Dear Hedgeye Subscriber,
We are pleased to share with you our Quarterly Investment Outlook for 2Q 2018.
In the video below, Senior Macro analyst Darius Dale lays out our three essential Macro Themes we believe will drive market returns in the coming months. Below the video is a brief summary of each theme with supporting charts.
(Click here to view all 29 slides from the presentation.)
Each theme forms the foundation of our current investment conclusions and will augment your own investing process.
Best Regards,
Team Hedgeye
1. USA: #PEAK CYCLE?
After 6 consecutive quarters of accelerating growth and bullish quantitative signaling, our model is mapping a peak and prospective negative inflection in domestic economic growth as we move into 2H18. There's been a shift in market and macro dynamics recently. The fundamentals, base effects and other risk management dynamics are driving our expectation for a downshift to Quads 3 (Growth slowing, Inflation accelerating) and Quad 4 (Growth and Inflation slowing) in the back half of the year. Wall Street consensus GDP estimates are now above Hedgeye forecasts for the remainder of 2018. We think consensus isn't properly positioned for these emergent phase transitions in growth and volatility.
2. GLOBAL #DIVERGENCES, REITERATED
Cross-asset volatility has conspicuously emerged amid consensus calls for an ongoing “globally synchronized recovery” and an extrapolation of cycle-peak GDP growth rates in the U.S. through year-end. As such, we feel compelled to reiterate our non-consensus view that global growth momentum has broadly dissipated. The only strategist that seems to agree with our view is Mr. Market himself.
3. DOLLAR #BOTTOMING?
We have recently asked the rhetorical question, “Is the [U.S.] dollar the new VIX?” Peak dollar bearishness came midway through Q1 which was driven by carry trades and fund flows associated with the low-volatility, global growth accelerating backdrop of 2017. The U.S. Dollar index is down -11% in the past year. A reversal in the U.S. dollar continues to be a major risk to aging consensus fund flow narratives.
As always, if you have any additional questions please send an email to Matt Moran. His email is mmoran@hedgeye.com.
