McCullough: Why Global Equity Markets Are Getting Eviscerated


In this brief excerpt of The Macro Show this morning, Hedgeye CEO Keith McCullough explains why global stock markets are crashing and why 10-year Treasury yields are hitting new all-time lows.

A Quick Look At The (Ugly) 2016 Global Equity Scorecard

A Quick Look At The (Ugly) 2016 Global Equity Scorecard - long helium cartoon 01.22.2016


If you were long equities, just about anywhere in the world, you're not having a good year. Below is a chart of the year-to-date performance of equity markets around the globe.


A Quick Look At The (Ugly) 2016 Global Equity Scorecard - global equity scorecard


Here's some added analysis from U.S. Macro analyst Christian Drake in today's Early Look:


"And with futures red and global equity & energy commodity markets continuing in crash mode overnight, the carnage score is currently (% chg off of 52wk high):


  • Brazil: -31.1%
  • China: -46.6%
  • France: -25.5%
  • Germany: -28.9%
  • Greece: -54.9%
  • India: -23.6%
  • Italy: -33.9%
  • Japan: -25%
  • Russia: -38.6%
  • Spain: -33.7%
  • USA (Russell 2k): -25.7%"


Keep your head up. It's getting ugly out there.

[UNLOCKED] Flashback (7/20/2015): Dangerous New Highs for the Market?

Takeaway: A well-timed Macro research note from the Hedgeye vault. About stocks, Macro analyst Darius Dale asks if investors should "sell everything."

Editor's Note: Below is a particularly prescient Macro research note written by Hedgeye Senior Macro analyst Darius Dale and sent to institutional subscribers. It was published on July 20, 2015. The S&P 500 had just hit an all-time high and Dale laid out our bearish view on U.S. equities.


Well timed. The market ultimately tumbled -12% in August after that note was published. Dale's thinking is instructive for investors still wondering what is happening in the more recent stock selloff. We were and still are bearish.


[UNLOCKED] Flashback (7/20/2015): Dangerous New Highs for the Market? - Bubble bear cartoon 09.26.2014  1


After nearly two months under water, the benchmark S&P 500 has finally made a new all-time high. While optically impressive, there are a myriad of quantitative signals underneath the hood that do not support chasing the market here.


Immediate-term TRADE Duration Risk: The SPX is at the top end of its immediate-term risk range of 2,091-2,130.


With nearly 2% downside, 0% upside and the VIX nearing the low end of our 11.29-14.59 immediate-term risk range, investors would do well to book gains in U.S. equities here (i.e. reduce gross and/or tighten net exposures). As Keith highlighted on today’s Macro Show, if 2,091 breaks, there’s no support to 2,035.


[UNLOCKED] Flashback (7/20/2015): Dangerous New Highs for the Market? - SPX large


Intermediate-term TREND Duration Risk: Our Tactical Asset Class Rotation Model (TACRM) is now generating a “DECREASE Exposure” signal for U.S. equities. Currently, TACRM is generating a commensurate bearish signal for each of the six primary asset classes tracked by the model (slide 6).


Sell everything? As predicted in our previous refresh, the recent bullish-to-bearish reversals in Emerging Market Equities, Foreign Exchange and Commodities were, in fact, a harbinger for similar breakdowns across the Domestic and International Equities asset classes. Our recent decision to add SPY to the short side of our thematic investment conclusions confirm how we are thinking about this risk in real time. At the bare minimum, it implies investors would do well to reduce their gross exposure and/or tighten up their net exposure to global asset markets.  


CLICK HERE to learn more about TACRM, what these signals imply and how best to incorporate them into your investment process.


Long-term TAIL Duration Risk: Market breadth is broadly deteriorating and in dangerous territory.


One of the conventional “isms” of stock market analysis is that benchmark indices tend to peak very late into the economic cycle – well after broad-based signs of deterioration have emerged at the single-stock level.


In the face of a #LateCycle slowdown, benchmark indices are able to continue higher due to the fact that investors increasingly crowd into large-caps and/or stocks that have idiosyncratic growth opportunities that are less tethered to the [deteriorating] economic cycle, at the margins. Ultimately the cycle always prevails (see: 2000-2002 or 2007-2009), but positive absolute returns can be sourced from an increasingly narrow group of stocks and/or style factors well into the start of any given bear market.


[UNLOCKED] Flashback (7/20/2015): Dangerous New Highs for the Market? - SPX 2000 02

Source: Bloomberg L.P.


[UNLOCKED] Flashback (7/20/2015): Dangerous New Highs for the Market? - SPX 2007 09

Source: Bloomberg L.P.


There’s a number of ways to measure market breadth on a trending basis (e.g. % of stocks making new highs, % of stocks correcting, % of stocks crashing, etc.), but for the sake of simplicity we track the percentage of stocks below their respective 50-day and 200-day moving averages in the Russell 3000 Index – which, at covering about 98% of the investable public equity market, makes it the broadest measure of the U.S. stock market.


On this measure, broad U.S. equity market breadth is as poor as it has been at any local peak since 10/9/07 – the previous cycle’s all-time high closing price for the SPX – surpassing the deterioration we saw at the 5/21/15 high, which was very much on par with the 7/19/07 local peak.



[UNLOCKED] Flashback (7/20/2015): Dangerous New Highs for the Market? - BMBI 7 20 15


October 9th, 2007:

[UNLOCKED] Flashback (7/20/2015): Dangerous New Highs for the Market? - BMBI 10 9 07


May 21st, 2015:

[UNLOCKED] Flashback (7/20/2015): Dangerous New Highs for the Market? - BMBI 5 21 15


July 19th, 2007:

[UNLOCKED] Flashback (7/20/2015): Dangerous New Highs for the Market? - BMBI 7 19 07


While not useful as a timing indicator, the aforementioned deterioration does imply the duration and scope for prospective returns are substantially worse than many investors may assume given consensus expectations for the length and strength of the current economic cycle, which we can loosely infer from consensus expectations for U.S. monetary policy.


Checking back in with TACRM, we are seeing market leadership increasingly concentrated amongst the exact style factors we’d expect to outperform in the latter innings of an economic and market cycle: large-caps (defensive safety and dividends), healthcare (increased consumption and the ability to maintain pricing power during economic downturns) and growth (many biotech and new tech companies don’t have earnings to speak of, therefore investors don’t have to worry about earnings misses derailing the momentum of the respective charts).


[UNLOCKED] Flashback (7/20/2015): Dangerous New Highs for the Market? - 8


All told, we hope you find these quantitative signals helpful with respect to your individual investment mandate. As always, feel free to email us with questions.


Best of luck out there,




Darius Dale


get free cartoon of the day!

Start receiving Hedgeye's Cartoon of the Day, an exclusive and humourous take on the market and the economy, delivered every morning to your inbox

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.

Under 60 Seconds: Twitter's Earnings Report

Hedgeye highlights three key points from Twitter's lackluster quarter

courtesy of our Internet & Media analyst Hesham Shaaban.

2 Charts That Aren't "Transitory" & Defy Fed Storytelling

Takeaway: Despite the December rate hike, Long Bond yields are falling. Meanwhile, the Fed says commodity deflation is "transitory."

2 Charts That Aren't "Transitory" & Defy Fed Storytelling - yellen pic


As we write this post, Fed head Janet Yellen is testifying before Congress. We have been highlighting how the Fed's economic forecasts are consistently wrong and serially overoptimistic. 


Most importantly, the Fed continues to call everything they have missed in the past year "transitory." Below are two charts that absolutely aren't transitory no matter what the Fed says.


1. The Fed hiked rates in December and yet Long Bond yields have plunged from 2.27% back then to 1.57% today. That's a macro market signal that growth is slowing but the Fed says it's all good. Who is right?




2 Charts That Aren't "Transitory" & Defy Fed Storytelling - rate hike update


2. Yellen has consistently said that deflation is "transitory." The CRB Commodity index is down -33% from it's 2015 high.


Is that transitory?


2 Charts That Aren't "Transitory" & Defy Fed Storytelling - CRB Index


Bottom line: The Fed's credibility is crashing and macro market economic data continues to bear that out. Stick with the firm that called both #Deflation and #LowerForLonger (rates).

FLASHBACK: McCullough On Wall Street Predictions, Audacity Of Central Planners & Long Bonds

Takeaway: These 3 videos summarize our top Macro calls that Wall Street completely missed.

FLASHBACK: McCullough On Wall Street Predictions, Audacity Of Central Planners & Long Bonds - consensus cartoon 07.29.2015


Macro markets are melting down. Wall Street completely missed it. Meanwhile, we've been hammering home these risks for a while now. Below are three videos from the Hedgeye vault that nicely lay out our market calls. 


1. "Whoops! A Look Back At Some of Wall Street’s Worst Predictions This Year" (12/15/2015)


We've been talking about #LowerForLonger (rates) for a while now. Wall Street's 2016 prediction for the yield on the 10-year Treasury is 3%. Today, it's at 1.6%.



2. "McCullough: Central Bankers Have Lost Control, Setting Stage For Market Crash" (2/26/2015)


We don't have much faith in central planners here at Hedgeye. Hedgeye CEO Keith McCullough continues to reiterate that "the biggest macro market risk is believing the Fed's serially overoptimistic forecasts."



3. McCullough: My Thoughts on Doug Kass’ Short Bonds Call (4/2/2015)


Some investors called shorting Long Bonds (TLT) the "trade of the decade." That's not working out too well with long bond yields crashing. That's been bullish for our long TLT call, which is up +17% versus down -8% for the S&P 500.



Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.