This note was originally published
at 8am on July 09, 2013 for Hedgeye subscribers.
“I want to use the time it takes.”
As opposed to what I usually do when I’m reading non-fiction, I don’t dog-ear many pages when I read a novel. The aforementioned quote is a simple one for type-A types in this profession. It comes from Peterson’s acclaimed novel, Out Stealing Horses.
“Time is important to me now, I tell myself. Not that it should pass quickly or slowly, but be only time, be something I live inside and fill with physical things and activities that I can divided it up by, so that it grows distinct to me and does not vanish when I am not looking.” (Out Stealing Horses)
That is all. I just wanted to share it with you. It’s a blessing to be able to work with my teammates and produce something distinct every morning. Thank you for taking the time to read our thoughts.
Back to the Global Macro Grind…
Three consecutive up days for the SP500 (taking it to within 1.7% of her all-time high of 1669) as the Russell 2000 powers forward to make its 2nd consecutive all-time high in as many trading days (+18.8% YTD to 1,009). That’s progress.
So are US employment growth expectations rising alongside:
A) Rising Bond Yields
B) Falling Equity Volatility
In Hedgeye quant-speak, that means:
- SP500 is back in a Bullish Formation (bullish on all 3 of our core risk management durations, TRADE/TREND/TAIL)
- US Equity Volatility (VIX) is back in a Bearish Formation with immediate-term TRADE resistance = 16.39
- US Treasury 10yr Bond Yields remain in a Bullish Formation (with immediate-term TRADE support 2.33%)
As growth expectations rise, slow-growth securities (Bonds, MLPs, Utilities, etc.) fall:
- US Consumer Discretionary stocks (XLY) = +3.39% July-to-date
- US Financials (XLF) = +2.67% July-to-date
- US Utilities (XLU) = -0.53% July-to-date
In other words, one of these things (XLU) is not like the others. #StrongDollar and #RatesRising gets the consumer paid, not the banker and/or ETF manufacturer who is pushing you Yield-Chaser product.
*Key Word Score in 2013 = #expectations
Mr Market couldn’t care less what Captain Valuation thinks about a mining security. Mr Market is all about the rate of change in expectations. And right now, expectations are rising that #GrowthSlowing is still yesterday’s war.
From a US stock market factoring perspective, here’s another way to look at that relative to the SP500’s +15.0% YTD gain:
- Low Yield Stocks = +22.9% YTD
- Top 25% EPS Growth Stocks = +19.4% YTD
- High Beta stocks = +17.5% YTD
High Yield Stocks (i.e. slow growth) are only +11.2% YTD. Whether you are long Tesla (TSLA) (which is replacing Oracle (ORCL) in the Nasdaq 100 today), or you’re short sketchy MLP companies, you are just loving this expectations shift versus the consensus.
Don’t let jimmy pundit confuse you - for the entire year the #OldWall hasn’t been Bullish Enough on the US Dollar, Bond Yields, and Growth Expectations. At the beginning of 2013, the sell-side’s average “year-end target” for the SP500 was only 1531.
Today, the SP500 is obviously 109 handles higher than that, and the VIX is -18.0% for the YTD. Only 43.8% of investors surveyed in the most recent II Bullish/Bearish Survey admitted they are bullish.
Are we discounting too much growth too fast? Or are we just normalizing a pervasively bearish growth expectation in the political economy? I don’t know. All I know is that I will not let consensus’ bearish baggage get me down.
Life is too short to not enjoy the up moves. If I can steal more of the good times, I’ll take them.
Our immediate-term Risk Ranges are now:
UST 10yr 2.56-2.74%
Brent Oil 104.93-108.36
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer