GS markets macro

The layout: a market narrative / directional framework ... a set of short paragraphs on the key issues of the day ... and a handful of punchy charts.

it’s probably foolish to try and predict the path of the market these days, but I gave it my best shot anyway, so I’m a taker of feedback and good ideas.

i. superficially, this was supposed to be a quieter week, but there’s still no shortage of action in the shooting gallery.

ii. Wednesday’s UST buyback announcement -- fully discussed in point #1 below -- touched off a set of moves in the macro complex that put the trading community on their feet.

iii. for the past several weeks, S&P has been chopping around the 7700 level, which recalls the two months that it spent relentlessly chopping around the 7500 level.

iv. as was the case back then, consolidation at the index level of the market obscures the churn beneath it.

v. which is to say: after three weeks of relative calm, a violent seesawing of the momentum factor returned.

vi. tech remains at the center of this dynamic; witness these daily moves in our TMT momentum pair: Monday +5.7% ... Tuesday -9.1% ... Wednesday -8.9% ... Thursday unch, thankfully.

vii. in addition, the US equity market is wrestling with some challenges from other assets -- be it volatility in the back end of global bond markets or a fresh surge in energy prices.

viii. furthermore, for those who heed the lessons of market history, we’re approaching a trickier period where implied vols typically increase into the mid-term election (see the first chart below).

ix. set against those factors, nominal growth is strong, earnings are superb and flows remain supportive (namely buybacks and retail).

x. all taken together, the nuts-and-bolts of the current setup don’t skew conclusively in one direction, but I’m still inclined to think this is the sequence: a grind higher to early September ... then a few months of consolidation / retracement ... followed by a customary charge higher to end the year.

1. US rates. this week’s podcast features Mike Mitchell, who has a front row seat for what’s going on in the Treasury market: link. we recorded this conversation immediately after the buyback announcement and spent most of the time unpacking it. my simple view: the declaration added ballast to USTs -- and it put the bears on notice - - but the market will intermittently worry about debt-and-deficits for a long time.