“I never expected to get through The Fifty unscarred.”
- James Lawrence
After 6 all-time closing highs since AUG 23rd, I hope you didn’t expect that the NASDAQ couldn’t have any 1-3% corrections. After last week’s Dollar Up, Stocks Down correction, NASDAQ is -1.7% from its all-time highs.
How hard is it to keep buying the damn dips when consensus has tried to have you living in fear of a “top” or 10-12% “correction” the entire way (since NOV 2020) up? It’s not easy. If it was, everyone would have done it.
In chapter 9 of The Iron Cowboy, during Day 25 of 50 straight daily Ironman’s, Lawrence was asked “how are you even alive?” His answer was simply to carry on with his process. “It’s as hard as I thought it was going to be.” (pg 99)
Back to the Global Macro Grind…
Welcome to another beautiful Macro Monday @Hedgeye! Summer is over and it is time to measure and map last week’s macro market moves within the context of both The Cycle and @Hedgeye TRADE and TREND Signals.
As usual, let’s start with that Counter @Hedgeye TREND move in the Global Currency market last week:
- USD Index bounced +0.6% to another lower-high within its Bearish @Hedgeye TREND (since JUN 2020)
- EUR/USD corrected -0.6% to another higher-low within its Bullish @Hedgeye TREND
- Japanese Yen was -0.2% vs. USD and remains a nothing-burger at Neutral TREND
- GBP/USD only corrected -0.2% last week and also remains Bullish @Hedgeye TREND
- South African Rand ramped +0.8% vs. USD last week to +4.2% in the last month alone (but still Bearish TREND)
- Chinese Yuan was +0.2% vs. USD to +0.6% in the last month and is Bullish TRADE, but Bearish TREND
We learn a lot more about the stability of inflation expectations on US Dollar Up weeks than we do on Dollar Down weeks. Despite USD up last week, Commodities were up (small)!
- CRB Commodities Index was +0.1% towards new Cycle Highs (might make new Cycle Highs today for inflation)
- Oil (WTI) inflated +0.6% last week to +2.4% in the last month and moving Oil back to Bullish TRADE and TREND
- Copper inflated +2.7% last week, breaking out back above @Hedgeye TRADE support of $4.31/lb as well
- Corn continued to break bad (i.e. Bearish TRADE and TREND) down another -1.2% to -6.5% in the last month
- Natural Gas inflated another +4.8%, taking its 3-month Full Investing Cycle return to +55.4%
- Aluminum inflated another +7.4% last week, taking its 3-month Full Investing Cycle return to +17.8%
I know, I know. If you back all 19 components of the Commodities Index out, there’s really no inflation. If you don’t look at the ALL-TIME high for US Producer Prices (PPI) #accelerating to +8.3% year-over-year inflation, nothing to see there either…
Unless you remain long of inflation in your accounts, that is!
The Bond Market, of course, still sees this for what it is - #Quad3 Stagflation. That’s when the short-end of the yield curve goes up and the long end (real growth expectations which include the inflation subtracted from nominal growth) down:
A) UST 2yr Yield has gone up +7 basis points in the last 3 months
B) UST 10yr Yield has gone down -9 basis points in the last 3 months …
So C) the 10s minus 2s spread on the UST Yield Curve is -16 basis points flatter in the last 3 months. That’s right on time from when the US economy started Phase Transitioning from Peak Cycle (i.e. #Quad2 in Q2) to #Quad3 Stagflation.
Nah, this isn’t the nasty 1970s type stagflation we might see sometime in 2022 when the Fed has to panic CTRL+Print if/when we hit another #Quad4 in Q2 of 2022. It’s just what it is, for now – i.e. an investable #Quad3 where you buy:
A) Tech (XLK) when it’s for sale – it was -1.7% last week, taking its 3-month Full Investing Cycle return to +11.0%
B) REITS (XLRE) when they’re for sale – down -4.1% last week to +0.9% in the last 3-months
C) Utes (XLU) when they’re for sale – down -1.5% last week, taking their 3-month FIC return to +3.8%
Based on Risk Range™ Signal Strength, from Friday’s closing prices, those are my Top 3 US Equity Sector Style Asset Allocations (in that order).
If/when the US economy re-accelerates into #Quad2 in Q4 of this year, Utes (XLU) will be the first thing I get out of (alongside Gold). Neither like #Quad2. And maybe Gold’s -2.3% decline last week is front-running that. We’ll see.
We saw what happens when a central bank tightens into a slow-down (South Korean stocks down another -2.6% last week to -4.9% in the last 3 months). We also saw a mild Counter @Hedgeye TREND correction in German stocks of -1.1% as that economy continues to signal #Quad2 in Q4 and has for some time now.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.26-1.39% (neutral)
UST 2yr Yield 0.20-0.25% (bullish)
SPX 4 (bullish)
RUT 2 (neutral)
NASDAQ 15,020-15,469 (bullish)
REITS (XLRE) 46.52-49.30 (bullish)
Tech (XLK) 156.08-160.53 (bullish)
Utilities (XLU) 67.91-70.41 (bullish)
DAX 15,563-15,996 (bullish)
VIX 14.62-21.57 (bearish)
USD 91.97-92.90 (bearish)
EUR/USD 1.175-1.191 (bullish)
USD/YEN 109.51-110.46 (neutral)
GBP/USD 1.369-1.389 (bullish)
Oil (WTI) 67.70-71.22 (bullish)
Nat Gas 4.33-5.17 (bullish)
Gold 1 (bullish)
Copper 4.20-4.48 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
