“The status quo will always resist; that is its nature.”
- Aidan McCullen
Yep, I’m going to go all Irish #process guy on you again this morning. The aforementioned quote comes from a great book I’m studying called Undisruptable by a former Ireland National Rugby team player by the name of McCullen.
The status quo doesn’t consider undisruptable a word. That’s probably why he used it. I make up my own words for my creatively disruptive Full Investing Cycle process all of the time.
On “resistance to reinvention”, McCullen reminds us that “resistance to change is natural… and becoming something new means letting go of something old.” (pg 8)
Back to the Global Macro Grind…
What’s getting old fast? The consensus view that US “growth continues to slow” as it accelerates. After the #Quad3 in Q3 real US Growth #slowing call we made, we call this a #Quad2 in Q4 re-opening and re-acceleration.
Oh, you don’t “see” it yet? Have you left New York City and been to a place like Tennessee?
The Machine (i.e. the market) doesn’t care about what you or I “feel” or “see.” It’s a discounting mechanism for the future. If you have a modern risk management #process to score it in terms of Sector & Factor Exposures, it’s obvious.
What Sector Styles drove the US stock market (SPY) to its 56th all-time closing high of 2021 yesterday?
A) #Quad2 Overweight, Consumer Discretionary (XLY) was +2.5% on the day to +10.1% for #Quad2 in Q4
B) #Quad2 Underweight, Consumer Staples (XLP) were down -0.1% on the day to +3.5% for #Quad2 in Q4
C) #Quad2 Overweight, Energy Stocks (XLE) inflated another +1.5% on the day to +12.9% for #Quad2 in Q4
What Factor Exposures delivered alpha?
A) Top 25% SALES GROWERS were +0.7% on the day to +4.0% in the last month
B) Top 25% EPS GROWERS were +0.5% on the day to +5.0% in the last month
C) BOTTOM 25% EPS GROWERS were +0.2% on the day to +2.2% in the last month
*Mean performance of Top Quartile vs. Bottom Quartile, SP500 Companies
So you can get mad at the score or get on the right side of it. There’s still Cycle Time to do that here in Q4. Did I say it’s #Quad2 GROWTH and INFLATION #accelerating in Q4?
What’s driving the re-acceleration? We have 118 slides in our Q4 Macro Themes deck, so don’t be lazy and tell me it’s only due to inverse covid cases. It’s the Singularity of The Cycle.
That said, if you were only using a 1-factor ROC (rate of change) model, you’d have seen what The Machine just did with US covid case counts down another -14% week-over-week and down -42% month-over-month.
What other factors have delivered alpha here in October (hint: Earnings)?
A) Earnings Season is annihilating consensus fears about supply chain bottlenecks and whatever else you could have got from the cover of Barron’s last month
B) After ye Olde Wall took down their Q3 GDP numbers (we did too), they extrapolated that into an Earnings Season expectation of +15-30% year-over-year EPS growth in Q3
C) So far, 125 of the SP500’s companies have reported an aggregate year-over-year EPS growth rate of +44.7%
All the while, in the last 3-6 months, the latest narrative has gone from “inflation is just transitory” to “ok, now inflation is real … and that’s going to slow the economy.” Lol
You know when #accelerating inflation slows the economy? A: when the economy is already slowing.
We have a battle tested risk management #process for calling a real ROC (rate of change) slowdown too, so don’t call me a Perma Bull or I am going to go all Irish Quads on you too!
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.51-1.72% (bullish)
UST 2yr Yield 0.35-0.51% (bullish)
SPX 4 (bullish)
RUT 2 (bullish)
NASDAQ 14,713-15,432 (bullish)
Tech (XLK) 152.44-162.85 (bullish)
Energy (XLE) 56.03-59.73 (bullish)
Financials (XLF) 38.93-41.38 (bullish)
VIX 13.11-18.10 (bearish)
USD 93.02-94.13 (bearish)
GBP/USD 1.361-1.389 (bullish)
Oil (WTI) 80.26-84.72 (bullish)
Nat Gas 5.01-6.18 (bullish)
Copper 4.40-4.85 (bullish)
Bitcoin 55,993-67,340 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
