Big-Blue Black-Monday As Claude Kills Again; Banks Battered, Bonds & Bullion Bid

Chaos in Mexico didn't help much over the weekend but increased tariffs and tensions with Iran prompted a 'risk off' day today, reversing some of last week's biggest winners' gains.

On the macro side, a mixed bag again with Chicago fed National Activity Index jumping dramatically higher (into the green) while durable goods and factory orders disappointed.

Additionally, rising anxiety over the impact of AI disruption on multiple sectors resurfaced (exacerbated by a note from Citrini Research that was passed around getting over 20mm views, saying nothing new but re-highlighting the potential impact on jobs and tech firms in the next few years)...

“The sole intent of this piece is modeling a scenario that’s been relatively underexplored,” a preface to the article, which was published Sunday, said.

“Hopefully, reading this leaves you more prepared for potential left tail risks as AI makes the economy increasingly weird.”

...with investors, once again, dumping shares of any company seen at the slightest risk of being displaced...

Goldman's AI-at-Risk basket fell to its lowest since Nov 2016...

Top Goldman trader, John Flood, noted that:

In the Citrini blog the businesses specifically mentioned were food delivery (DASH -7%, UBER -4%), payments (AXP -8%, V -5%, MA -6%), private credit/alts (OWL -4%, AP -5%, BX -6%), software (NOW -4%, CRM -4%), & IT services (INFY -5%).

We did not see meaningful dip buyers from the institutional investor community in any of these sleeves of the market on our trading desk today.

Tomorrow is a new day. 

Flood's main takeaway from these sharp single stock px reactions we have been witnessing on what feels like a daily basis now are as follows: 

1) the retail community is the currently the most importantly player in the US equity market and

2) basket trading is tool that is being more widely used by a significantly more diverse group of investors (historically these were a tool primarily used by macro traders).

Flood concludes: 

"Whether you agree with the rationale behind today’s latest blog post or not it is impossible to deny the increasing impact that these types of blogs / thought pieces are having on the stock market."

With the blood once again flowing in equity-land, investors piled into bonds and bullion as safe havens...

Yet,as Bloomberg's Michael Ball reports: analysts, strategists and investors have also warned that many of these reactions are exaggerated and are likely overestimating any AI-related risks at this point.

“It is a remarkable reaction,” said Michael O’Rourke, chief market strategist at Jonestrading.

“I have seen this market exhibit incredible resilience in the face of actual negative news. Now a literal work of fiction sends it into a tailspin.”

We would argue humbly that this new note had far less to do with today's weakness; which we suspect was in fact driven by positioning and gamma (again), with Friday's OpEx leaving the market deeply negative gamma (dealers selling into weakness, or buying into strength) exacerbating moves...

Goldman's Chris Hussey summed up the day well: 

Alongside the secular headwinds that AI represents, we also continue to see uncertainties around the Middle East and now even Mexico as US foreign policy remains very dynamic. These macro uncertainties at any given time can dwarf micro data points as investors struggle to find a purchase on which to anchor stock valuations. And today feels a bit like investors are particularly struggling to find that purchase.

In addition to the US policy uncertainty headwinds, investor positioning may also be adding to the downward pressure on pockets of stocks across the market -- we say pockets because the S&P 500 is still flat ytd, not down, so the market itself is more 'meh' than 'uggh.' 

Mutual funds are as long stocks as they ever get (as measured by the percent of assets held in cash), while Hedge Funds are maintaining only average net leverage...

All the majors were lower on the day. A brief rally up to unchanged for the S&P at the US cash open was immediately met by a wave of selling pressure. As the afternoon began we saw a bounce but then that faded when this HL hit: "*SENATE DEMOCRATS RELEASE BILL SEEKING TRUMP TARIFF REFUNDS". Small Caps and The Dow were the biggest losers with S&P the prettiest horse in the glue factory...

The S&P lost its 50DMA and traded down to find support at the 100DMA...

IBM was the latest to be slayed by Anthropic (as it announced the COBOL killer app), puking over 12% today...

...that is the worst day for IBM since 2000...

Just some context (AAPL overtook IBM's market for the first time in Oct 2007)...

Steve explains in 1983...

The initial pain trade - SaaS stocks - were slammed...

..but the pain has spread to the entire software stack...

IGV - the biggest software ETF - extended its February plunge, heading toward its worst month since 2008... but interestingly, the fund has seen sizble INFLOWS during this trainwreck...

Private Credit carriers were crushed again...

...and Financials were once again dumped...

“The red flags we are seeing in private credit today are strikingly familiar to those of 2007,” said Orlando Gemes, chief investment officer of Fourier Asset Management.

He pointed to worsening lender protections and convoluted liquidity terms that “obscure the mismatch between what investors believe they own and what they can actually exit.”

Worries have also grown despite solid results from megacaps amid doubts over whether massive investments in the technology will pay off soon.

“The AI disruption story probably hasn’t run its course yet,” said Chris Larkin at E*Trade from Morgan Stanley.

Meantime, Wall Street continued to parse the implications of the latest trade developments.

Following the Supreme Court’s decision on Friday to nix President Trump's "reciprocal" tariffs, the White House swiftly announced plans to replace the prior tariffs with a new, across-the-board 15% levy on US imports. 

“The push and pull with tariffs is likely to be a distracting theme for markets for the remainder of the year, albeit with less volatility than the initial shock last April,” said Michael Landsberg at Landsberg Bennett Private Wealth Management.

Goldman's 'Tariff Immune' basket dramatically outperformed 'Tariff Risk' names...

Treasuries were bid across the curve with the belly outperforming the wings...

The 10Y Yield fell to its lowest since last Thanksgiving, testing down towards the 4.00% Maginot Line...

At the shortest-end of the curve, rate-cut expectations dovishly rose...

The dollar ended the day unchanged - but only after overnight weakness was bid back up...

Gold surged back above $5200...

Bitcoin was battered back below $65k... twice... to its lowest since Feb 5th puke...

Gold up, Bitcoin down... again... pushed the BTC/Gold ratio down to new cycle lows...

Oil pumped and dumped back to end the day unchanged-ish...

Finally, the market is bracing for a busy week ahead, including Trump's State of the Union address tomorrow, Nvidia results Wednesday and a Friday reading on PPI that will help shape the policy outlook...

Worse still, seasonals are not in your favor...

But, if you believe in miracles... Broader equity index positioning, especially when including the Nasdaq, is showing put skew near extremes and call skew historically low. Traders are paying up for downside protection with little interest to own right tail risk. That creates the conditions for a reversal if a more positive narrative emerges and put positions start to decay quickly, causing dealer delta hedging flows to chase any rally. Always the optimists...