Repo Usage And Leverage Pricing Signal Growing Stock Market Headwinds
There isn’t much to say at this point—it was a boring day. No economic data was released, so rates essentially did nothing, and the stock market remained pinned at 6,720 all day, thanks to the 0DTE gang. Implied correlations were slightly higher, while dispersion was down slightly. Ultimately, these measures will need to revert to the mean because both are at extremes, with high dispersion and low correlations, which means the S&P 500 is due to drop sharply.
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More interesting is that equity financing costs, which briefly rose in September, are now starting to pull back again. It has been some time since we last discussed these futures contracts, as they have been fairly inactive. They perked up in early September, but are once again starting to decline in value, as noted by the BTIC-adjusted December 2025 EFFR contracts.
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We have also seen these BTIC S&P 500 Total Return Futures for December 2026 vs. SOFR begin to decline sharply, too.
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Finally, equity repo usage declined through September 24, and since financing costs and repo usage have tended to move in tandem over time, a further decline in financing costs will likely result in a corresponding drop in repo usage as well.
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Add these to the growing list of reasons stocks shouldn’t be rising, along with private equity firm Apollo Global (APO) —whose stock is also in decline—along with several others.
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More By This Author:
The Music Has Stopped But The Stock Market Continues To Play
Liquidity Pressures Push Repo Rates Above Fed Funds Range
Elevated Dispersion Highlights Market Vulnerability
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. ...
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