$GS Warns On Quant Trader. XOM, JPM, SBUX Affected? Exit?
While reading today, I came across above entitled post “Goldman Sachs Warns of Stock Volatility as Quant Traders Pile In”.
Immediately I was captivated by the “clever” title; almost “clickbait-y” if I may say so.
Allow me to share what I have found out.
Do quant traders come with enlarged brains? LOL!
What are Quant traders?
A quant trader is a specialized trader who applies mathematical & quantitative methods to evaluate financial products or markets.
Their main objectives are (a) find trading opportunities and (b) calculate risks.
Often they rely on (i) historical data, (ii) statistical analysis, and couple it with (iii) high-frequency trading techniques.
Quant traders can trade across various markets, securities and asset classes.
What Have They Done?
According to Goldman Sachs’ report (to customers), they noticed that such players have been increasing their bets on US stocks in recent months.
In the process, they inherently began to pose some risks & challenges for the US stock market and its participants.
Impacts That Could Be Inflicted By Quant Traders:
Amplify market volatility.
Create feedback loops.
Pose a systemic risk to the financial system.
It is especially true for point #3 (see above); given that the stress-related Banking sector has not exactly fully recovered.
The debt limit crisis (still outstanding as of Asia time, Mon- 22 May) maybe exacerbated by Quant traders taking to sudden selloffs, resulting in stock market’s volatility to “spike”.
How worrying is this? Very, indeed!
Who, What,Where, When, Why and How?
In 2011, the Debt Limit crisis was resolved 2 days before x-date deadline:
Yet, US stock market traded “lowly” for about 3 months before managing a turnaround.
S&P downgraded US credit rating from AAA (highest rating) to AA+ (2nd highest), where it remained. US never got back its original rating.
Cue back to Mon, 22 May 2023 - there are 8 working days before 01 Jun x-date as confirmed by US Treasury, Ms Janet Yellen.
Negotiation resumes today from where Mr Biden & Mr McCarthy have left off last Tue, 16 May.
LOW probability of the 2 of them, striking a deal by today.
LOW probability of Congress passing the lifting of the Debt limit by today.
HIGH probability of a “late” signoff and “crash” history repeating itself.
I Think The Affected Sectors & Stocks Would Be:
Energy. $Exxon Mobil(XOM)$ - one of the largest oil and gas companies in the world and a leader in the energy sector. It may face challenges from lower oil prices, higher production costs and environmental regulations. I
Financials. $JPMorgan Chase(JPM)$ - largest US banks and a major player in the financial sector. It will face liquidity and credit risks if the debt limit crisis escalates, disrupting the normal functions of the financial system. May still be suffering from indigestion as a result of “swallowing” $First Republic Bank(FRC)$ wholesale less than 3 weeks ago.
Consumer discretionary. $Starbucks(SBUX)$ - one of the largest coffee chains in the world. It may face challenges from lower consumer spending, higher labor costs and changing consumer preferences.
*Note, could be other stocks in the same mentioned sector as well.
These sectors may see (a) increased volatility and (b) price swings as quant traders react to the changing market signals and sentiments.
Being the captain of your own ship, you will need to be answerable whether to stay the course or exit stage left!
Do you think an agreement could be reached on the Debt Limit today?
Do you think the Quant traders will “sink” the US stock market?
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Regional banks are selling off
wal key pacw etc...hmmmm
FED minutes Wednesday and PCE on Friday. That's all any investor should be watching and planning for. Ignore the political theater.
The rating is very important to me. Tks!
brain dead index investors that never sell win again............
Every time Powel Talks, a banker gets his wings
Great article