Duet Protocol Global Market Recap and Outlook — 20231106

Duet Protocol
10 min readNov 6, 2023

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The S&P 500 index rose for 5 consecutive trading days last week, posting its best weekly gain (+5.9%) since November 2022. The Nasdaq index gained 6.5% last week, its best weekly gain this year. It looks poised to break out of the 3-month trading range. Markets reacted to the combination of moderate economic data (jobs, inflation, manufacturing) and policy-friendly developments (dovish FOMC+BOJ and below-forecast Treasury issuance), an environment reminiscent of the Goldilocks era. But positioning and sentiment data suggest this bounce was more short-covering, with high volatility likely to persist.

The 10-year Treasury yield saw its biggest weekly drop since March:

Small-caps represented by the Russell 2000 posted their best weekly gain since January 2021:

This drove bond yields lower, while corporate earnings last week were also generally positive. Rate-suppressed sectors like real estate and consumer discretionary led US stock gains with tech and telecoms also up over 6%. Lagging were energy, healthcare, and consumer staples.

Falling market yields caused the biggest weekly drop in financial conditions indices since November 2021:

Goldman Sachs Financial Conditions Index

Panic clearly receded with the VIX plunging:

The US Dollar Index pulled back to September 20 lows

Notably, small-caps gained 7.5% this week, the best weekly gain since February 2021, while profitless tech surged 15% for its best week since November 2022. Cathie Wood’s ARKK had its best week ever, soaring nearly 19%:

This astonishing rise seems more driven by sentiment unwind than fundamentals, echoing crypto markets where higher-risk altcoins gained 6.2% versus just 2.1% for BTC and ETH, the widest weekly spread in 3 months.

Looking back since 2017, early bull run periods saw ALTCOIN significantly beat BTC 3 times — August 2017, June 2020, August 2021. At 18th percentile historically, last week’s weekly change differential suggests this is far from ALTCOIN euphoria if it proves an enduring crypto bull run.

Bitcoin led all major asset classes in nominal returns and risk-adjusted returns this year:

Historically, we believe BTC’s value as an alternative asset allocation has largely depended on inflation shadows, with BTC bull and bear markets corresponding to rising and falling inflation expectations as measured by 5Y and 10Y breakevens.

If Fed policy rates peak here, cooling inflation expectations (5yr down 20bps and 10yr down 10bps the past two weeks) could in turn dampen demand for alternative allocations absent a Goldilocks continuation. So counting on both lower rates and alternative asset upside is somewhat contradictory.

Apple Q3 revenue and EPS beat forecasts but some metrics missed, especially weak Greater China sales. Shares initially fell 3.4% but ended the week up 4.5% overall.

Last week, Israel’s ground invasion did not immediately escalate the situation (i.e. Hezbollah or Iran joining). Oil prices plunged $5 despite the US House passing expanded Iran oil sanctions.

Dovish FOMC

- Statement had almost no new content, but existing language hinted at a dovish wait-and-see approach to see if stronger growth impedes progress on inflation. Most importantly, Powell downplayed recent upticks in inflation expectations, reiterated growth is above potential but not enough to hike again, and acknowledged recent tightening in financial conditions has essentially substituted for hikes. This is what markets wanted to hear. Though the Fed’s stance has not changed since July, US financial conditions have tightened equivalent to about 75bp of rate hikes, which will be a drag on growth, likely visible by Q4, and won’t reverse much from short-term yield pullbacks.

- Dot plot shows one more hike this year still on the table. Since the Fed hates surprising markets, if Powell was confident enough in recent data, he should have explicitly signaled or at least hinted at next meeting’s action in the press conference. The emphasis on data-dependence and reiterating higher long-end yields substituting hikes gives markets reason to think this hiking cycle is over, letting inflation expectations potentially run hot.

Lower US Fiscal Issuance in Q4

- The US Treasury lowered its Q4 net borrowing estimate to $776 billion vs $852 billion expected, with 58% in short-term debt. This provided an instant relief to market anxiety over long-term yields. Q3 Treasury issuance was $1.01 trillion. The official statement attributed lower borrowing needs to higher receipts. Also this week, the quarterly refunding auction was $20 billion less than expected at $102 billion.

The news seems to have made markets too happy, with 30yr and 10yr both plunging nearly 40bps. Given ongoing supply pressures, this kind of drop may be an overreaction. It will be hard for bond market positives to last very long.

BOJ + Japan Fiscal Stimulus

- As rumored, the BOJ again loosened its yield curve control but in an extremely ambiguous way — basically indicating the BOJ can now allow 10Y JGB yields above 1% but won’t let them run too far. This sank the yen to 151.7 while Japanese stocks surged 7%. It appears the BOJ is determined to abandon FX for debt. However, some analyses say this was just linguistic ambiguity and the effective elimination of the 10Y band is abandoning YCC. So we see JGB yields rise but also stocks and USDJPY rise, showing divided market understanding. But certainly betting on Japanese yields to retreat again is improper, and long yen may be a very good spot.

- Also overlooked on Friday was Japan’s cabinet approving a ¥17 trillion ($110 billion) economic stimulus package, including tax refunds, energy subsidies, encouraging wage hikes, domestic semiconductor investment, and population growth incentives totaling 3.1% of GDP. Including local government spending and national lending support, the total reaches ¥21.8 trillion or 4% of GDP.

Japan has the highest debt/GDP globally at 262%. Alongside China’s government, Japan’s increased leverage will output more cash from the East that may offset central bank tightening.

Labor Costs and Jobs Data Slow

- Productivity grew 4.7% annualized in Q3 after 3.6% growth in Q2. Unit labor costs fell 0.8% in Q3 after rising 3.2% in Q2, the first decline since late 2022 and well below the 0.7% growth expected.

  • October NFP also disappointed at just 150K added vs 180K expected, while the unemployment rate ticked up to 3.9%, highest since January 2022. Even excluding the 30K+ hit from the UAW strike, the print was soft.
  • As usual, August/September job figures were also revised down substantially, with 8 of the first 9 months of 2022 now revised below initial prints, consistently unreliable data that pains all economists and traders relying on it:

Election Year Stock Market Performance

- Heading into US midterm elections exactly 1 year away, US politics enters a more complex year, with below average stock returns typical in election years. Since 1932, S&P 500 return has averaged 7% over the 12 months leading into elections versus 9% in non-election years. More recently, pre-election performance has been weaker, averaging just 4% over the 12 months prior in the 10 elections since 1984.

  • While earnings tend to grow in election years, valuations usually trend sideways:

- Volatility is typically higher than average, with actual 12-month volatility averaging 18% since 1984 versus 16% in non-election years.

- Policy uncertainty index usually rises into elections.

  • After presidential elections, as uncertainty fades, stocks often rebound strongly. The policy uncertainty index usually falls in the weeks after as investors gain clarity on the policy implications. Median return for the 8 weeks from election day to year-end has been 5.0% for S&P 500 since 1984, versus just 2.6% in non-election years.
  • BofA’s Hartnett believes the real panic will come next year: “So much anger, so much hatred, yet unemployment so low; can you imagine the social unrest if unemployment reaches 5%? That’s why policy panic happens in early ‘24.”


  • Goldman Prime data: Hedge funds were net buyers of US stocks following FOMC, largest 5-day net buy since Dec 2021 (99th percentile over past 5 years). Both short covering and new longs evident.
  • SPX gamma had largest ever one-day increase on Thursday, signaling markets aggressively adding risk exposure:
  • CME BTC futures open interest hit record highs last week despite BTC only 53% of ATHs:
  • US equity positioning edged lower last week despite big market gains (suggests some lag in factors). Overall equity positioning dropped from 33rd to 31st percentile, subjective PMs 41 to 38, systematic PMs 31 to 29.
  • CTAs continued cutting their overall equity exposure, now at extreme 4th historical percentile
  • Equity funds (-$34B) saw outflows for 4th straight week, led by EM redemptions (through Wed). Bond funds ($22B) attracted inflows for 4th week. Money market funds ($642B) accelerated inflows, especially in US ($662B).
  • CFTC futures (through Tues), US equity net longs declined on lower S&P 500 and Nasdaq 100 net longs while Russell 2000 net shorts fell for 4th week. USD net shorts decreased. Oil net longs slightly lower. Gold net longs rose.
  • Bond shorts rebuilt (though market yields didn’t plunge until Weds):
  • CME Bitcoin speculative net shorts edged lower, green line below, after 3 weeks of increases despite surging BTC prices:


  • Goldman risk appetite indicator jumped, with shifts more optimistic on both policy expectations and global growth, similar to backdrop in early summer:
  • BofA Bull & Bear Indicator dropped to 1.4 last week, lowest since Nov 2022, triggering contrarian “buy” signal for 3rd straight week. Historically, stocks average 6% gain over 12 weeks following signal.
  • AAII sentiment survey showed highly unusual divergence from price action, with bearish percentage surging to 43.18–50.28%, highest this year:
  • CNN Fear & Greed Index rebounded above 40 but still below neutral:

Week Ahead

Since our call last week for a stock bounce based on positioning and sentiment, alongside fundamental and policy shifts, markets saw aggressive short-covering and playing of previously oversold areas. This momentum can persist for some time, not expecting reversal this week (no major events). But yield overshoot and economic slowdown argue for limited upside to this relief rally.

Unlock the full potential of your trading strategy on pro.duet.finance! 🚀

Experience up to 100x leverage, dive into 30+ assets including FX, stocks, commodities, indices, and more, all in a highly liquid & smooth platform. Plus, enjoy the industry’s highest reward ratio with up to 80% trading fees returned to you! Hedge against crypto dumps and access traditional markets without leaving the crypto sphere. 💸📈💹

#TradeWithDuet #CryptoMeetsTraditional

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