JPMorgan Trading Desk Commentary: “The Supply On Our Desk Is Starting To Dissipate”

After another market rollercoaster session, here are some thoughts from JPMorgan’s trading desk, starting with Ron Adler, TMT trader, who is seeing what may be the start of a reversal in bearish sentiment in the TMT space…

The transcript on many conversations goes like this: “So I know WHY X is down, but WHY is X down SO MUCH?”

The supply on our desk is starting to dissipate. Some are trying to pick a bottom in names like SNAP, FB, and UBER…but that strategy has been futile.

• INTERNET: IT FEELS LIKE YOU CAN’T OWN ANYTHING IN INTERNET RIGHT NOW – CHANGE MY MIND….
• E-COMMERCE: If AMZN, WMT and TGT are having issues, I don’t think anyone is inclined to be long anything else in eCom.
• ADVERTISING: between the macro landscape and competition from TikTok, it’s hard to want to own the ad centric names. The ripple effects from SNAP & GOOGL are more like a tidal wave. It almost feels like the all-clear in these names will be TikTok going public (which could be a ways off).
• RIDESHARING: More people are starting to subscribe to the “great service, tough business” line of thinking. Ridesharing was subsidized dramatically as it scaled with VC funding; they are targeting profitability, but have to subsidize along the way.
• STREAMING: Starting to feel like the above; “great service, tough business.”
• OTAs: probably the safest place to hide, but price elasticity and the macro is certainly becoming a risk factor.

… that optimism however is reversed by the dismal landscape seen by Brian Heavey, the bank’s Consumer trader:

Combination of more retail blow-ups (ANF) and the slowdown in new home sales this morning just further bolstering the recession case -> anything with leverage getting crushed today (Casinos, cruise lines, casual diners, levered airlines like AAL just to name a few sectors that down 7-10% today). There have been a multitude of data points over the past few weeks showing a consumer spending slowdown and WMT/TGT put it into hyper-drive.

Credit markets are tightening which is leading to increased risks of ATMs and other equity raises for the levered companies that are not equipped for dramatic slowdown in spending (Cruise lines have barely even seen the pandemic recovery at this point and now will have to grapple with a potential recession…the sector is now firmly back to the INITIAL early pandemic equity offering prices).

What are we seeing?

• Investors are shedding leverage, retailers and other sectors that will underperform in a slowdown (a theme we’ve been seeing for weeks now).
• Defensives/Staples are bouncing following the WMT/TGT sell-off as investors ignore potential margin-driven EPS cuts and seek safety in defensive low vol.
• We’re 2:1 to buy today in Staples and 1.5 for sale today in Cons Disc (Cons Disc is our second biggest sell sector behind Info Tech today).

Only real buy tickets we are seeing today is covering in Sporting goods (ASO/DKS down big today ahead of DKS print tomorrow), dept stores while we continue to see real demand for grocery space (ACI, KR).