Episode summary
Untangling Signals of Market Stress
The Markets
· · 10 min · Hosts: Chris Hussey, Mike Washington · Guests: John Flood
Summary
John Flood says markets are being driven less by economics and more by geopolitics, with “extreme uncertainty” and no clear off-ramp to the conflict. He argues that investors are focusing on what they can and cannot control, and that the uncertainty is pushing institutional players to protect against headline risk rather than making big directional bets.
Flood says hedge funds are keeping core single-name longs but hedging aggressively through macro products, including futures, ETFs, and custom baskets. He also says liquidity is “terrible” even as volumes are explosive, pointing to 21 billion shares trading daily versus 18 billion last year, while S&P 500 futures top-of-book depth has fallen to $3.8 million from a historical average around $14 million to $15 million.
On positioning, Flood says the most crowded themes have been long Korea and Taiwan, long semis versus short software, and broader momentum exposure, all of which have come under stress since the conflict began. He says assets have moved back toward the US because of energy-security concerns, but expects money to rotate back to Asia and Europe if resolution headlines improve. The key watchpoint, he says, is jobs data: multiple weak payroll prints could shake the retail bid that has supported equities.
Key takeaways
- John Flood says institutional investors are hedging more aggressively, shorting macro products while keeping core single-stock longs intact.
- Flood says S&P 500 futures liquidity has dropped to $3.8 million of top-of-book depth, versus a historical average around $14 million to $15 million.
- Flood says ETF usage has surged, with ETFs now north of 40% of total tape versus a healthy 30% to 32% range.
- Flood says the most crowded trades are long Korea and Taiwan, and long semis versus short software, but those themes have come under stress.
- Flood says investors have rotated back into the US for energy-security reasons, but a geopolitical resolution could send capital back to Asia and Europe.
Notable quotes
“right now we're in a period of extreme uncertainty, more so than we were a year ago”
“People are on edge. So, as of right now, let's start with hedge funds, who are our most active traders from the institutional community”
“Liquidity is terrible right now. And a lot of times people confuse market volumes and liquidity”
“Right now, today we're at $3.8 million. So, as you are trying to have institutions move in or out of sizable positions, you're having a lot more impact”
“The trade today, what we talked about is we're trying to stay present in the moment”
How the episode opens
This is The Markets. I'm Chris Hussey and today is Thursday, March 12th. And I'm here in the Goldman Sachs trading floor with John Flood who is head of Americas Equities Execution Services within Global Banking & Markets.
Floody, thanks so much for joining us. Thank you for having me. Okay, John, believe it or not, it's been a year since I last had you on the show.
It was right around Liberation Day. A lot of volatility back then. Compare today's market to what we were in a year ago.
I would say right now we're in a period of extreme uncertainty, more so than we were a year ago. And frankly, there's a lot of focus on what is control, what we can control, and what we can't control. So, right now during this geopolitical uncertainty, it's is there going to be an off ramp to this conflict?
And that is a very confusing question to come up with a firm answer to. It's a great point. Trying to answer the questions, it's not an economics/math problem at all.
It's a geopolitical problem. All right, John, you get to look across institutional investors all day long. You get a sense of how they're positioned in a market like today.
This week we saw the VIX spike to 30. We saw oil going back up towards $100 a barrel. How are institutional investors positioned today?
People are on edge. So, as of right now, let's start with hedge funds, who are our most active traders from the institutional community. They have held onto their single stock longs because there's still high conviction in your core ideas.
But due to the macro uncertainty, we're seeing an extreme of amount of hedging. And what that means is we're seeing a lot of shorting of macro products: futures, ETFs, custom baskets.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- geopolitical uncertainty
- market stress
- sp-500 liquidity
- institutional hedging
- thematic trading volumes
Companies and tickers mentioned
- GS
- Goldman Sachs
Watch the episode
Watch “Untangling Signals of Market Stress” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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