“Success in this game depends less on strength of body than strength of mind and character.”
-Arnold Palmer
Keith is in Ireland this week with some of the lads on a golf trip and, also, checking in on a couple of our real estate investments. As a result, we will have other members of our team showcased on the Macro Show and in the Early Look. We hope you will appreciate hearing from other key members of the Hedgeye team on their sectors, views, and thoughts about the global economy.
As it relates to golf, it is not a game I can offer much expertise on. But even a golf neophyte like me knows what the term “Fore!” means. The word’s roots are generally considered to be Scottish and it is used as a warning when a golf ball’s flight is towards an assuming bystander. Needless to say, in the odd time I am coerced to hit the links . . . it is yelled quite frequently!
It is also perhaps an apt phrase to use for the ongoing global economic slowdown that we are facing. Maybe the economic slowdown won’t hit us, but better to be aware that one is, or may be, coming, than not. Now, we certainly get that if one looks strictly at the performance of the Nasdaq in the YTD, these warnings may fall on deaf ears. But it is also important to consider the makeup of that performance.
As of the end of May, the top seven components of the Nasdaq 100 – Nvidia, Alphabet, Microsoft, Tesla, Amazon, Meta Platforms, and Apple – were up $3.4 trillion in market cap in the YTD. For those that are counting, that’s more than the annual GDP of the United Kingdom. Meanwhile, the bottom 93 components were only up some $630 billion.
Market structure matters. While it is certainly possible the euphoria and AI sentiment boom continue, hopefully by yelling “Fore” we are at least keeping you focused on the potential risk in this setup. After all, if you are walking down the 18th at Royal Portrush in Northern Ireland and a lad yells fore . . . you should know what to do.
Back to the Global Macro Grind . . .
It likely wasn’t a surprise given the recent strength in the higher frequency employment data, but last week’s May Non-Farm Payrolls surprised to the upside coming in at +339K, which accelerated versus April’s print and was almost double that of consensus expectations. This print was basically in line with the average monthly gain over the last twelve months of +341K and was the 14th straight month of beating consensus estimates.
At face value, this is a hawkish print. But, as always, there is more to the story. In the Chart of the Day, we highlight a summary table of May’s NFP report. Down near the bottom is a line for the Household Survey which, in contrast to the headline beat, actually declined by 310K M/M. This is the largest M/M decline in more than a year.
So, what gives? On the one hand, those who reported being employed by employers remain quite healthy. That is the headline NFP number. On the other hand, in the Survey of Households (taken by talking to households) the employment situation looked a little dire in May. In part, the difference could be that someone who is considered employed by a company, though works minimal hours, may actually consider themselves to be unemployed. Either way, the divergence between these two reports is worth noting. Maybe it’s nothing, or maybe it’s another early indicator that employment is softening.
The Fed Funds Futures seemed to have taken note of this softness in the Household Survey as the probability of interest rates staying flat (so a pause) in June increased to roughly 75%. Not to worry though, we have a lot of time, space, and potential data to revert this probability back to a hike on June 14th. In fact, this morning we will get U.S. April Factory Orders and May Services PMI, with the later data point, if trends hold, having a decent probability of being a “hawkish” report.
In as much as global Services PMI have been resilient and expansionary, that is not the case on the Manufacturing side of global economies. We hit on this last week, but the ISM Manufacturing report disappointed and came in at a contractionary 46.9, which was effectively a new cycle low. More noteworthy was the ISM Activity Pipeline (New Orders + Backlogs – Inventories), which came in at 34.3. This gauge of future business activity is now at its lowest level (absent the COVID shutdown) since 2008.
So, what do we do with all of this conflicting macro-economic data? Well, at a bare minimum if someone yells Fore! loud enough . . . just take a little break and hide behind your proverbial golf bag.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 3.79-4.04% (neutral)
UST 10yr Yield 3.56-3.85% (neutral)
UST 2yr Yield 4.17-4.62% (bullish)
High Yield (HYG) 73.01-74.78 (bearish)
SPX 4092-4311 (bearish)
NASDAQ 12,356-13,345 (bearish)
RUT 1 (bearish)
Tech (XLK) 154-171 (bullish)
Shanghai Comp 3158-3271 (bearish)
Nikkei 30,509-31,667 (bullish)
VIX 14.36-20.97 (bullish)
USD 102.72-104.79 (bullish)
EUR/USD 1.065-1.084 (bearish)
USD/YEN 137.58-141.15 (bullish)
Oil (WTI) 67.44-73.95 (bearish)
Gold 1 (bullish)
Copper 3.51-3.79 (bearish)
Bitcoin 26,009-27,959 (bearish)
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research
