“It's a funny thing about life, once you begin to take note of the things you are grateful for, you begin to lose sight of the things that you lack.”
- Germany Kent
I am currently back home in Alberta and enjoyed spending Boxing Day yesterday with my family (a picture of me and my nephew on the ODR is attached). Most of you non-Canadians are probably thinking: wtf is Boxing Day, Jonesy?
In Canada and most of the Commonwealth, Boxing Day is actually a bank holiday and, as you might have guessed, it is the day after Christmas. The origin of the holiday is in charity and it was originally a day to give gifts to those in need.
No surprise, Boxing Day has evolved into a massive day of shopping. Anything that didn't sell into the traditional holidays, gets put on clearance sale to clean off those shelves into the New Year. (Just what an overextended consumer needs ... another sale!)
One thing that wasn't on sale yesterday was stocks. They closed near their YTD highs. This was very different from last year when stocks were on sale in a big way. In fact, the Nasdaq was down almost -9% in December last year and closed right near the lows of the year.
Isn't it funny that we love buying most things on sale, but stocks . . . not so much. There is actually a name for this psychological state: loss aversion bias. In fact, according to studies the pain of losing money on an investment is twice as powerful as the pleasure of making money.
This phenomenon is different than having a stop-loss rule and cutting your losers. It is a visceral reaction to an investment being down and creates the feeling that one must sell at all costs. Loss aversion bias can also lead to investors taking consistently low risk and remaining under-invested for long periods of time.
Luckily, at the end of this year, we are faced with a very different predicament. Stocks are at their highs and many investors are feeling FOMO (fear of missing out). That, too, is natural and, also, not surprising after a year of remarkable resilience in the U.S. economy and stock market returns.
But at times like this, it is also prudent to be cognizant of potential risks in the market with the VIX at ~13.0 and near 3-year lows . . . as not a lot of them are priced into the market.
Back to the Global Macro Grind . . .
One such risk may be starting to percolate in the global oil market. On one hand, oil is set for its first annual decline in three years in 2023. But on the other hand, WTI is up +9% and Brent is up closer to +10% in the last two weeks.
Luckily, we don’t have to guess what oil is signaling. As of this morning, both WTI and Brent remain bearish in our models. The TREND range for WTI is 69.08 -> 76.59 and for Brent is 74.43 -> 82.22. So, while there is certainly seeming increased strife in the Middle East, the signal is telling us, at the moment, that other bearish factors are still likely to prevail (like global supply and demand!).
That is the beauty of having a research process that incorporates a fundamental view alongside a quantitative overlay. When the signal matches the fundamental view, that is when you can hit pay dirt. Typically, these positions on the macro side will be reflected in our daily Macro ETF ranking.
As of yesterday, these are our top Macro ETFs ranked by size:
- FDRXX, TFLO, BUXX, TBIL, BNDD, XLU, SHY, INDA, GLD, FXB, SMIN, MTBA, AAAU, IAK, PINK, SPLV, URA, EWZ, EIS, BITO, KBWP, EPHE, GDXJ, URNM, NLR, GXG, SPMO, GDX, EZA, SLV, ETHE
There is a little bit for everyone on this list: crypto, precious metals, British pound, international positions, and even some momentum via SPMO. The go anywhere strategy really does go anywhere.
Speaking of going anywhere, this morning’s China Industrial Profits were up +29.5% Y/Y. We’ve highlighted this in the Chart of the Day. As the chart shows, this can be a volatile data set. But is it also obvious that we’ve seen some steady acceleration from the lows of May 2023, which are in part due to easy comparisons. But for the YTD China’s industrial profits remain down -4% . . .
The Chart of the Day compares industrial profits to Chinese equities via the ETF FXI. No surprise, there isn’t a lot of FOMO for Chinese stocks because, well, there wasn’t much to miss in 2023. Could 2024 finally be the year for China equities? Maybe, but as of now China remains bearish in our models.
And as Keith reminded me on The Macro Show last week, we don’t buy bearish TRENDS.
Enjoy the rest of the week with your friends and families! I know I am grateful to be spending time with my family this week and, also, grateful for all of your support in 2023.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 3.89-4.28% (bearish)
UST 10yr Yield 3.79-4.15% (bearish)
UST 2yr Yield 4.21-4.60% (bearish)
High Yield (HYG) 75.72-77.75 (neutral)
SPX 4 (bullish)
NASDAQ 14,487-15,129 (bullish)
RUT 1 (bearish)
Tech (XLK) 187-194 (bullish)
Utilities (XLU) 61.47-65.29 (bullish)
VIX 12.07-14.76 (bearish)
USD 100.80-102.99 (bearish)
EUR/USD 1.083-1.109 (bullish)
Oil (WTI) 69.08-76.59 (bearish)
Gold 2001-2090 (bullish)
Uranium (URA) 28.25-30.38 (bullish)
NVDA 475-503 (bullish)
Bitcoin 41,906-44,597 (bullish)
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research
