Dear Hedgeye Subscriber,
We are pleased to share with you our Quarterly Investment Outlook for 3Q 2024.
In the video below, Hedgeye CEO Keith McCullough updates subscribers on 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.
(View the slides included in the presentation HERE.)
Each theme forms the foundation of our current investment conclusions and will augment your own investing process.
Best Regards,
Team Hedgeye
Q3 2024 MACRO THEMES
1. USA’s #Quad3 Nowcast = #Turbulence:
Chaos remains a ladder and the #Turbulence & Performance Dispersion that typifies #Quad3 is the next alpha rung for Macro Risk Managers. The back-half of the year is poised for a mathematical deceleration in year-over-year growth as the confluence of further (plodding) labor deceleration, further cumulative deterioration for the bottom slant of the economic K and #HFL constraints on further acceleration in the cyclical economy and consumer credit growth serve as a collective rate-of-change drag. Remember, however, Quad3 and “recession” aren’t synonyms, and our decision making/allocation process are rate-of-change centric and “recession” agnostic. Income led nominal growth will remain non-recessionary (growing but slowing) and a ping-ponging between Quad 3 and Quad2/Quad1 remains the expected monthly Quad cadence for the balance of the year. Fourth Turning geopolitical and election dramatics should only serve to amplify the turbulence associated with that Quad3 dominant macro chop.
2. #HFL, Again!:
At the beginning of 2024, Street estimates for CPI were for 2.9% and 2.8% for Q1 and Q2, respectively, down from the Q4 3.2% actual. Our estimates at that time were for 3.1% and 3.2% respectively. Q1 shook out 3.24%, effectively unchanged from Q4, and the months of April and May printed 3.36% and 3.27% respectively, working out to a Q2TD rate of 3.3%. We were calling for 3.2%. The Street was calling for 2.8%. The actual? 3.3%. This matters. The 2YR Yield at the start of this year was 4.25%. Today? 4.70%. The inflationary protagonists today are largely unchanged from those that fueled our HFL call last quarter. Nevertheless, we’ll thoroughly review the setup, the trends and flag what to watch for as we transition to Q3 and the back half.
3. Country Quad Setups:
The signal remains bullish on India as its world-leading economic growth is set to hold at these levels, with probabilities pointing towards shallow accelerations in the 2H24 on buoyant domestic demand and government spending as well as strong credit growth. Meanwhile, Europe continues to increasingly transition from "bad" to "less bad" to "better" as it emerges from the global industrial recession that weakened European manufacturing activity; however, the recent political turbulence in France have raised some new questions. The setup is much less favorable in the orient as the track of decelerating growth is likely to extend from 2Q24 into 3Q24 in China, whereas Brazil continues to work as a short exposure with market forces looking past the model-implied probabilities of shallow growth acceleration in 2H24 as uncertainty around the full-year growth estimate builds.
As always, if you have any additional questions, please email support@hedgeye.com.
