JPMorgan Trading Desk Commentary: “The Reality Is No One Is Really Buying Anything Right Now”

With markets in flux and traders uncertain what to do now that it has been almost three weeks without a new all time high ahead of a FOMC meeting where the hawkish screws will tighten that much more, here is some perspective from the beating heart of one of the largest trading desks in the world, that of JPMorgan (whose traders, judging by the recent comp disclosures are among the best paid in the world, so they should know)

WHAT ARE WE SEEING?

An unnerving start to the week with the S&P down -1.5%, 10yr up +3.5% (to 1.84%) and VIX creeping higher. Every sector in the red (except energy…Crude closing in on $89/bbl) with financials worst performing… a bit of a head scratcher but our trader, Taylor Barry, suggests:“Largely, the disappointment in expenses is driving performance… Usually with rates up like this the group would be trading well. But lot of “newer” $$ has come into the sector so potentially weak hands kicking some out….we aren’t seeing much supply”. As value outperforms growth once again (outperformed by an impressive +14% YTD), we’re seeing a “relatively” predictable playbook at a sector level with Tech, Comm Srvc, Discretionary dragging markets lower.

Flow wise, overall JPM vols +7% across HT and LT skewed slightly better to SELL. On the HT desk, vols are +9% although generally speaking, feels orderly (vs. sea of red on the screen). TMT is ~3:2 better for sale (demand mostly covering, unsurprisingly), financials flows are better for sale but we’re not exactly ‘busy’, consumer too remains better for sale with LOs trimming in discretionary whilst hedgies sell staples and we’re seeing LO demand in industrials being met by HF supply.

TMT – The 10Y continues to operate in a zero gravity environment, and now we’re at the point where “seeing 2%” is a heck of a lot closer, and perhaps more likely than “getting back <160bps.” We saw small buyers of SaaS to start Tuesday (I think the forced selling is coming to an end there), but it’s been fairly quiet overall. We have seen a decent amount of supply in the mega caps – post the MSFT/ATVI deal and ahead of the DOJ/FTC press conf.

• The reality is no one is really buying anything right now (aside from energy,which is hardly a sign of market health). We are ~3:2 better for sale in TMT; our demand has been mostly covering.

• Video games seeing its second deal in a few weeks (and there had been some shorts deployed in ATVI of late) is spurring some interest, but most of the M&A questions have been about why ATVI is fading and what other deals might be out there.

Financials – While the broader tape is certainly soft, we’re a bit surprised by the reaction to Financials earnings, though the magnitude of the sell-off is probably reflective of how much “new” money has come into the sector to start the year; As the JPM Head of Positioning Intelligence pointed outlast week, in N. America, net exposure to Banks is near prior peaks over the past 2 years. That, coupled with worse than expected expenses at most companies reporting thus far (wage inflation is real – GS compensation per employee was up +20% y/y in 2021), has resulted in very poor stock performance through two days of earnings (GS -10%, MS -9%, C-3%, BAC -5%)…maybe surprising given rates continue to march higher (10yr at 1.85% today).

• We are better for sale today (all long sales, no shorts) and has felt a bit capitulatory at times, maybe because those that bought stock out of the gate, post New Year, are largely down on the mark…