The global economy is facing a new challenge as the ongoing conflict in the Middle East weighs heavily on market sentiment. Stagnant consumer spending data, revised down GDP numbers, and oil prices hanging near $100/bbl are causing investors to reassess their risk appetite. However, there are some bright spots in the market, with certain sectors and asset classes performing well despite the overall uncertainty.

In the world of cryptocurrencies, Bitcoin Sensitive (GSCBBTC1 Index) is up 3%, Alternative Managers (GSFINALT Index) is also up 3%, and Bond Proxies (GSXUBOND Index) have gained 1.4%. These gains suggest that investors are seeking safe-haven assets in the face of geopolitical tensions.

On the other hand, some sectors are struggling to keep pace with the market’s overall optimism. Secular Growth vs Bond Proxies (GSPUSGBO Index) is down 2%, Megacap Tech (GSTMTMEG Index) is off by 1.7%, and Momentum (GSPRHIMO Index) has lost 1.2%. These declines indicate that investors are becoming more cautious and risk-averse in the face of growing economic concerns.

In terms of trading activity, US ETF shorts on the Prime book increased by 10% yesterday, the second largest 1-day increase in our records. This surge in shorting suggests that investors are preparing for a potential market downturn. CTAs (traders who engage in contrarian trading strategies) are expected to be sellers in all scenarios next week in the US, with activity focused in the industrials and materials sectors yesterday. Hedge funds, meanwhile, are degrossing (reducing their exposure to riskier assets), with activity concentrated in the industrials and materials sectors as well.