RBC’s head of cross-asset strategy, Charlie McElligott warns that “it’s now clear that as I’ve been anticipating, there is a significant amount of equities buy-side discomfort as consensual positioning is now driving the first period of sustained market underperformance in some time, all on account of the flagged factor-rotation I’ve been focused-upon.”
Having detailed his thesis consistently (and most recently this morning – see notes below), McElligott’s quick message this afternoon should be heeded by many staring at the tumble in FANGs and surge in Small Cap Financials – something big just changed…
As I’ve been pushing over the past few weeks, the over-extension of positioning and factor relative ratios (most notably ‘value : growth’) sent up the ‘red flags,’ and the moment that rates began to lose that downside momentum, we made the call that the rotation was officially beginning.
Here are the optics of the ensuing scramble, obviously still early stages, but with plenty of room to run as long as rates continue to cooperate (higher). Worth noting on that point, that we are seeing fast-money re-engage in fixed-income shorts again today on rates / futures desk…which as I’ve stated is mission-critical to sustain this reversal.
This post was published at Zero Hedge on Jun 9, 2017.