Equities Are Skewed To The Downside

6 Charts Showing Equity Weakness

This is going to be a very to the point explanation of why I think equities are going to underperform the dollar, building on my previous ideas.

Firstly, see my report below for my thesis on the dollar, which I shared ideas for being short in both EURUSD & GBPUSD in the Substack chat:

Against Consensus: Dollar Upside Ahead

1) As the market prices MORE cuts, ES is moving to the downside marginally. Just like I laid out in the dollar, there is LESS sensitivity to MORE cuts being priced. So unless an extreme is created in rate expectations (unlikely because the pricing for Z6 is fair), more front-end cut expectations will NOT drive equities, but a tightening of expectations could cause an outsized move DOWN.

2) Bonds are outpeforming equities on an intraday basis, equities are struggling and making weak legs higher, not with any real momentum vs bonds. Just look at everytime we come to this extreme in CS momentum.

3) On a Z score basis, VIX is trading above +1 (an extreme), all while energy, materials & staples drive equities (not what you want to see in a risk-on rotation). Value has also been the marginal driver in returns, once again not what you want to see if we’re setting up for a leg higher.

4) Equities have pretty much done NOTHING for the last 20 trading days, we’ve had the curve continuing to steepen, more cuts priced and BETTER growth data yet equities are NOT rallying, meaning there needs to be an extreme in data or pricing to drive equities from here in my view (which again, is unlikely).

5) Bonds have outperformed equities (not even on a voil-adjusted basis which is saying something). Yes, bonds can rally with equities but you want to see equities OUTPERFORM bonds.

6. FX CS momentum is beginning to trade in NEGATIVE territory, just like we did at the beginning of April. I DO NOT think we will see a leg lower asd we did back then, but I DO think this will cause downside pressures in equities.