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Is This The Market Bottom? JPMorgan Explains

Is This The Market Bottom? JPMorgan Explains

Two days ago we shared the latest thoughts from Morgan Stanley’s QDS (quant and derivative desk)…

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Is This The Market Bottom? JPMorgan Explains

Two days ago we shared the latest thoughts from Morgan Stanley's QDS (quant and derivative desk) discussing what the "market bottom" may look like. Today we turn our attention to a similar line of inquiry, only this time from JPMorgan's flow desk, courtesy of Andrew Tyler (full note available to professional subs).

"When is when?" for the market bottom?

From a flows perspective Nikos Panagirtzoglou feels that a protracted outflow is unlikely and from a positioning perspective John Schlegel and team highlight both the “bear case” from the “bounce case”.

The SPX closed at 15.8x consensus 2023 ($249) estimates and trades at 17.3x CY estimates ($228); the SPX’s lifetime average P/E is 16.9x (BBG). Stocks are not necessarily cheap and it may be the case that investors require a larger discount before jumping in.

From a macro perspective, the China COVID lockdown situation will be adjudicated in a matter of weeks (or months) but one has to wonder about the RU/UKR situation now that we are seeing additional supply disruptions of commodity exports (natgas in this case), Russia beginning to punch back on sanctions (levelling their own), and with Sweden/Finland aiming to join NATO what is Putin’s reaction function?

Mapping back to the US, the more time spent at elevated inflation will increase the fear that the Fed eventually has to step-up its tightening efforts, which typically ends in a recession. The counterargument to this last point is, how much farther beyond neutral would the Fed have to go to counteract the elevated consumer cash pile?

Further, recessions typically are initiated by a credit crunch that leads to higher unemployment. Given the state of corporate balance sheets, how quickly could these conditions change to force some distress?

Next, looking at the latest equity fund flow data, JPM is skeptical of the idea that April’s equity fund outflow, the highest outflow since March 2020, is only the beginning of a likely more protracted phase of outflows in reversal to 2021’s record inflows.

By taking into account both flows and performance, the bank calculates that equity funds globally lost $6.1tr of AUM YTD, effectively  reversing 60% of last year’s increase. At the same time, bond funds lost $2.1tr of AUM YTD, reversing 80% of last year’s increase.

In addition, the younger cohorts of US retail investors, which have been investing in the equity market via individual stocks rather than equity funds, have been de-risking since at least last October and their de-risking appears to be well advanced.

Shifting away from fundamentals, in its search for a bottom, JPMorgan next look at where else could positioning still fall and how
extreme is positioning now?

As we try to assess when we might see a bottom, where are there places where positioning could still fall:

1. Aggregate positioning levels...more room to fall to get to prior extremes? The average 1-yr z-score is near a -2z level (i.e. quite low) for the 6 positioning level metrics in our Tactical Positioning Monitor (TPM). However, when using the full historical data available for each time series, the low was -1.4z in Feb 2016, -1.8z in Dec 2018, and -1.6z in Mar 2020. This compares to the latest reading as of Mon at only -0.8z, i.e. there’s still room for this to fall.

2. Retail flows...could we see larger capitulation? When we look at the single-stock flow, the shift towards less buying / more selling over the past 6 months is quite notable. That said, the magnitude of buying in 2020 (post March) through late 2021 was quite large (i.e. selling could take some time to reverse this) and the recent selling has not quite hit the same levels we saw at the end of 2018 or March 2020.

3. ETF flows...does the euphoric rise in 2021 have to fall back to earth? Looking at the rolling 12M inflows to US ETFs, the outsized inflows in 2021 are fairly apparent. Given the lows we saw in late 2011, late 2015, and late 2018, all of which coincided with market lows, could this be something that continues to deflate and generally creates headwinds for the market until it’s done falling?

As JPM concedes, these are all fairly “bear case” scenarios and not ones that have to play out per se, but given the way the market has been behaving recently, the bank "cannot rule out something like this playing out over time."

On the other hand, and from a more tactical (i.e. very near term) standpoint, the bank writes that there are multiple metrics that suggest we could be closer to a bounce than before, including:

  1. The magnitude of the drawdown in net and gross exposures (-33% for net and - 30% for gross) in N. America among L/S funds is now similar to the early 2016 and March 2020 declines
  2. Retail flows in single-stocks have been very negative over the past 3 days, which has generally coincided with short-term lows over the past 6 months.
  3. The drawdown in “risky” factors (e.g. high vol, small cap, low profitability) is one of the most extreme of the past 20+ years and the S&P has rallied over the following 1-3 months post hitting similar extremes
  4. Buying of Defensives and selling of Cyclicals is also one of the most extreme with Staples vs. Discretionary in particular looking stretched

Next, turning attention to retail traders, who as we explained previously have emerged as the marginal price setters in a market where hedge funds have massively degrossed/delevered, JPM writes that "retail traders net bought $1.1B in the equity market this past week, 1.5 standard deviations below the 1Y average of $3.3B." But more notably they turned outright sellers this week and sold a combined $1.9B in the last two days, which represented the largest two-day outflow in 14 months.

Indeed, as we discussed on Tuesday, the retail buying impulse showed signs of slowing before this latest burst of selling. After adjusting for inverse ETFs, not only is the May MTD net flow negative for the first time since Mar-2020, but also the monthly inflow in April was smallest since Sep-2020.

According to JPM, "the recent market performance undoubtedly played an important role in retail traders’ bearish turn." Looking ahead, the bank estimates that retail traders collectively made approximately 6% return since Jan-2020, significantly underperforming the 24% return of the S&P 500...

... although they appear to be outperforming the much more "sophisticated" risk parity funds who are red since Jan 2020.

Much of the gains made during the pandemic were given back in the last six months. Their activities have also declined, and currently account for approximately 12% of the market volume, down from around 20% at the peak in Jan 2021.

In the options market, retail traders bought $1.6B of delta. SPY/SPX accounted for ~$900MM of the imbalance, and QQQ ~$400MM. TSLA contributed to another $400MM in delta, mostly in the form of put selling. Gamma continued to be in demand (+$1.1B  imbalance). UVXY remained one of the retail favorites, and represented a net buying of ~9MM Vega in VIX futures.

Non-retail market order net sold -$11B this past week. Rotation was observed in favor of the Energy sector (1Y Z-score +2.5) over Technology (-1.9z). Similarly, in the factor space, Value was bought (+1.5z) vs. Quality sold (-2.5z).

* * *

Finally, going back to a point we made earlier this week, that the bottom this time won't be a capitulatory puke, but more likely consistent selling which fades as it burns out, to wit:

... signs of a market bottom are unlikely to resemble traditional "capitulation" that’s played out in the last few years. Why? Because traditional capitulation is typically marked by a quick de-grossing by hedge funds + systematic macro strategies, where positioning is already light. Instead, the next leg of de-risking is likely to be more gradual, coming from asset allocators/real money/retail and is therefore likely slower to play out, making a precise bottom more difficult to call.

... we first note that as of this morning, the max drawdown in the Nasdaq from its all time high to today has surpassed 30% and is now more than the March 2020 pandemic crash...

... and according to SpotGamma, "it seems clear there is major delevering/degrossing (aka “natural sellers”) and that may be what is bringing the large, persistent selling. Put holders aren’t materially closing positions, and they aren’t doing much buying either."

As SpotGamma further writes, this is still a tale of “many markets” wherein stock correlations have not moved to one, and as a result, there hasn’t been any index capitulation (yet) with certain stocks fairing relatively well. Take AAPL for example which is “top quality”, and you can see that IV’s are elevated but not “jumping” increasing despite lower-lows.

Still, with this last SPX move lower, SpotGamma's Delta Tilt reading now matches that of previous major lows, suggesting again that we are at “peak puts”, and (barring a massive rally) there is little to change this signal before 5/20 wherein we’ll lose about 25% of total S&P500 gamma.

Looking ahead, SpotGamma predicts that there is no reason here for volatility sellers to step in, or for puts to be covered, until the May 20 op-ex. That expiration will force some put covering, and the question is will the positive deltas flowing from OPEX be enough to overwhelm whatever “natural sellers” remain.

For more, please read the full JPM note available to professional subs in the usual place.

Tyler Durden Fri, 05/13/2022 - 17:11

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International

“Extreme Events”: US Cancer Deaths Spiked In 2021 And 2022 In “Large Excess Over Trend”

"Extreme Events": US Cancer Deaths Spiked In 2021 And 2022 In "Large Excess Over Trend"

Cancer deaths in the United States spiked in 2021…

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March 16, 2024

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"Extreme Events": US Cancer Deaths Spiked In 2021 And 2022 In "Large Excess Over Trend"

Cancer deaths in the United States spiked in 2021 and 2022 among 15-44 year-olds "in large excess over trend," marking jumps of 5.6% and 7.9% respectively vs. a rise of 1.7% in 2020, according to a new preprint study from deep-dive research firm, Phinance Technologies.

Algeria, Carlos et. al "US -Death Trends for Neoplasms ICD codes: C00-D48, Ages 15-44", ResearchGate, March. 2024 P. 7

Extreme Events

The report, which relies on data from the CDC, paints a troubling picture.

"We show a rise in excess mortality from neoplasms reported as underlying cause of death, which started in 2020 (1.7%) and accelerated substantially in 2021 (5.6%) and 2022 (7.9%). The increase in excess mortality in both 2021 (Z-score of 11.8) and 2022 (Z-score of 16.5) are highly statistically significant (extreme events)," according to the authors.

That said, co-author, David Wiseman, PhD (who has 86 publications to his name), leaves the cause an open question - suggesting it could either be a "novel phenomenon," Covid-19, or the Covid-19 vaccine.

"The results indicate that from 2021 a novel phenomenon leading to increased neoplasm deaths appears to be present in individuals aged 15 to 44 in the US," reads the report.

The authors suggest that the cause may be the result of "an unexpected rise in the incidence of rapidly growing fatal cancers," and/or "a reduction in survival in existing cancer cases."

They also address the possibility that "access to utilization of cancer screening and treatment" may be a factor - the notion that pandemic-era lockdowns resulted in fewer visits to the doctor. Also noted is that "Cancers tend to be slowly-developing diseases with remarkably stable death rates and only small variations over time," which makes "any temporal association between a possible explanatory factor (such as COVID-19, the novel COVID-19 vaccines, or other factor(s)) difficult to establish."

That said, a ZeroHedge review of the CDC data reveals that it does not provide information on duration of illness prior to death - so while it's not mentioned in the preprint, it can't rule out so-called 'turbo cancers' - reportedly rapidly developing cancers, the existence of which has been largely anecdotal (and widely refuted by the usual suspects).

While the Phinance report is extremely careful not to draw conclusions, researcher "Ethical Skeptic" kicked the barn door open in a Thursday post on X - showing a strong correlation between "cancer incidence & mortality" coinciding with the rollout of the Covid mRNA vaccine.

Phinance principal Ed Dowd commented on the post, noting that "Cancer is suddenly an accelerating growth industry!"

Continued:

Bottom line - hard data is showing alarming trends, which the CDC and other agencies have a requirement to explore and answer truthfully - and people are asking #WhereIsTheCDC.

We aren't holding our breath.

Wiseman, meanwhile, points out that Pfizer and several other companies are making "significant investments in cancer drugs, post COVID."

Phinance

We've featured several of Phinance's self-funded deep dives into pandemic data that nobody else is doing. If you'd like to support them, click here.

 

Tyler Durden Sat, 03/16/2024 - 16:55

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Government

“I Can’t Even Save”: Americans Are Getting Absolutely Crushed Under Enormous Debt Load

"I Can’t Even Save": Americans Are Getting Absolutely Crushed Under Enormous Debt Load

While Joe Biden insists that Americans are doing great…

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March 15, 2024

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"I Can't Even Save": Americans Are Getting Absolutely Crushed Under Enormous Debt Load

While Joe Biden insists that Americans are doing great - suggesting in his State of the Union Address last week that "our economy is the envy of the world," Americans are being absolutely crushed by inflation (which the Biden admin blames on 'shrinkflation' and 'corporate greed'), and of course - crippling debt.

The signs are obvious. Last week we noted that banks' charge-offs are accelerating, and are now above pre-pandemic levels.

...and leading this increase are credit card loans - with delinquencies that haven't been this high since Q3 2011.

On top of that, while credit cards and nonfarm, nonresidential commercial real estate loans drove the quarterly increase in the noncurrent rate, residential mortgages drove the quarterly increase in the share of loans 30-89 days past due.

And while Biden and crew can spin all they want, an average of polls from RealClear Politics shows that just 40% of people approve of Biden's handling of the economy.

Crushed

On Friday, Bloomberg dug deeper into the effects of Biden's "envious" economy on Americans - specifically, how massive debt loads (credit cards and auto loans especially) are absolutely crushing people.

Two years after the Federal Reserve began hiking interest rates to tame prices, delinquency rates on credit cards and auto loans are the highest in more than a decade. For the first time on record, interest payments on those and other non-mortgage debts are as big a financial burden for US households as mortgage interest payments.

According to the report, this presents a difficult reality for millions of consumers who drive the US economy - "The era of high borrowing costs — however necessary to slow price increases — has a sting of its own that many families may feel for years to come, especially the ones that haven’t locked in cheap home loans."

The Fed, meanwhile, doesn't appear poised to cut rates until later this year.

According to a February paper from IMF and Harvard, the recent high cost of borrowing - something which isn't reflected in inflation figures, is at the heart of lackluster consumer sentiment despite inflation having moderated and a job market which has recovered (thanks to job gains almost entirely enjoyed by immigrants).

In short, the debt burden has made life under President Biden a constant struggle throughout America.

"I’m making the most money I've ever made, and I’m still living paycheck to paycheck," 40-year-old Denver resident Nikki Cimino told Bloomberg. Cimino is carrying a monthly mortgage of $1,650, and has $4,000 in credit card debt following a 2020 divorce.

Nikki CiminoPhotographer: Rachel Woolf/Bloomberg

"There's this wild disconnect between what people are experiencing and what economists are experiencing."

What's more, according to Wells Fargo, families have taken on debt at a comparatively fast rate - no doubt to sustain the same lifestyle as low rates and pandemic-era stimmies provided. In fact, it only took four years for households to set a record new debt level after paying down borrowings in 2021 when interest rates were near zero. 

Meanwhile, that increased debt load is exacerbated by credit card interest rates that have climbed to a record 22%, according to the Fed.

[P]art of the reason some Americans were able to take on a substantial load of non-mortgage debt is because they’d locked in home loans at ultra-low rates, leaving room on their balance sheets for other types of borrowing. The effective rate of interest on US mortgage debt was just 3.8% at the end of last year.

Yet the loans and interest payments can be a significant strain that shapes families’ spending choices. -Bloomberg

And of course, the highest-interest debt (credit cards) is hurting lower-income households the most, as tends to be the case.

The lowest earners also understandably had the biggest increase in credit card delinquencies.

"Many consumers are levered to the hilt — maxed out on debt and barely keeping their heads above water," Allan Schweitzer, a portfolio manager at credit-focused investment firm Beach Point Capital Management told Bloomberg. "They can dog paddle, if you will, but any uptick in unemployment or worsening of the economy could drive a pretty significant spike in defaults."

"We had more money when Trump was president," said Denise Nierzwicki, 69. She and her 72-year-old husband Paul have around $20,000 in debt spread across multiple cards - all of which have interest rates above 20%.

Denise and Paul Nierzwicki blame Biden for what they see as a gloomy economy and plan to vote for the Republican candidate in November.
Photographer: Jon Cherry/Bloomberg

During the pandemic, Denise lost her job and a business deal for a bar they owned in their hometown of Lexington, Kentucky. While they applied for Social Security to ease the pain, Denise is now working 50 hours a week at a restaurant. Despite this, they're barely scraping enough money together to service their debt.

The couple blames Biden for what they see as a gloomy economy and plans to vote for the Republican candidate in November. Denise routinely voted for Democrats up until about 2010, when she grew dissatisfied with Barack Obama’s economic stances, she said. Now, she supports Donald Trump because he lowered taxes and because of his policies on immigration. -Bloomberg

Meanwhile there's student loans - which are not able to be discharged in bankruptcy.

"I can't even save, I don't have a savings account," said 29-year-old in Columbus, Ohio resident Brittany Walling - who has around $80,000 in federal student loans, $20,000 in private debt from her undergraduate and graduate degrees, and $6,000 in credit card debt she accumulated over a six-month stretch in 2022 while she was unemployed.

"I just know that a lot of people are struggling, and things need to change," she told the outlet.

The only silver lining of note, according to Bloomberg, is that broad wage gains resulting in large paychecks has made it easier for people to throw money at credit card bills.

Yet, according to Wells Fargo economist Shannon Grein, "As rates rose in 2023, we avoided a slowdown due to spending that was very much tied to easy access to credit ... Now, credit has become harder to come by and more expensive."

According to Grein, the change has posed "a significant headwind to consumption."

Then there's the election

"Maybe the Fed is done hiking, but as long as rates stay on hold, you still have a passive tightening effect flowing down to the consumer and being exerted on the economy," she continued. "Those household dynamics are going to be a factor in the election this year."

Meanwhile, swing-state voters in a February Bloomberg/Morning Consult poll said they trust Trump more than Biden on interest rates and personal debt.

Reverberations

These 'headwinds' have M3 Partners' Moshin Meghji concerned.

"Any tightening there immediately hits the top line of companies," he said, noting that for heavily indebted companies that took on debt during years of easy borrowing, "there's no easy fix."

Tyler Durden Fri, 03/15/2024 - 18:00

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Spread & Containment

Sylvester researchers, collaborators call for greater investment in bereavement care

MIAMI, FLORIDA (March 15, 2024) – The public health toll from bereavement is well-documented in the medical literature, with bereaved persons at greater…

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March 15, 2024

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MIAMI, FLORIDA (March 15, 2024) – The public health toll from bereavement is well-documented in the medical literature, with bereaved persons at greater risk for many adverse outcomes, including mental health challenges, decreased quality of life, health care neglect, cancer, heart disease, suicide, and death. Now, in a paper published in The Lancet Public Health, researchers sound a clarion call for greater investment, at both the community and institutional level, in establishing support for grief-related suffering.

Credit: Photo courtesy of Memorial Sloan Kettering Comprehensive Cancer Center

MIAMI, FLORIDA (March 15, 2024) – The public health toll from bereavement is well-documented in the medical literature, with bereaved persons at greater risk for many adverse outcomes, including mental health challenges, decreased quality of life, health care neglect, cancer, heart disease, suicide, and death. Now, in a paper published in The Lancet Public Health, researchers sound a clarion call for greater investment, at both the community and institutional level, in establishing support for grief-related suffering.

The authors emphasized that increased mortality worldwide caused by the COVID-19 pandemic, suicide, drug overdose, homicide, armed conflict, and terrorism have accelerated the urgency for national- and global-level frameworks to strengthen the provision of sustainable and accessible bereavement care. Unfortunately, current national and global investment in bereavement support services is woefully inadequate to address this growing public health crisis, said researchers with Sylvester Comprehensive Cancer Center at the University of Miami Miller School of Medicine and collaborating organizations.  

They proposed a model for transitional care that involves firmly establishing bereavement support services within healthcare organizations to ensure continuity of family-centered care while bolstering community-based support through development of “compassionate communities” and a grief-informed workforce. The model highlights the responsibility of the health system to build bridges to the community that can help grievers feel held as they transition.   

The Center for the Advancement of Bereavement Care at Sylvester is advocating for precisely this model of transitional care. Wendy G. Lichtenthal, PhD, FT, FAPOS, who is Founding Director of the new Center and associate professor of public health sciences at the Miller School, noted, “We need a paradigm shift in how healthcare professionals, institutions, and systems view bereavement care. Sylvester is leading the way by investing in the establishment of this Center, which is the first to focus on bringing the transitional bereavement care model to life.”

What further distinguishes the Center is its roots in bereavement science, advancing care approaches that are both grounded in research and community-engaged.  

The authors focused on palliative care, which strives to provide a holistic approach to minimize suffering for seriously ill patients and their families, as one area where improvements are critically needed. They referenced groundbreaking reports of the Lancet Commissions on the value of global access to palliative care and pain relief that highlighted the “undeniable need for improved bereavement care delivery infrastructure.” One of those reports acknowledged that bereavement has been overlooked and called for reprioritizing social determinants of death, dying, and grief.

“Palliative care should culminate with bereavement care, both in theory and in practice,” explained Lichtenthal, who is the article’s corresponding author. “Yet, bereavement care often is under-resourced and beset with access inequities.”

Transitional bereavement care model

So, how do health systems and communities prioritize bereavement services to ensure that no bereaved individual goes without needed support? The transitional bereavement care model offers a roadmap.

“We must reposition bereavement care from an afterthought to a public health priority. Transitional bereavement care is necessary to bridge the gap in offerings between healthcare organizations and community-based bereavement services,” Lichtenthal said. “Our model calls for health systems to shore up the quality and availability of their offerings, but also recognizes that resources for bereavement care within a given healthcare institution are finite, emphasizing the need to help build communities’ capacity to support grievers.”

Key to the model, she added, is the bolstering of community-based support through development of “compassionate communities” and “upskilling” of professional services to assist those with more substantial bereavement-support needs.

The model contains these pillars:

  • Preventive bereavement care –healthcare teams engage in bereavement-conscious practices, and compassionate communities are mindful of the emotional and practical needs of dying patients’ families.
  • Ownership of bereavement care – institutions provide bereavement education for staff, risk screenings for families, outreach and counseling or grief support. Communities establish bereavement centers and “champions” to provide bereavement care at workplaces, schools, places of worship or care facilities.
  • Resource allocation for bereavement care – dedicated personnel offer universal outreach, and bereaved stakeholders provide input to identify community barriers and needed resources.
  • Upskilling of support providers – Bereavement education is integrated into training programs for health professionals, and institutions offer dedicated grief specialists. Communities have trained, accessible bereavement specialists who provide support and are educated in how to best support bereaved individuals, increasing their grief literacy.
  • Evidence-based care – bereavement care is evidence-based and features effective grief assessments, interventions, and training programs. Compassionate communities remain mindful of bereavement care needs.

Lichtenthal said the new Center will strive to materialize these pillars and aims to serve as a global model for other health organizations. She hopes the paper’s recommendations “will cultivate a bereavement-conscious and grief-informed workforce as well as grief-literate, compassionate communities and health systems that prioritize bereavement as a vital part of ethical healthcare.”

“This paper is calling for healthcare institutions to respond to their duty to care for the family beyond patients’ deaths. By investing in the creation of the Center for the Advancement of Bereavement Care, Sylvester is answering this call,” Lichtenthal said.

Follow @SylvesterCancer on X for the latest news on Sylvester’s research and care.

# # #

Article Title: Investing in bereavement care as a public health priority

DOI: 10.1016/S2468-2667(24)00030-6

Authors: The complete list of authors is included in the paper.

Funding: The authors received funding from the National Cancer Institute (P30 CA240139 Nimer) and P30 CA008748 Vickers).

Disclosures: The authors declared no competing interests.

# # #

Journal

The Lancet Public Health

DOI

10.1016/S2468-2667(24)00030-6

Article Title

Investing in bereavement care as a public health priority

Article Publication Date

13-Mar-2024

COI Statement

The authors declared no competing interests.

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