Conjuring images of yesterday's eclipse where many Americans were temporarily plunged into darkness by forces beyond their control, Goldman Sachs flow of funds guru Scott Rubner writes this morning that "the totality path for the S&P500 is up a little more to down a lot."
Rubner sees four scenarios at play in the current market:
I. There is a competition for dip alpha, investors will buy any -1% to -2% dips.
We saw this theory tested from Thursday afternoon to Friday morning.
II. At the same time, a larger move of -4% to -5% will be sold and shorted.
The catalyst may be elevated earnings expectations for the top 10 stocks, which start the ball rolling downhill.
III. The path of totality for US stocks is an escalator ride up, and an elevator ride down.
To the upside, you have newly created mean reverting products which will lessen any real move. But to the downside, as we are getting closer to threshold triggers, I expect a systematic exodus when it happens. Each day is its own ecosystem given late day 0DTE trading.
IV. There is a clear reflationary impulse in every one of persistent IB chats, zooms, pings, etc.
The flows coming into the market on dips are not buying what you own, but adding to economically sensitive sectors, adding a few lines into the water pre-election. This would be popular among macro funds.
