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The Thunder Bay Bear, our CEO Keith McCullough, is in Boston visiting some of Hedgeye’s top subscribers and discussing our macro themes, but primarily focusing on the outlook for equities in a continued Jobless Stagflation scenario.  Simply put, slower economic growth inhibits revenue growth and input price inflation squeezes margins, and the outcome is decelerating earnings growth.  Slowing earnings growth leads to lower multiples for equities.  It’s that simple.

Obviously along with the potential for a European sovereign debt pandemic today, this is what the stock and bonds markets have already been pricing in for the last six weeks.  As of intraday today, the SP500 is up ~+0.50% for the year and has corrected ~-7.2% from its peak on April 29th. Interestingly, though, the SP500 is still up more than 19% over the last 12-months.  The bond markets tell us a similar story as 10-year yields, as a proxy, are just more than 20% off their February 2011 highs of 3.6%. 

While the growth crowd is finding some solace in the Pandora IPO today, personally, watching Pandora trade today reminds me of the old Kenny Rogers song, “The Gambler”.  As the song goes:

“You got to know when to hold 'em, know when to fold 'em,

Know when to walk away, know when to run.”

The Thunder Bay Bear just called in between meetings and his message was clear, this is a short covering opportunity and nothing more.  The equity markets remain broken in our models with the key level of support, as outlined in the chart below, down at 1,223.  If we violate that level, make sure you “know where to run.”  In the meantime, I’ll make sure Keith tones down his growling for the rest of the afternoon.

As always, if you want to chat with Keith, myself, or the team, email us at and we can hop on the phone.  Risk is always on.

Daryl G. Jones
Director of Research

SP500 Levels Refreshed: Know When to Hold Them, Know When to Fold Them - DJ MACRO