Five synchronized assets pointing to a ‘black swan event,’ says market veteran

Assets moving in tandem is the theme of our call of the day, from TheoTrade’s chief market technician, Jeff Bierman, who sees dark clouds gathering for markets due to “asset auto correlation overload.”

Bierman, an adjunct instructor at Loyola University’s business school, explains that bitcoin
BTCUSD,
gold
GC00,
the S&P 500
SPX,
bonds and oil have been “moving together in automatic serial correlation, driven simultaneously by algos,” that is, computer-driven trading algorithms used by Wall Street firms, hedge funds and other big investors.

“There’s nowhere to hide, no diversification in this type of market. This is a black swan event. It’s a bubble that can be burst at any time by an exogenous cataclysmic risk event or any number of factors,” Bierman tells client in a new note, adding that it’s “highly likely” this will mark the beginning of the end of the 2023 stock market rally.

“The market is technically overbought, fundamentally overpriced, has virtually no risk priced in (the VIX is at 17), and is sitting on a mountain of complacency. This is a witch’s brew for the pain trade to the downside,” he said.

The VIX, or the Cboe Volatility Index
VIX,
is a gauge of expected stock-market volatility, which saw its lowest finish since January on Tuesday of around 16.83 — its long-term average is around 20.

Read: The VIX is telling stock-market investors it’s dangerous to bet on Fed interest-rate cuts this year

Bierman notes that almost every stock outside of financials has rallied to the point of being priced for perfection and beyond, with expectations also too high. Morgan Stanley’s Mike Wilson warned earlier this week that lofty earnings forecasts are at risk of a sudden, sharp turnabout.

Bierman, who has more than 30 years under his belt as a stock analyst, hedge-fund manager and financial educator, admits he’s probably early on this call. But while market trends are still intact, “momentum generally turns before the trend and bullish momentum has been completely sucked out of the SPX,” he said.

And he thinks the market has already squeezed in so much good news, there’s scant upside left, while there’s a ton of wide open space to the downside.

He suggests investors should pay heed to one of the few realists out there right now, JPMorgan CEO Jamie Dimon “had the integrity and the gumption to admit that we are in an earnings recession and that investor expectations are out of whack.” 

In short, don’t let those algos fool you, he says.

The markets

Stock futures
ES00

YM00
are falling, led by Nasdaq-100 futures
NQ00,
with Treasury yields
BX:TMUBMUSD10Y

BX:TMUBMUSD02Y
pulling back, as well as oil prices
CL

BRN00.
Tesla gloom is also hitting Europe car makers, knocking the German DAX
DX:DAX.

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The buzz

Tesla shares
TSLA
are down 7% in premarket after a revenue miss and weak margins and a pledge from the EV that price cuts will continue. That’s hitting a broad swath of auto makers, including Ford
F,
GM
GM,
NIO
NIO,
Lucid
LCID,
Rivian
RIVN
and Volkswagen
XE:VOW3.

Opinion: Don’t fall for Elon Musk’s full automation fantasies

U.S.-listed shares of Nokia
NOK
are down 6% after the Finnish telecom equipment maker’s disappointing profit and warning of customer spending delays.

IBM
IBM
shares edged higher after Big Blue topped earnings and software sales expectations. The tech giant also boasted of how AI will improve productivity as it laid off thousands.

AT&T
T,
D.R. Horton
DHI,
Fifth Third Bancorp
FITB,
KeyCorp
KEY,
American Express
AXP,
Philip Morris
PM
and Union Pacific
UNP
are reporting ahead of the bell, with Genuine Parts
GPC,
Adobe
ADBE
and Seagate Tech
STX
due after the close.

Weekly jobless claims and the Philly Fed manufacturing survey are due at 8:30 a.m., with existing home sales and leading indicators at 10 a.m. It’s a busy day for Fed appearances, with Fed. Gov. Christopher Waller at 12 noon, Cleveland Fed President Loretta Mester at 12:20 p.m., then Dallas Fed President Lorie Logan and Fed Gov. Michelle Bowman at 3 p.m. and Atlanta Fed President Raphael Bostic at 5 p.m.

Treasury Secretary Janet Yellen has accused China of acting illegally in a bid to “dominate foreign competitors,” and says the U.S. will give priority to national security interests.

In San Francisco, the value of a former WeWork office building has been slashed by 66%.

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The chart

“Agriculture futures have lost three important pillars of support,” says Dave Whitcomb, founder of Peak Trading Research, in a note to clients. Those pillars: crude oil, down 3.7% this week, the Brazilian real (top origin currency), down 3.2% this week and the Chinese yuan (top importer currency) down 0.5% this week.

“That’s a steep hill to climb, even for markets with fundamental stories (Cattle, Sugar, Coffee). Watch if Crude Oil continues to give up its OPEC production cut gains and the direction of the U.S. dollar. Bigger macro catalysts coming in May,” he says.

Read: Orange-juice futures are near a record. Sugar is at an 11-year high. And coffee is peaking too. What’s going on?

The tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

Ticker	Security name
TSLA	Tesla
BBBY	Bed Bath & Beyond
BUD	Anheuser-Busch InBev
AMC	AMC Entertainment
GME	GameStop
TSM	Taiwan Semiconductor Manufacturing
AAPL	Apple
NIO	Nio
NVDA	Nvidia
FRC	First Republic Bank

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