With an otherwise stellar Q1 ending with a whimper, traders expected that Monday would bring a return if not the "animal spirits", then at least the Reflation trade. That, however did not happen, for various reasons as profiled earlier by RBC, among which:
Having confessed to the fact that Fed "forecasts" are as useless as any other guess (and not commitments), NY Fed's Bill Dudley admitted this morning that the Fed-inspired student-loan bubble is a debt overhang that both inhibits home ownership and is a headwind to economic growth.
“If you look at the Summary of Economic Projections, it’s a forecast” and not a commitment, New York Fed President William Dudley says in New York at press conference on trends in household borrowing and student debt.
Despite continued heavy incentive spending, every auto OEM, with the exception of Nissan, missed their sales forecasts for the month of March. The "D3" were the biggest losers of the month with GM sales up 1.6% YoY vs. estimates of +7.0% while Ford sales dropped -7.2% and Fiat Chrysler declined -5.0%. Car sales were even worse with industry volumes down 10.6% overall versus light truck sales that were up 5.2% according to Autodata.
Earlier we showed that when looking at asset returns in the first quarter, there were hardly any underperformers while positive returns were generous across virtuall all asset classes. What drove this outsized performance, which once again left most hedge funds and asset managers seeking to generate alpha in the dust? The answer: a continuation of the capital reallocation euphoria launched with the Trump election in November, which continued for the second consecutive quarter.
With the S&P having traded as high as 2,400 last month, which is also JPM's year end price target, and having dipped a modest 3% since then peak to trought, some traders were worried if this is finally the start of the inevitable correction that has evaded stocks for so long. Not according to JPM, though. Recall that several weeks ago, JPM's Marko Kolanovic called for an imminent bounce in volatility following the March quad-witching.