Market technicals are healing quickly, and exposure is not reflective of current spot levels, according to Goldman Sachs flow-of-funds guru, Scott Rubner.
The market technical overhang from late December (January week 1) has cleared, and we have entered the traditional #January Effect.
a. Large current equity short base - record gross overall exposure (led by shorts) with lower net exposure
b. Elevated systematic fixed income short approaching key levels
c. Long (buffer) equity index gamma (i.e. healing)
d. As a result, liquidity has improved dramatically (Jan 1st = $3.50M vs. Today = $15.70M), a 4.5x increase
e. Re-leveraging from vol-control strategies given the reset in volatility (VIX = 14.64)
f. Corporate blackout window ends on Friday 1/24. This is peak closed repurchase window. Full year corporate repurchase estimate remains $1 Trillion.
g. Decline in sentiment and leverage
h. Favorable 2H January Seasonals – today marks the local January low
i. January Effect inflows: the largest month of the year for equity allocations, 401k, 529, etc
