Dear Subscriber,
We are pleased to share with you our Quarterly Investment Outlook for 1Q 2018.
In the video presentation below, Senior Macro analyst Darius Dale lays out our three essential Macro Themes which we believe will drive market returns in the coming months. Also below is a brief summary of each theme with supporting charts.
Each theme forms the foundation of our current investment conclusions and will augment your own investing process.
Best Regards,
Team Hedgeye
1. REFLATION'S ROLLOVER ii
Sequels are rarely as good as the original, but with harder comps, a broad deceleration across major componentry in the CPI/PCE price baskets and the Sept-Dec reflationary impulse now largely rearview, we’re likely to see our second round of Reflation’s Rollover in less than a year. And with growth poised to accelerate for a 7th consecutive quarter in 1Q18, a lower deflator should help drive a GIP rotation back into QUAD 1. In the video presentation above we detail the growth and inflation outlook domestically and revisit why the shift in reported inflation from accelerating to decelerating – if only subtly – is likely to perpetuate the ongoing outperformance of growth-oriented exposures vs. their value/reflation-oriented counterparts.
2. #GLOBALDIVERGENCES
In contrast to relying on financial media soundbites, idea dinners or surveys, our views on the global economy are instructed by sophisticated predictive tracking algorithms – which we run for every investable economy in the world. While investor consensus remains committed to the “globally synchronized recovery” narrative heading into 2018, our models are signaling quite the opposite and that outcome should perpetuate a number of meaningful pivots in asset allocation terms throughout the investment management landscape. In the video presentation above we detail why we expect domestic equity and credit assets to outperform their international counterparts with respect to the intermediate term. In conjunction with Reflation’s Rollover II, we anticipate global bond yields to increasingly act as an anchor on U.S. bond yields throughout Q1.
3. #UNDERWEIGHT EM
2017 was an epic year in terms of risk-adjusted returns and portfolio flows across the EM investment landscape for a variety of fundamental reasons – not the least of which was six consecutive quarters in QUAD 1 at the aggregate GIP level. The first half of 2018 will likely see a pickup in volatility and credit spreads as said fundamental tailwinds are eroded, at the margins. In the video presentation above we detail why we believe global investors would do well to rotate out of EM and into DM, as we expect the former to underperform over the intermediate term. We also make the case for why EM-dedicated investors would do well to high-grade their portfolios by rotating into minimum volatility securities, consumer staples and IG credit in lieu of reflation-oriented cyclicals and HY credit.
If you have any additional questions, please do not hesitate to contact Matt Moran. He can be reached at mmoran@hedgeye.com.
