Thanks to this performance rebound, overall book gross leverage increased 2.9% to 238.6% (46th percentile one-year) and Net leverage also rose 1.2 pts to 79.5% (2nd percentile one-year). Still, overall book L/S ratio little changed at 1.998 (lowest since Jul ‘20). Fundamental L/S Gross leverage +2.5 pts to 178.7% (59th percentile one-year) and Fundamental L/S Net lev erage +2.5 pts – the first increase in 7 weeks – to 60.2% (6th percentile one-year)...
Not surprisingly, just days after Goldman Prime reported the biggest bout of shorting in history...
The GS Prime book saw the largest net buying since late December (+1.0 SDs), driven by risk-on flows with long buys outpacing short sales 8 to 1. Net flows diverged between Single Names (3rd straight week of net buying) and Macro Products (4th straight week of net selling); suggesting a shift of focus to micro variables. Furthermore, as GS Prime notes, all regions were net bought led by North America (driven by long buys) and to a lesser extent DM Asia (driven by short covers). 8 of 11 global sectors were net bought led in $ terms by Info Tech, Materials, Financials, and Consumer Disc, while Comm Svcs and Energy were the most net sold. Net buying in US Info Tech continued this week but hedge funds sold Non Profitable Tech stocks (GSXUNPTC) in each of the past three days, suggesting that managers faded the group’s price rally this week amid a growing focus on profitability. While price of the Non Profitable Tech basket is down nearly 50% from its all-time high, net exposure in the group remains well above historical averages...
US Financials have been net bought for five straight days led by long buys and short covers in Rate Sensitive Financials amid a higher than expected US CPI print and higher bond yields. Despite this week’s buying activity, net exposure in Rate Sensitive Financials, at just 1.3% of the overall US single name book, remains well below its long-term average in the 63rd percentile vs. the past year and in the 37th percentile vs. the levels seen going back to Jan ‘18...
From Goldman, we switch to JPMorgan's Prime desk which writes that in light of the volatility we’ve continued to see in equity markets recently, "it’s interesting to note that while we didn’t see clear signs of consistent HF capitulation a couple weeks ago, post some dip buying 2 weeks ago, we have also not seen a desire to add much additional risk over the past week." If anything, the bank notes that “sell the rally” behavior has been apparent in some parts of the market (generally in the US and somewhat specifically in Tech). In general, JPM concludes that there were some data points across volatility metrics, retail & ETF flows, as well as a few HF-related points that suggested a fairly negative change in positioning right near the Jan low. Thus, there might still be room for further upside in near term, but how the market rallies and whether we see a “double dip” will be important to watch....
