S&P 500

One day after the biggest jump in stocks in two months on what has still been an undetermined catalyst, overnight global equities did a U-turn with European stocks falling toward a one-month low and U.S. stock index futures declining, as crude oil dropped toward $44 a barrel. A driver the move lower was a sharp reversal in the USDJPY which dropped 100 pips from yesterday's highs which took places just as Goldman predicted the USDJPY has finally bottomed, facilitated by a weaker dollar (also following a Goldman report yesterday forecasting the USD was about to surge).

Exactly one week ago, when looking at the record 14 consecutive weeks of selling by the "smart money" clients of BofA, i.e., hedge funds, institutions and private clients, we said that "maybe next week, which would mark a historic 15 weeks of consecutive smart money outflows, is when the tide finally turns, assuming the market slides here. Or perhaps, due to accelerating redemptions, it won't, and the ongoing selling deluge will continue indefinitely. Find out one week from now."

Overnight BofA revealed the answer, and as it turns out, it was the latter:

In what has been an approximate repeat of the Monday overnight session, global stocks and US futures rose around the world as oil prices climbed toward $44 a barrel, with risk-sentiment pushed higher by another plunge in the Yen which has now soared 300 pips since the Friday post-payroll kneejerk reaction, and was trading above 109.20 this morning.

The realized (actual) volatility of the US equity market has plunged in recent weeks to its lowest since April 2015 as an odd complacency washed across risk assets emboldened by "whatever it takes" synonyms spewing from every and any central banker in the world. However, options traders appear to be losing faith in the market turmoil cease-fire as implied volatility (the market's best guess at future uncertainty) trades at its largest premium to historical volatility in over a year.

Over the weekend we showed a Citi presentation in which Matt King laid out why he is growing concerned as the systemic tipping point approaches.

However, one slide deserves particular attention, the one in which King shows that job creation since 2009 has been largely bimodal, benefiting the two income extremes, or as he puts it "Chefs and CEOs, with not much in between." But even more notable is the chart on the right which King summarizes very simply: there has been wage growth but "only for the wealthy."