Macro and Flows Update: June 2024 - e29

Summary

The video script discusses the current market conditions as of June, emphasizing the volatility supply at the index level, which results in massive dispersion among index constituents. It highlights the poor breadth of the market, with only 19% of US stocks outperforming the broader market, the lowest in 20 years. The 'Summer of George' term describes this period of increased volatility and index stability. The discussion covers the impact of fiscal and monetary policies, potential future market movements, and strategies for positioning in the market, including long calls and short puts. The script also touches on geopolitical risks, such as potential tensions with China over Taiwan, and their implications for the market.

Takeaways

• 📈 June Opex is coming up, leading to increased market volatility.
• 🔄 The 'Summer of George' describes a period of high volatility and poor breadth in the market.
• 📉 Only 19% of US stocks have outperformed the wider market recently, the worst in over 20 years.
• 📊 The market has seen 35 trading sessions without a significant loss in the S&P 500.
• 💹 The index's stability forces movements in its constituents, leading to a volatile market environment.
• 🛠 Fiscal and monetary policies are supportive, contributing to market stability.
• 💵 Rising asset values create more liquidity and collateral, supporting the market.
• 📅 Expect market stability and a grind higher until mid-August, followed by potential increased volatility.
• 📉 A potential pullback and rise in volatility is anticipated from mid-August to the end of the year.
• 🤔 Long-term concerns include geopolitical risks, particularly related to China and Taiwan, which could significantly impact the market.

Q & A

What is the 'Summer of George'?

The 'Summer of George' is a term coined in 2021 to describe a period of volatility supply at the index level, leading to massive dispersion among index constituents and increased volatility.

How does the 'Summer of George' affect market breadth?

The 'Summer of George' drives poor market breadth, with only 19% of US stocks outperforming the wider market, the worst in over 20 years.

What has been the trend in daily losses for the S&P 500?

There has not been a daily loss greater than 0.75% in the S&P 500 for the last 35 trading sessions.

How does volatility at the index level compare to volatility of index constituents?

The volatility of the index constituents is four times higher than that of the index itself.

What is the relationship between market movement and liquidity?

When the market goes up, it creates more dollars and liquidity through an increase in collateral, which can increase leverage.

What is the expected market trend for the next month and a half to two months?

The market is expected to continue grinding higher with VIX compression until around August 14th.

What is the recommended market positioning during this period?

The recommendation is to stay long on long-dated calls, funding them with short-duration puts and calls, without shorting much stock.

What is the expected market trend from August to early next year?

From August to early next year, the market is expected to become more volatile, with a possible pullback and increased volatility.

What geopolitical events could impact the market?

Possible geopolitical events include a potential Trump presidency, normalization of US-China relations, and the risk of China moving on Taiwan.

What is the potential impact of a Chinese move on Taiwan?

A Chinese move on Taiwan could severely impact Nvidia and the S&P 500, given Nvidia's significant market position.