Even in the face of a shift in expectations for longer periods of high interest rates (markets priced in an 85% chance of a rate cut in March at the start of the year, down to about 20%) and a period of nervousness surrounding regional banks and Treasury auctions, the S&P 500 The index was still up 1.4% last week, having trended upward in 14 of the past 15 weeks, and surpassed the 5,000-point mark for the first time. This phenomenon reflects that investors currently pay more attention to improving quarterly earnings data and continued economic activity.
The past week has been a big blow to the short side, with some earnings data inspiring some short-liquidating in heavily short stocks while the "soft landing" narrative continues. For example, ARM is up more than 50% in a week and PLTR is up. More than 40%. Short semiconductor stocks has been painful this year, with shorts losing more than $7 billion in mark-to-market terms.
77% of S&P 500 companies have announced fourth-quarter 2023 results, and the overall performance is better than expected. 57% of companies significantly beat Wall Street's EPS expectations, maintaining a trend consistent with the previous two quarters and exceeding the long-term average of 48%. META's US$5 billion dividend payout and US$50 billion repurchase have attracted great attention to dividend strategies. When large companies like META start to pay dividends, it will significantly increase US stock dividend expectations. For example, Goldman Sachs will increase the dividend rate of the 2024SP500 from 4% is significantly increased to 6%, and it is reminded to pay attention to GOOGL and AMZN, the two largest companies that currently do not pay dividends. If these two companies start dividends with a dividend payout rate of 10% like META, the SP500 dividend rate can increase by 1.8 percentage points. Combined with the backdrop of falling bond yields, high-dividend strategies are poised to outperform.
Pictured: George Elgar Hicks' painting "Dividend Day at the Bank of England". A century ago, investors had limited access to information about a company's operations, and the biggest signal they could get was often a company's failure to pay dividends.
The Chinese market experienced a deep V rebound this week. The Shanghai Composite Index/CSI300 Index rose by 5% and 5.8% respectively. Small-cap and mid-cap stocks performed better due to the restricted short policy. The CSI500 and CSI1000 Index rose by 13% respectively. % and 9%. Major news includes:
According to Bloomberg, the China Securities Regulatory Commission is planning to report market conditions and the latest policy measures to President Xi.
After the new T+1 securities lending policy, the China Securities Regulatory Commission requested on February 6 to suspend the scale of new securities lending and required the stock to be gradually closed, which forced short sellers to close their positions.
On February 6, Central Huijin announced that it would continue to increase the intensity and scale of its holdings of ETFs.
On February 7, Wu Qing was appointed as the new chairman of the China Securities Regulatory Commission, replacing Yi Huiman.
CPI fell by 0.8% year-on-year (previous value -0.3), marking the fourth consecutive month of year-on-year decline and the largest single-month year-on-year decline since 2009. PPI deflation reduced to an annual rate of -2.5% (previous value -2.7) .
US stock market
"The top is a process, the bottom is a moment"
Bank of America's Hartnett quoted this adage in this week's report, meaning that market tops are often formed through gradual accumulation and sentiment building, while market bottoms can come quickly due to unexpected events or sharp shifts in sentiment. This reflects a side of investing psychology, where fear can drive rapid sell-offs, leading to sharp market declines, while greed and optimism build more slowly, leading to a gradual market top.
Close to a “sell signal” but not there yet, the Bank of America Bull and Bear Indicator is now at 6.8, anything above 8 is a reverse sell signal
AAII+NAAIM sentiment and momentum remain very positive and near top levels:
CNN signal is extremely greedy:
According to Goldman Sachs data, the total exposure of basic U.S. hedge funds has declined rapidly in the past few weeks, falling to 191.8%. This level has been in the 78th percentile over the past three years. Net leverage increased slightly for the fifth consecutive week to 55.3%. This level has been at the 57th percentile over the past three years, indicating that although the current net leverage level has increased, it is not extreme compared to the historical data over the past three years:
The long-short ratio reached 1.809. This rate has been at the 48th percentile for the past three years, which is not high:
Individual stocks have seen their largest net buying since March 2023 (1.35 standard deviations above), with mostly long buying and less short covering (4.5 to 1 ratio). But this is the first time in seven weeks that there has been collective net covering of short positions in a single stock:
Generally speaking, judging from Goldman Sachs' order book, the recent net buying/selling of hedge funds and pure long funds has been basically balanced. It seems that there is no FOMO phenomenon as the market continues to rise.
Goldman Sachs' high-beta momentum portfolio is up nearly 20% year to date. The 14-day RSI is at 80, now the most “overbought” level since March 2020:
There was barely any panic in the options market, with the Goldman Sachs Fear Index falling to almost its lowest level in a decade:
The Goldman Sachs trading desk observed extremely bullish options activity (measured by call-put skew) among the Mag6 large tech companies (META, AAPL, AMZN, GOOGL, NVDA, MSFT), which has been observed five times in the past three years, when When this options market activity occurs, returns tend to be negative over the next 2–4 weeks, meaning that when the options market is extremely bullish on these tech giants, subsequent stock price declines tend to occur.
The table below provides the following 12-month returns for the Nasdaq 100 during past episodes of similar options market activity:
According to Deutsche Bank's caliber, the comprehensive stock position has risen to the 85th percentile of history, which is high but not extreme. Deutsche Bank believes that the increase in allocation is closely related to the strengthening of recent economic data. In addition, with the arrival of the financial reporting season, the company's buyback announcements have Increase, which is also a factor in boosting demand for the stock:
Among them, the 88th percentile position of independent investors is higher, and the 78th percentile position of systematic strategy investors:
CTA capital position is at the 76th percentile, which is at a relatively high level:
U.S. stock funds experienced a relatively large net outflow last week - US$15.6 billion, the highest since mid-September:
Chinese market
Chinese equity funds overall have seen $41.1 billion in inflows over the past month, and Goldman Sachs' ETF Flow Tracker shows continued buying by the "national team" to support the market:
Foreign capital poured into A-shares and China A-share ETFs last week, with the amount reaching a record high of US$19 billion, contributing to almost all the net inflows of emerging markets:
Northbound funds have been net buying for three consecutive weeks:
The national team’s purchases are mainly concentrated on the 300 series ETF:
The stocks most bought and sold by southbound funds:
The stocks most bought and sold by northbound funds:
The national team holds A shares worth 3.2 trillion yuan, accounting for 4% of the free float market value:
Goldman Sachs estimates that the “national team” purchased approximately RMB 70 billion of A-shares in the past month (excluding this week), but based on history, approximately RMB 200 billion (accounting for 0.8% of the free float market value) may be used to stabilize the market in the short term. The lowest threshold, as shown in the figure below. Historically, only when the national team’s purchase exceeds 0.8%, the subsequent CSI 300 Index has a significant positive return:
It is estimated that the current free-floating market value of A-shares held by foreign investors is only 4.4%, equivalent to approximately US$138 billion, of which 65 billion belongs to active funds. If they are all sold out (which is of course unlikely), the selling pressure will be controllable, especially considering the current situation. China’s domestic capital is more sticky and is currently unable to sell or is reluctant to sell:
Including Hong Kong stocks and more extreme foreign investment sell-offs, the national team needs 30 to 750 billion US dollars to stabilize the market. Of course, 750 billion is assuming that all foreign capital in A and Hong Kong stocks leave:
National team positions:
Industry profit revisions for the MSCI China Index and CSI300 Index:
Goldman Sachs screens the basket of stocks that could potentially benefit from the national team’s purchases, considering whether they are industries favored by the national team, have index weights, have high and stable cash flows, and are high-quality state-owned enterprises:
These 28 national team beneficiaries with a GS Buy rating have generally performed slightly better than the A-share market in the past year:
Strategies on how to trade stocks that may be bought by "The National Team":
National Team’s Sector Preference: National Team favored the financial and industrial sectors during market intervention, accounting for 38% and 21% of its estimated purchases respectively. The report recommends focusing on stocks in these industries with low foreign ownership and solid fundamentals.
Index/ETF heavyweight stocks: Market intervention is more ETF-oriented. This means stocks with a larger weighting in the underlying index may experience excess returns.
Stable and high cash returns: In the context of the global interest rate cycle in 2024, cash return strategies are favored. Stocks with low price-to-earnings ratios but high and stable dividend yields are seen as attractive options, especially at a time in history when index dividend yields are higher than 10-year government bond yields for the first time. In addition, paying attention to repurchases is also an important source of returns.
High-quality state-owned enterprises (SOEs): Continue to recommend high-quality state-owned enterprises. These companies have sound fundamentals, high ROE, and attractive valuations, corporate governance, and dividends. These factors make them attractive to national teams.
cryptocurrency market
ETFs continue to see net inflows but at a slower pace
Three weeks have passed since the BTC ETF started trading, with total inflows of $7.8 billion (excluding GBTC), with IBIT (iShares) and FBTC (Fidelity) leading the way with AUM of $3.2 billion and $27 respectively. One hundred million U.S. dollars. But overall inflows have slowed. GBTC generated net outflows of $6.1 billion. Since converting to an ETF, GBTC's AUM has fallen by 20%. The peak of redemptions occurred in the first week of trading, and the daily net outflow has gradually slowed from $640 million to There is a net outflow of US$80 million per day.
It is unclear how much of the demand is retail-driven and how much institutional-driven; nor is it clear how much of the GBTC redemptions were converted into other BTC ETFs. Only when GBTC redemptions stabilize will we have a better understanding of whether market demand for BTC ETFs is a backlog of demand or a shift away from GBTC.
There were reports that FTX had liquidated a majority of its GBTC shares, which was cited as one of the reasons for the redemptions. Cryptocurrency lender Genesis is reportedly asking the bankruptcy court to approve a $1.4 billion GBTC stake sale – and the market will be watching closely to see if approval is granted.
CME hedge fund and asset manager positions have been little changed over the past two weeks, with short covering paused:
Miners sell, MSTR buys
The next Bitcoin halving will come in April 2024 – mining rewards will be reduced from 6.25 Bitcoin per block to 3.125 Bitcoin. As the halving approaches, miners are increasingly selling their Bitcoin reserves. In January alone, miners are estimated to have sent 142,000 Bitcoin to exchanges. We can see that the average daily number of Bitcoins sent to exchanges is trending upward:
But there are also institutions focused on increasing exposure – MicroStrategy’s latest filing shows that holders of the largest publicly traded company bought an additional 850 Bitcoin (worth $37.5 million) in January and now hold 190,000 Bitcoin currency.
Dencun upgrade is far less popular than Shapella
Ethereum’s next protocol upgrade – Dencun, the last test network before this, Holesky, has been successfully upgraded, and the date for the mainnet upgrade will be announced soon. Before the last upgrade, Shapella, in April 2023, the market was focused on the impact of withdrawals and a possible sell-off of ETH, which was used as a switch from Proof of Work (PoW) to Proof of Stake. , PoS) and locked as part of the transition. The build-up of market enthusiasm before the Shapella upgrade was obvious, and the market after the FTX collapse was looking for any signs of constructive progress. The corresponding price of ETH surged by 51% in the first quarter of 2023, reaching a high of $2,100. , which in hindsight was almost ETH’s highest price level in 2023.
Now that it is about to enter the Dencun phase, the market’s focus on ETH price expectations seems to have weakened. The various narratives surrounding ETH have also taken a backseat. Instead, the market is focusing more on layer-2 protocols that rely on Ethereum’s security and may benefit from upgrades. Dencun's main impact will be to increase data availability for its layer-2 network rollups through proto-danksharding, thereby reducing rollup transaction costs. These benefits will be passed on to end users. Dencun will effectively reduce the operating costs of layer2. These benefits may not be immediate as it will also depend on how quickly layer 2 can support Dencun.
In addition, sentiment regarding the potential adoption of an Ethereum ETF does not seem to have been fully released, with the U.S. SEC explicitly removing it (and Bitcoin) from the list of 67 tokens considered securities in June last year. In addition, Ethereum futures are also traded on the CME Group, and the SEC already has monitoring and protection measures for futures-based ETFs under existing protocols, which may make it difficult for the SEC to arbitrarily veto spot Ethereum ETFs. And like Bitcoin, Ethereum is highly decentralized and has a long operating history. The adoption of an Ethereum ETF is only a matter of time.
institutional perspective
[MorningStar: In addition to the top seven, there are also these wide-moat stocks]
Based on the strength of network effects, the extent of switching costs involved, intangible assets such as patents and brand identities, cost advantages and efficiencies, Morningstar analyst research suggests that wide-moat stocks account for only 12% of the U.S. market index. A wide moat means it will have a market advantage of more than 20 years. Companies with narrow moats are expected to avoid competitors in 10 years. For example, Morningstar believes that Tesla has a narrow moat, while Mag6 has a wide moat (NVDA, META, AAPL, AMZN, MSFT, GOOGL), except for a few people who are familiar with it. Companies include Broadcom AVGO, Eli Lilly LLY, JPMorgan Chase JPM, and Salesforce CRM. These wide-moat stocks are also worthy of attention.
[Bank of America: As long as we don’t see a broad collapse in the stock market, a bullish stance is still advisable]
According to Bank of America's "Global Equity Risk-Love" indicator, global market sentiment is in a state of euphoria and is at the 83rd percentile of historical data going back to 1987. The sentiment has not changed significantly since last month, suggesting investor enthusiasm remains steady as global stocks head toward new highs. In a bull market, euphoria is not a bad thing, although excessive optimism can lead to a market correction.
According to historical data, in the past 23 times when euphoria lasted for more than 4 weeks, global stocks rose by an average of 3.7% in the next 6 months. It is worth noting that among these 22 events, 40%, or 9 events, experienced a correction. Less than 2%, because prolonged pleasure usually leads to positive outcomes.
As long as there are no signs of a broad collapse in the stock market, a bullish stance is still desirable, and many investors have underestimated the current actual situation. Investment sentiment in Asia and emerging markets is mostly neutral. Although China's stock market fell 19%, China's investment sentiment also returned to low neutral. Investor sentiment in emerging markets such as India is also relatively stable.
Market breadth refers to the number of individual stocks or industries participating in pulling up the market. When most stocks or industries are rising, breadth is better; when only a few stocks or industries are rising, breadth is poor.
LD Capital
As a global blockchain investment firm, we have built a portfolio of over 250 investments since 2016, spanning across various sectors, including infrastructure, DeFi, GameFi, AI, and the Ethereum ecosystem. We focus on investing in projects with disruptive innovations, actively taking on the role of primary investors, and providing comprehensive post-investment services to these projects. We employ a combination of direct investment from our own funds and a distributed fund model to cover all-stages of investment.
Trend Research
Trend Research division specializes in crypto hedge funds focusing on secondary areas within the crypto market. Our team members come from top platforms and institutions like Binance and CITIC. We excel in macroeconomics, industry trends, and project data analysis, with trend, hedge, and liquidity funds.
Cycle Trading
We specialize in Web3 project investment and service, with a strong emphasis on Infra, applications, and AI. We have a team of nearly 20 senior engineers and dozens of crypto experts as advisors, assisting projects in strategic design, capital platform relations, and liquidity enhancement.
website: ldcap.com
twitter: twitter.com/ld_capital
mail: BP@ldcap.com
medium:ld-capital.medium.com
