In the aftermath of Friday’s market “reassessment” and subsequent surge, when the ECB’s “bazooka” was found quite stimulative for risk assets after all (as opposed to the Thursday post-knee-jerk reaction) one would think that Goldman which still has a 2,100 year end target on the S&P500, would be delighted. Oddly enough, just like Bank of America, Goldman’s reaction is somber, and instead of joining the euphoria unleashed by the surge in energy, momentum and corporate debt-related risk, the firm’s chief strategist David Kostin says the bounce won’t last as it is on the back of firms with “Weak Balance Sheet”, and that both energy and momentum stocks will return their downward trajectory once the dollar it rise as soon as the week when the Fed reverts to a far more hawkish stance.

As Kostin explains, a big part of the unwind of the recent renormalization in value-vs-momentum factors, is on the back of the spike in oil:

Earlier in the week commodity prices, and specifically crude oil, caused violent swings in market momentum that has dominated investor focus. After rising by 31% in 2015, our momentum factor (ticker: GSMEFMOM) has declined by 5% YTD, with its volatility leaping to the highest levels since 2009. This month alone the factor has experienced daily returns falling in the 2nd percentile (-3%) and 99th percentile (+5%) since 1980. Energy firms currently account for 25% of the factor’s short leg. Since bottoming at $26 on February 11, WTI crude has risen by $12 (44%) and driven the S&P 500 Energy sector to outperform the broad market by 265 bp (12% vs. 9%).

These unprecedented whipsawed moves have caught most by surprise:

The correlation between major macro trends has caught many popular investment themes in the momentum spin cycle. In 2015 and the first weeks of this year, lower oil prices were accompanied by lower Treasury yields and downward revisions to US growth expectations, boosting the performance of popular growth stocks and defensive equities while weighing on banks. At the same time, the US dollar, which carries a strong negative correlation with oil, strengthened by nearly 15% and presented another headwind to the US economy. The combination of growth concerns and low oil prices widened credit spreads to recessionary levels and benefited the performance of stocks with strong balance sheets. All of these trends have reversed sharply in recent weeks (see Exhibits 1 and 2).