Alpha Report: Beta, Rotation, and Dispersion
Alpha Report: Beta, Rotation, and Dispersion
Synthesizing all the moving parts in equities
All of the trades and research for the trades have been laid out in the following reports:
Comprehensive Macro Report: Interest Rate and Equity Breakdown (This is critical to read!)
Big Picture:
The macro report stated the following:
“There is a continual failure in the consensus of economists and macro strategies. They expected a recession in 2023 which was one of the biggest years for growth in the economy: (chart is consensus estimates for recession). None of them have even stopped to ask themselves why they were wrong or how they can improve!”
You will notice GDP came in ABOVE expectations as initial claims decelerated:
The economic surprise index will continue accelerating until there is a repricing of actual growth conditions.
Notice the Russell bounced right off the FOMC level:
As ES remains elevated and makes all-time highs.
The long ES trade that was originally open continues to add considerable returns (link):
Main Idea:
We continue to be in a Goldilocks regime where equities melt up and the yield curve bull steepens. Executing at extremes continues to be critical to extract returns in this regime. The trades with exposure to broad beta were put on much lower and are now farther in the money just as implied vol discounts are accruing in indices (link):
ES implied vol is now at a discount to realized:
The same case for NQ:
Within this rally Telecommunications and Tech have led the rally over the past 30 days:
Factor flows continue to favor the momentum trade and large caps:
It is still likely that the Russell has marginal outperformance against ES here. However, being overweight and directly long is clearly the play. Putting on a pair trade L/S is not a good idea in this environment.
ZN continues to consolidate and meet buying pressure to remain ABOVE 114.
Bull steepening into an accelerating economic surprise index is what will likely push the RTY/ES ratio UP.