already know what we think investors should be doing.

In bond markets, Pimco’s Daniel Ivascyn thinks there’s a “bumpy, bumpy road” ahead, but is ready to start adding Treasuries again as yields grind higher. However, the investor behind a $2.7 billion bet on long-dated Treasuries thinks that his recession call is coming to fruition.

Newsworthy

This is what’s caught our eye over the weekend.

And finally, here's what Ali’s interested in this week

What's a word for something between fear and panic?

This is what this week has felt like. Many longstanding winning trades — most notably the yen carry trade — unwound, but at least outside Japan, nothing went haywire. At this point, the S&P 500 and Nasdaq have a real shot of erasing their weekly losses by the end of today. And consider:

  • Defensive strategies generally worked through the stock selloff. Treasuries rallied, taking their 60-day correlation with the S&P 500 close to the negative territory, which indicates the two assets are hedging each other again. Among equity factors, your classic risk-off ones like low volatility and quality also gained. When your hedges work, there's less pressure to offload everything.

  • Both Goldman Sachs prime brokerage and JPMorgan data show institutional investors bought the dip on Monday.

  • The volatility spike was bad for anyone shorting it (duh), but it was nothing like a volmageddon. Equity dispersion (this year's breakout star, which goes long single-stock vol and short index vol) dropped 0.8% last Friday and another 0.9% on Monday, according to LumRisk's index aggregating bank swap products. Correlation spiked and came back down. It's higher than before this rout but still near historic lows. Equity vol carry fell 0.7% last Friday and another 1.2% on Monday. So Short Vol got hit but not killed. Relatedly, there's been some commentary on how the record spike of the VIX to 65 on Monday might not mean much because it happened when options trading was highly illiquid before the US open.

So it's true that the yen surge hit some of these trades, AI hype deflated a bit and the US economy is slowing. But the idea that a sharp US economic slowdown was going to force an emergency Fed rate cut now feels a bit like a strawman.

Ali is the Editor of The Insider Memo, Follow him on X @ASAInsights

Where to Invest? Sign up to get an email every time our weekly Alpha Picks are updated with the 10 latest stocks from our algorithm. Every month, we share a ready-made portfolio based on our expert’s high-level strategy and identify hidden opportunities for your money, whether you have $10,000, $100,000 or even $1 million to invest.

Reply

or to participate.