“America is a tune. It must be sung together.”

-Gerald Stanley Lee

I found myself in a standoff this weekend. I was in an arena hallway at the Can-Am hockey tournament in Montreal, Quebec where my team got into a shout-off with Canadian Hockey players from Newmarket, Ontario before our Championship game.

“USA, USA, USA!”

Being a Canadian, it was a little weird at first… but we sung it together! As many of you know, I have no problem changing my positions. And after one of the worst market weeks of my life, I needed the change. USA won the game, 2-1.

USA, USA! - american flag 11

Back to the Global Macro Grind

I highly doubt I’ll be winning today. Long-term Treasury Bonds are getting smoked. There’s no bounce to be found in Gold. And, I’m on a flight out of the America-isn’t-all-great-again hell-hole airport that is LaGuardia.

What happened last week? What went wrong? What went right? Is there a right and wrong? Since most of them didn’t call the why on the reversal, did everyone who got it right get it right for the wrong reasons?

I don’t want to lop everyone into losing with me. The way I think about leadership is that when we win, we win as a team; when I lose, I’m ok with taking the loss on my own. It may not sound “fair.” But it is. Not losing again starts with accountability.

Winning doesn’t continue with complacency either. While Trump’s victory actually did make American growth expectations great again last week, we need to see some follow through. Three market days does not a TREND make.

That said, and I’ve always said this, more so because it’s American History, not an opinion. But this is what makes America great again, in macro terms:

  1. #StrongDollar +
  2. Rates Rising =
  3. Real Consumption Growth Accelerating

There’s certainly a difference between that growth factor being an expectation vs. a reported reality. And that’s really why my call is to be patient here. If you chased Reagan’s growth expectations in NOV of 1980, you were down -22% in the SP500 by 1982.

No, this isn’t 1. That, just like sustained periods of US Dollar strength, is simply a factual history that one must be mindful of as we embrace the uncertainty associated with each and every macro market day.

If, unlike any other time in US history, the US GDP slowing cycle doesn’t go to 0% and/or it does but the market looks past it and prices in the inevitable 2017 acceleration, what you saw happen in the last 3 trading days should continue.

Just to review, here’s how Strong Dollar, Strong America looked last week:

  1. US Dollar Index +2.1% on the week to back in the black for 2016 YTD at +0.4%!
  2. EUR/USD down -2.6% on the week to -0.1% YTD
  3. SP500 +3.8% to +5.9% YTD
  4. Russell 2000 +10.2% to +12.9% YTD
  5. Financials (XLF) +11.2% to +12.0% YTD
  6. Industrials (XLI) +8.1% to +15.2% YTD

That’s right – > 90% of the YTD return in the Financials came in 3 #TrumpTrade days which can be simplified as Dollar Up, Rates Up, Growth Expectations Rising.

No, it wasn’t a worldwide breakout in “inflation expectations.” In general, #StrongDollar Deflation was a question both Junk Bond and Oil bulls had to consider inasmuch as I had to reconsider what’s left in my #GrowthSlowing outlook:

  1. CRB Commodities Index (19 commodities) -1.0% on the week to +2.6% YTD
  2. Oil (WTI) down another -1.5% on the week to DOWN -1.0% YTD
  3. Gold down, hard, -6.1% to +15.1% YTD

In other words, if you were long most of the things that had been working up until that 9th straight US stock market down day in November (pre #TrumpTrade taking the SP500 limit down 100 handles and the 10yr yield to 1.71% Wednesday morning), you may have had as bad a week as I did. Thank God I wasn’t long Amazon (AMZN) or Facebook (FB) too.

Forget being long “quality” and companies with accelerating growth. From US Equity Style Factor perspective, if you called both Trump as President AND Wednesday morning v-bottom (I called neither), this is what you nailed, long side:

  1. High Beta Stocks +7.4% week-over-week
  2. Bottom 25% Sales Growth Stocks +6.2% week-over-week
  3. High Short Interest Stocks +5.9% week-over-week

*Mean Performance of Top vs. Bottom Quartile of SP500 companies

And there are probably a lot of card carrying Democrats who thought the v-bottom was super low quality too… but you know what? No one cares what they think. That’s the score right now inasmuch as raging Republican economic revival expectations are.

My job isn’t to sell you a tune that we can all sing. I’m a cycle guy who is tasked with not only measuring and mapping the rates of change in growth and inflation data but the market expectations embedded therein.

USA, USA! I can assure you that I get how to sing that winning pro-growth tune. If the data supports the current market signal, I’m going to have to get myself a USA hockey tattoo to offset the Canadian bias on my back.

Our immediate-term Global Macro Risk Ranges and intermediate-term TREND Research views (in brackets) are now:

UST 10yr Yield 1.65-2.31% (neutral)

SPX 2069-2190 (bullish)
RUT 1120-1287 (bullish)

NASDAQ 5025-5298 (bearish)

XOP 34.16-37.42 (neutral)

RMZ 1060-1113 (bearish)

Nikkei 160 (neutral)

DAX 101 (neutral)

VIX 12.33-23.99 (bullish)
USD 97.75-99.60 (bullish)
EUR/USD 1.07-1.10 (bearish)
YEN 104.58-107.96 (bearish)
Oil (WTI) 43.01-46.59 (bearish)

Nat Gas 2.51-2.93 (bearish)

Gold 1 (bullish)
Copper 2.12-2.55 (bullish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer

USA, USA! - 11.14.16 EL Chart