Goldman: US small cap rotation triggered by macro, boosted by positioning
According to Goldman Sachs strategists, this rotation was likely sparked by the rally in front-end rates following the soft US CPI data and weaker US labor market figures.
Small caps have outperformed across regions, but their relative returns have been much smaller outside the US. Easing financial conditions have supported weak balance sheet companies as well as USD high yield .versus gold indicated that markets are repricing lower non-US growth expectations, which likely hindered a larger rally in small caps outside the US.
A shift in extreme positioning also likely contributed to the size of the Russell versus Nasdaq move. “That said, Russell options have shown a more bullish option positioning with both call skew and spot/vol correlation close to all-time highs."
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