Market Summary

In terms of U.S. stocks, although Tesla, Apple, and Google among the "Big Seven" stocks have performed poorly this year, other stocks such as Nvidia and Meta have performed strongly, and the overall market continues to hit new highs. . However, chip stocks experienced a sharp correction on Friday, with NVDA experiencing its largest single-day decline in more than nine months - 5.6%. Considering that earlier in the session, NVIDIA's stock price rose by 5.1% and AMD's stock price rose by 7.5%, the market seemed There is a tendency to take profits.

Since AI currently dominates the positive sentiment of the entire market, chip stocks lead the entire risk asset market, and NVDA is the leading player, so we must pay close attention to the progress of this stock. Of course, it is difficult to find fault with the company's current fundamentals. The valuation is high but not exaggerated. The main bearish views are as follows:

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Supply is catching up with demand. Nvidia's chip delivery time shortened from as long as 11 months to three months, indicating an improvement in supply, which may affect its sales growth.

• Facing more intense competition. Because not only AMD is gradually making progress, but more importantly, NVIDIA's major customers, including cloud service providers and Tesla, are designing independent AI chips.

• Technical callback. Driven by technology stocks, the Nasdaq and S&P Index rose hugely, and the market was fearful of highs. If the Federal Reserve makes unexpected moves, it may trigger a sharp decline in technology stocks.

• Too many profit orders. Since the stock price has been rising unilaterally, some investors who have made huge profits may take profits after the upcoming GTC conference, causing the stock price to fall back.

BTC and gold both hit record highs last week. During the recent rise in Bitcoin and gold prices, the traditional framework's explanatory power has been clearly insufficient. U.S. bond interest rates and the U.S. dollar exchange rate have only fallen slightly, and risk aversion has shown no obvious signs of warming. The logic of alternatives to the existing fiat currency system is dominating these alternative investment markets.

Friday's non- The mixed agricultural data is not enough to change market expectations too much, but it is generally understood as a dovish signal, advancing the market's expected time for the Fed to cut interest rates. Interest rate market yields edged lower, while stocks rose before falling. Goldman Sachs believes that this pullback is a good buying opportunity given that employment data supports interest rate cuts. Slowing wage growth should be a positive sign for Tuesday's CPI data.

Cryptocurrency

BTC ETF almost equals GLD

The recently listed spot Bitcoin ETF in the United States continued to absorb Bitcoin last week - currently holding About 4% of the 21 million Bitcoins are worth $54.6 billion, almost tying the $56 billion AUM of the largest gold ETF, GLD.

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According to a public document this week, BlackRock applied to the SEC to add spot Bitcoin ETF exposure to its AMU$18 billion Global Allocation Fund and AUM$36.7 billion Strategic Income Opportunities Fund.

These news show that a new trend has just begun, that is, the allocation of passive asset management. These asset management plans will allocate BTC as an alternative asset into the portfolio. A considerable number of asset managers will adopt a fixed ratio allocation strategy, such as a fixed 1% AUM ratio. When adjusting positions every quarter, the holdings will be reduced if the ratio exceeds it. As for increasing holdings, these strategies often do not consider the absolute valuation of BTC, which will greatly increase the thickness of the BTC market.

According to our calculations, the total size of open-end funds that can potentially allocate BTC is 9.7 trillion US dollars. Conservatively assuming that only 0.5% to 1% will be allocated to BTC, it may bring in 48.5 billion to 97 billion US dollars of funds. inflow.

If we assume that the supply and demand of the existing BTC market are balanced, do not consider the transfer of the stock, and only consider the allocation of [new] funds managed by global institutions to the BTC market, it is conservatively assumed that 0.5% of the new allocation corresponds to each new product The capital flow out of BTC may also reach 174,000 US dollars this year. Although this cannot be used as an accurate reference, it does show the potential for huge capital inflows.

Markus Thielen, founder and CEO of 10X Research, issued an article on Saturday to remind short-term risks. He believes that the Bitcoin/cryptocurrency market is currently overheated and potential downside risk consolidation should be carefully managed. US ETF flows are no longer the main driver of Bitcoin.

Macro events of the week

Global central banks are currently taking a wait-and-see attitude:

The European Central Bank and the Bank of Canada adopted a wait-and-see attitude in March, emphasizing data dependence. The ECB forecasts downward revisions to both growth in 2024 and core inflation in 2025.

It is expected that by mid-2024, most major central banks will begin to cut interest rates, with global policy rates falling by an average of 1.4 percentage points.

The pace of interest rate cuts in Europe may be faster than that in the United States:

According to historical circumstances, central banks in developed countries usually cut interest rates three times in a row during the soft landing period before slowing down. The pace of rate cuts tends to accelerate if inflation is below target and economic activity deteriorates or interest rates are well above neutral.

Employment and income growth:

U.S. employment increased by 275,000 people in February, significantly exceeding expectations of 200,000. While February's job gains look optimistic, the weak household survey and rising unemployment rate reveal some underlying instability in the job market. Wage growth was lower than expected, with average hourly earnings (AHE) rising 0.14% month-on-month, lower than the 0.2% expected. The unemployment rate rose 0.2 percentage points to 3.9%, higher than the forecast of 3.7%. These breakdowns may be a positive sign for controlling inflation, but they may also put some pressure on consumer spending.

Corporate profit margins are expected to remain high in 2024:

According to Goldman Sachs’ latest forecast, non-financial corporate profits will fall from 17% of GDP in 2022 to an average of 16% in 2023 %, but still higher than the 13% in the fourth quarter of 2019. The economy-wide non-financial profit margin is expected to rise slightly to approximately 16.3% in 2024.

China’s macroeconomic policy goals and stance:

Macroeconomic goals: At the National People’s Congress, policymakers set a GDP growth target of 5% for 2024, which is in line with the broad expectations are consistent.

Fiscal policy: China’s official fiscal deficit target is set at 3.0% of GDP (compared to 3.8% in 2023). The market’s first reaction was to be disappointed with this figure, but then it also realized This official figure may not fully reflect the actual extent of the government's fiscal support for the economy. Taking into account a wider range of fiscal activities and policy measures, including but not limited to bond issuance, spending on specific projects, government-guaranteed loans, etc., these may not be directly reflected in the standard fiscal deficit ratio. Goldman Sachs expects this implicit stimulus to be at least an additional 0.7%.

Monetary and real estate policies: Although no major new measures have been announced, China’s monetary and real estate policy stance is still supportive, and has new expressions and formulations, such as handling hidden risks in a steady and orderly manner, improving Basic systems related to commercial housing to meet diverse and improved housing needs, etc.

Economic data: As the focus of the government’s economic strategy, China’s exports increased by 7.1% year-on-year from January to February, much higher than the expected 1.9%; China’s trade surplus hit a record of US$125 billion. A new high, and imports also increased by 3.5%. February's manufacturing purchasing managers' index (PMI) was also slightly better than expected.

Asian and emerging market economic data:

Asia’s February inflation data generally rose and exceeded expectations:

- South Korea’s CPI rose 30 basis points year-on-year to 3.1 %;

-Taiwan CPI increased by 130 basis points year-on-year to 3.1%;

-Philippines CPI increased by 60 basis points year-on-year to 3.4%;

-Indonesia CPI A year-on-year increase of 20 basis points to 2.8%;

- Tokyo, Japan's CPI increased by 80 basis points year-on-year to 2.6%;

-Thailand's CPI increased by 30 basis points year-on-year to -0.8%.

Manufacturing PMI performance is mixed:

- PMI increases in China, India, Philippines and Australia;

- South Korea, Japan, Taiwan, Thailand and Indonesia PMI dropped;

- PMI in other regions was generally stable.

Funds and positions

• The inflow of technology stocks has stopped for two consecutive months;

• Bitcoin and gold futures OI hit record highs, ETH is slightly inferior;

• Growth and Momentum stocks are seriously overbought;

• China's stock market experienced brief outflows for a week before another surge of inflows;

• Nasdaq speculative longs fell to the lowest since last fall;

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As secondary market yields declined, gold prices and Bitcoin prices both hit record highs, and gold and Bitcoin futures positions increased significantly. Gold open interest has increased by US$20 billion to US$98 billion in the past two weeks, but the momentum of continuous outflows from gold ETFs has not changed. GLD positions have outflowed 11.8 tons during the same period, showing that the buyers are not financial market investors but central banks and physical entities. gold buyer.

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The CME Bitcoin contract increased by US$1.7 billion to US$10.37 billion last week, and the cryptocurrency exchange contract increased by approximately US$5 billion to US$32.36 billion, both of which continued to hit record highs.

However, including cryptocurrency exchange contracts, the holdings are denominated in BTC There are only 460,000, which is nearly 50% room for growth from the historical high of 678,000 in November 2022. It also shows that market funds and sentiment in the "traditional" currency circle have not yet returned to the previous extreme levels:

The CME holdings of Ethereum ETH also hit a record high last week, showing that Wall Street funds are indeed interested in participating in the next physical ETF game. However, the range of new highs is much inferior to that of BTC.

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Looking at investor types, the net short positions and net long positions held by hedge funds and asset managers respectively hit record highs last week:

According to Goldman Sachs PB statistical caliber, the U.S. stock market experienced net buying and long buying for the second consecutive week The volume of purchases exceeds the volume of short sales by a ratio of about 1.6 to 1. The top net buying sectors were communications services, industrials, utilities and real estate. The largest net selling sectors were energy, health care, consumer discretionary and materials. Communications Services last week saw its largest notional net buying in more than five months +1.2 standard deviations.

Momentum Stock Continues to Perform Strong, everyone has been worried about the exhaustion of stock gains with strong momentum, but the market still shows confidence in long-term themes such as artificial intelligence, improving corporate profits, receding recession concerns, and cryptocurrency reaching new highs. The momentum factor calculated by Goldman Sachs has risen by more than 20% this year, setting the best performance for the same period in history. Judging from the Relative Strength Index (RSI), Momentum US stocks have entered the severely overbought zone, higher than the 99% historical quantile level.

From the perspective of long and short positions, hedge funds extremely prefer momentum factors and growth stocks, the level of crowded trading hit a record high:

Large-cap growth stock positions have entered the 96th percentile of history since 2009:

According to the EPFR statistical caliber, capital has flowed into currency funds, investment-grade bond funds and stock funds significantly, with record inflows into cryptocurrency funds and outflows from technology and energy stock funds.

Technology fund outflows Record US$4.4 billion, ending two months of inflows

China Stock Market After a brief week of outflows, significant inflows of US$3.8 billion continued last week

The positions of subjective investors remain basically unchanged, while the positions of systematic investors decrease slightly:

CTA fund positions remained flat last week, at the 90th percentile historically

Nasdaq futures net longs fell for a third straight week, to last fall's levels:

Mainly caused by short selling by hedge funds. The current short level is close to the highest level in the past three years:

The impact of the general election

For the past three presidential elections, of course this coincides with the halving cycle, so the US elections in 2012, 2016 and 2020, the average return of Bitcoin in those years was 192%, Bitcoin has risen by more than 100% every year. So based on 192%, we started the year at $40,000 and by the end of the year Bitcoin could reach $125,000.

Trump is currently leading the polls. If he wins, possible monetary and economic policies include:

• Not listed The second large-scale tax reform

• Emphasizes "protectionism", increases tariffs, and expands trade wars (bad for the stock market)

• Relaxing regulations in the financial and environmental fields (good for the stock market)

• After Trump is elected, he may put pressure on the Federal Reserve to maintain lower interest rates (good for the stock market)

• The Federal Reserve hopes to prevent economic recession by keeping a low political profile before the election (good for the stock market)

• It pays more attention to suppressing inflation than maintaining employment (Good for the bond market)

History is the best-performing asset during the election of Biden and Trump. BTC is not included in it. BTC rose by 400% during the Biden period. , the increase during the Trump period was 1900%. What is interesting is that the returns of crude oil, the US dollar, South American stock markets, Asian stock markets, and bonds were almost completely opposite during the two presidents' administration:

Market Sentiment

Investor survey sentiment climbs to 11-week high, entering history First tenth.

Institutional Views

[GS: Repurchases are expected to increase significantly this year and next year]

The current scale of corporate repurchases far exceeds the size of corporate newly issued stock financing. scale. A Goldman Sachs report predicts that the scale of stock repurchases implemented by U.S. listed companies will reach $925 billion in 2024, a year-on-year increase of 13%. Looking forward to 2025, Goldman Sachs expects the scale of repurchases to further increase to US$1.075 trillion, a year-on-year increase of 16%. Buybacks remain one of the most important supporting forces for U.S. stocks.

[JPM: Bitcoin allocation ratio is already higher than gold? 】

JPMorgan Chase mentioned in a report last week that of the US$3.3 trillion invested in gold, only 7% or US$230 billion is held in ETF format. If the Bitcoin ETF can reach 230 billion, the market value of Bitcoin may increase from US$1.3 trillion to US$3.3 trillion.

But considering that Bitcoin is 3.7 times more volatile than gold, Bitcoin should account for a lower proportion of the investment portfolio. Simply use 3.3 trillion US dollars / 3.7 = 0.9 trillion US dollars, which corresponds to a Bitcoin price of 45,000 US dollars. So the current price of more than 60,000 means that the implicit allocation to Bitcoin in everyone's investment portfolio has exceeded that of gold.

Still using the so-called "vol ratio" (volatility ratio), divide the market value of gold ETFs of US$230 billion by the volatility ratio of 3.7 = US$62 billion. The author believes that this is an asset management goal that Bitcoin ETF can achieve conservatively. It’s already 52 billion.