Pain Trade Is Higher In Stocks From Here

Citadel Securities notes that while market breadth is historically narrow, the equity rally is supported by massive earnings growth outperforming price gains. The 'pain trade' remains higher as underinvested managers chase performance amidst record retail option activity.

Key Takeaways

• 1.The 'pain trade' remains higher for equities as performance-chasing and systematic flows create a 'wall of worry' despite record highs.
• 2.The rally is not a speculative bubble because earnings growth is outpacing price gains, causing valuation multiples to actually compress.
• 3.Market breadth is historically narrow, with only 28% of S&P 500 stocks outperforming the index over the past 30 days.

Table of Contents

• Global Roadshow Insights: The Top Themes Driving Institutional Client Conversations
• 1. Can earnings catch up to prices after such a strong move higher in equities?
• S&P 500 Earnings Season
• 2. Why have stocks effectively become cheaper from a valuation perspective even as markets move higher?
• 3. Are discretionary equity risk-takers still underinvested?
• 4. How much of this rally is being driven by flows versus fundamentals?
• 5. Is this still a narrow rally, or is participation finally broadening out?
• 6. Should investors rotate into lagging sectors or remain concentrated in the current market leaders?
• 7. What does this environment mean for volatility? And why have we seen rare "spot up + vol up" behavior?
• 8. Why is the stock market not the economy? What is the retail investor doing now?
• Consumer Sentiment vs. SPX
• 9. What is the pain trade now?
• 10. What ultimately pauses the rally?
• GMI BOTTOM LINE