What Moved In Markets Last Week (Carnage & Opportunity) - door open

Get out your tissues, the S&P 500 was down -0.1% last week. That led to this Wall Street Journal headline "Stocks in Lull Ahead of Holidays." Macro markets are a lot larger than just stocks. Consider what happened within commodity and bond markets last week:

  • Gold was down another -2.1% (taking its Q4 draw-down to -13.9%)
  • US 10yr Treasury Yield rose another 12 basis points (up 100bps for Q4 alone)

When looking beneath the surface of the WSJ's seemingly placid stock market moves, we find both carnage and opportunity.

As you can see in the Chart of the Day below, High Beta stocks were down -2.3% last week. (Beta is a measure of a stock's volatility compared to the broader market. A beta of 1 means a stock is less volatile than the market. A beta of 1.2 means a stock is theoretically 20% more volatile than the market).

High Beta stocks were a "rare buying opportunity," Hedgeye CEO Keith McCullough wrote in today's Early Look. It's worth noting that, inclusive of last week's correction, High Beta is still +13.2% in the last 3 months, McCullough writes. Low Beta stocks, by contrast, were up 0.6% on the week but are down -0.4% in the past three months. 

Meanwhile, the U.S. Dollar was up another +1.3% on the week (+7.8% quarter-to-date). As McCullough likes to say, "Get the U.S. dollar right, get most things in macro right." That's because of the U.S. dollar's positive 0.8 30-day correlation to stocks. In the quarter-to-date, the S&P 500 is up +5%. In other words, Dollar Up = Stocks Up.

This is how we do macro. It's not as flashy as permabull headlines or doomsday narratives. Then again, we get paid to be accurate.

What Moved In Markets Last Week (Carnage & Opportunity) - 12.19.16 EL Chart