Tom Lee HEAD OF RESEARCH - Buyer's strike = busted tape. Nasdaq underperformance so bad, since 1985 = future relative gains - FSInsight
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Market Data Insight for Actionable Strategy
First Word April 27, 2022
Buyer's strike = busted tape. Nasdaq underperformance so bad,
since 1985 = future relative gains
Tom Lee
HEAD OF RESEARCH
We publish on a 3-day a week schedule:
Monday
SKIP TUESDAY
Wednesday
SKIP THURSDAY
Friday
Russia escalation by cutting off gas supplies to Poland and Bulgaria rattles markets...
Markets are still rattled by war headlines. Russia announced plans to cut natural gas supplies
to Poland. Russia is following through on its demands that gas supplies be paid in Rubles. And
this appears in retaliation for Poland providing escalating support to Ukraine in the war
efforts. And generally, this highlights the dependency and vulnerability of Europe to Russian
energy resources.
For important disclosures, see Page 13 Page 1
First Word April 27, 2022
Source: Bloomberg
In fact, this infographic by the FT (thanks for flagging Chris Robb) shows the European
nations most dependent on Russian imports of natural gas and oil. The easternmost nations
in Europe are almost entirely dependent on Russian gas and oil.
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First Word April 27, 2022
Source: FT
While this seems to be a catalyst for furthering the "buyer's strike" in equities, this does not
change the overall case for S&P 500 TINA (there is no alternative). That is, there are two
dimensions of TINA:
Stocks over bonds: given inflationary pressures + Fed hawkishness = stocks TINA
USA vs rest of World: war risks + China COVID + US resilience = USA TINA
In other words, the S&P 500 remains the "cleanest dirty shirt" or "biggest shrimp"
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First Word April 27, 2022
Source: Fundstrat and google image search
USA (+ other energy producers) vastly outperforming rest of world...
The regional relative performance charts highlight the leadership of USA versus rest of
world. As highlighted below:
USA and other energy producers leading - USA + Canada + much of Latin America +
Australia
Russian Energy-dependent struggling - Europe
China COVID-impacted hurting - Japan + Korea
Has anything changed in this calculus? No. As long as this war continues, the case for USA
TINA is intact.
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First Word April 27, 2022
TINA: US long-term bonds down -19% YTD
Similarly, equities are still providing relatively safer returns than bonds. Take a look at the
YTD performance of S&P 500 versus the 30-year bond:
S&P 500 is down 11.5% YTD
30-year bond is down 19% YTD
US households own $55 trillion in bonds
the only way for bonds to recover is for a recession
there are multiple ways for equities to recover
In this case, equities can recover in multiple ways. Unless, a recession is underway. In that
case, bonds recover faster than equities.
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First Word April 27, 2022
STRATEGY: Nasdaq 100 worst 6M relative performance to S&P 500 since dot-com
bubble
Equities remain under a buyer's strike. This has been a bludgeoning since last Thursday. The
carnage in NASDAQ continued Tuesday, with large-cap technology down 3%-4%,
spearheading the downturn associated with the broader market buyer's strike. As shown
below:
Nasdaq 100 has underperformed the S&P 500 by 950bp in the past 6 months
this is the worst since the dot-com days (2002 era) or worst in 20 years
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First Word April 27, 2022
...Nasdaq underperformance is in the bottom decile = historically, strong forward signal
The deciles of relative return are shown below and the associated 6-month forward
performance. Notice something startling?
when Nasdaq 100 $QQQ underperformance is bottom decile (like Tuesday)
forward 6M returns extraordinary
ex-dot-com, 6M returns beat S&P 500 97% of the time
relative outperformance is 950bp
In other words, there are factors aligning favoring a bounce in Tech/FANG/Nasdaq:
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First Word April 27, 2022
rates stabilizing
underperformance so acute, that it reverts
Technology can still grow in a growth recession
...Sector leadership is not showing recession risk as much as anything but Technology
Below is our sector performance chart and the relative staging of the sectors. The reason I
am showing this chart is to highlight that sector leadership is not really signaling a recession:
if a recession were imminent, we would expect Defensives to lead such as Staples,
Healthcare, Utes and Telcos
Leadership, instead is a combination of:
Energy + Materials
Page 8
First Word April 27, 2022
Defensives
Stabilizing performance of Transports, Industrials and Financials
This is eclectic. As shown below, we have labeled the relative explanatory variables. So
sector leadership is really a result of:
inflation --> Energy + Materials
"real" GDP growth --> Industrials + Transports
rising rates --> Financials
"risk off" --> Defensives
So, as ugly as this tape has been, it also does not necessarily signal a recession risk broadly.
If anything, this seems to be more about the relative underperformance of Technology/
Nasdaq.
...US rates have been falling for the past 7 trading sessions, but equities not yet
reflecting this
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First Word April 27, 2022
Earlier this week, we noted that JPMorgan Fixed Income strategists talked about the fact
that the interest rate market has priced in a nearly "max hawkish" view of rate hikes. That is,
they saw little room for rates to push higher, as markets were pricing in a lot of tightening.
this seems to be the case in the past 7 trading sessions
despite Fed Powell's increasingly hawkish interview at IMF on 4/21 (see below)
both 2-yr and 10-yr rates have been falling
Page 10First Word April 27, 2022
STRATEGY: We lean "bullish" into 2Q2022, but warn of jagged next few months... Stick
with BEEF
To recap on equity strategy, we are leaning bullish into 2Q2022.
Stocks have continued to be treacherous in 2022. Investors are on a hair trigger.
- this is in context to a challenging 1H2022
- so jagged next 3 months
- but > 88% probability that bottom for 2022 is in
Broadly, our existing sector strategy of BEEF remains valid. Even in war. Even with inflation.
In fact, the last few weeks are strengthening the case for our "BEEF" strategy. That is, BEEF is
- Bitcoin + Bitcoin Equities $BITO $GBTC $BITW
- Energy
- FAANG $FNGS $QQQ
Combined, it can be shorted to BEEF.
Why is this making stronger BEEF?
- Energy supply is now a sovereign priority
- this helps Energy stocks
- Ukraine and Russia both want access to alternative currencies
- this strengthens case for Bitcoin and bitcoin equities
- if Global economy slows, growth stocks lead
- hence, FANG starts to lead $FB $AAPL $AMZN $NFLX $GOOG
All in all, one wants to be Overweight BEEF
Page 11First Word April 27, 2022
_____________________________
31 Granny Shot Ideas: We performed our quarterly rebalance on 4/5. Full stock list here
–> Click here
_____________________________
POINT 1: Daily COVID-19 cases
This data will be updated every Friday.
POINT 2: Vaccination Progress
This data will be updated every Friday.
POINT 3: Tracking the seasonality of COVID-19
This data will be updated every Friday.
Page 12First Word April 27, 2022
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