That massive disconnect from rates. Why is it so?

Forgetting yields

The S&P 500 P/E has moved up despite the increase in yields. The disconnect from rates has been one of the big conundrums in 2023. Let’s look at some charts, and then some possible explanations and lastly if the reversion actually now has started.

Source: Goldman

The crocodile gap

The longer term gap between NASDAQ and the US 10 year remains huge.

Source: Refinitiv

Cyclicals de-coupled

Cyclicals rolled over even as bond yields moved higher…This is not suppossed to happen.

Source: JPM Equity strategy

Value de-coupled

Also the performance of Value has dislocated from the move up in bond yields.

Source: Goldman Why the massive disconnect?

1 – We have passed the magic level

“4%” represents a threshold in the level of bond yields where higher rates flip from being “bad” to “good” for growth or expensive stocks. Historically, since 1990, the correlation between the direction of yields and factor performance has been weaker or even in reverse at higher levels of bond yields, such as the level we have today. Moreover, in theory, the “duration risk” for long duration (i.e. high growth) equities becomes lower at higher levels of yields.

Source: Sanford Bernstein

2 – AI is the answer…

“The outperformance of the technology sector (the Nasdaq, for example, is up 42% this year and the MSCI World up 15%) has occurred despite the impact of higher interest rates. This is very different from the experience of 2022 when higher interest rates, driven by the rise in inflation, prompted a de-rating of the technology sector owing to its ‘long duration’, or sensitivity to rising discount rates. The implication is that investors are assuming much higher future growth rates to offset higher discount rates.”

Source: Goldman

3 – Bad news is good news now, but only up to a point

In general, equities like a falling 2Y yield when yield is above 4% — but not in recessions.

Source: Macrobond

4- Maybe it was just one of those “glitches”?

It looks like NASDAQ finally has started to notice the latest move in rates…The connection between tech and the US 10 year has actually been strong since mid July.

Source: Refinitiv

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Sudden fear: As Apple goes…

Apple – haven’t seen this in a while

The Apple China bear story continues today again. The stock is down almost 3% in pre market. That means Apple has gone from trading “well” above the 50 day moving average, to trading below the 100 day in 2 sessions. We haven’t seen that in a long time. Note the 200 day is down at 164 ish at the moment.

Source: Refinitiv

As Apple goes…

…goes the market? Apple remains the biggest “sentimentor” out there.

Source: Refinitiv

AAPL: Looking like the old IBM?

1. Apple’s recent results were quite similar to IBM’s on a topline basis, with Apple seeing a third straight quarter of negative YoY revenue growth.

2. Bernstein finds that financial comparisons with IBM two decades ago are not unfounded: “Apple between 2015 and 2023 has had strikingly similar pre-tax income and EPS growth as IBM did between 1997 and 2012.”

3. Apple has seen a dramatic re-rating, especially between 2019-2021, resulting in the stock going from a below market multiple at ~11z in 2015 to ~29x today.

4. Bernstein sees two takeaways we can learn from IBM twenty years ago for Apple today (a) “….revenue growth matters, and strong EPS growth absent revenue growth is unlikely to be afforded a rich multiple…(b) customer lock-in can prove ephemeral when platforms change. IBM’s strength in mainframes and associated account control once seemed unassailable, but the world moved to industry standard servers and the cloud”

(Sanford Bernstein)

AaaS = Peak?

You could make a case for when the buycase rests on the “ecosystem” we are close to peak. GS from earlier this month: “We are Buy-rated on AAPL as we believe that the market’s focus on slower product revenue growth masks the strength of the Apple ecosystem and associated revenue durability & visibility. The durability of Apple’s installed base and the resulting revenue growth visibility from attaching more Services and Products is what underpins the recurring revenue — or Apple-as-a-Service — opportunity.” (GS)

Apple’s sudden “fear”

Massive down day for Apple with VXAPL exploding to the upside in yesterday’s session. Not really what they wanted pre the iPhone 15 launch. UBS adds some additional color: “The smartphone supply chain may also face pressure as US lawmakers said China’s top chipmaker SMIC “warrants investigation” for potentially having violated US sanctions by supplying components to Huawei. Taiwanese contract electronics giant Hon Hai Precision, which is Apple’s main assembler, earlier this week reported August sales down 12% m/m and 8% y/y, a 5-month low.”

Source: Refinitiv

Will it spill over?

Will the “sudden” surge in Apple volatility spill over to the rest of the market? VXAPL vs VIX.

Source: Refinitiv

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Butterfly effects? Risk is global

Butterfly effects in Mexico

We have seen some major moves in the MXN over the past sessions. Has the JPY carry trade gone ahead of itself and we are seeing early signs of something more serious taking place in FX land? Piling into the MXN has been a very popular trade over the past 1-2 years. John Authers: “…could warn that some of the stranger trends in foreign exchange are about to crack.”

Source: Refinitiv

Risk is global

You don’t trade SPX on the back of the MXN, but you observe exotic FX moves closely as risk is traded globally. Wax on, wax off anyone?

Source: Refinitiv

Watch sudden “exotic” FX moves

You don’t trade the VIX on the back of MXN volatility, but you pay close attention to whether or not something is going on beyond just the “simple” stuff…

Source: Refinitiv

“It Definitely Wasn’t Barack’s First Time”: Obama’s Crack-Fueled Gay Tryst Accuser Talks To Tucker

The post iFall: Beijing Batters US Tech, Bonds & Bitcoin Bid appeared first on Crypto News Australia.

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Filed under: Bitcoin - @ September 7, 2023 8:23 pm