The U.S. Economy: Growth Accelerating

The U.S. Economy: Growth Accelerating - growth 22


There's no simpler way to say this, the U.S. economy is accelerating.


Yesterday's final revision to third quarter GDP showed a 20 basis point bump to +3.5% (on a quarter-over-quarter basis) that translated into +1.7% year-over-year growth (up 40 bps versus the prior quarter). That means, after five consecutive quarters of slowing U.S. growth (from the peak of 3.3% in March 2015 to 1.3% in June 2016) the trend finally flipped. (See the Chart of the Day below.)


The U.S. Economy: Growth Accelerating - 12.23.16 EL Chart  3


Meanwhile, Durable Goods data, reported yesterday, decelerated to -1.9% year-over-year. No surprise there. The ramp in private aircraft orders (choppy & volatile) juiced the October headline number. 


As you can see in the chart below, Durables Ex-Defense & Aircraft (a better proxy for household demand) was up +0.6% month-over-month and improved to +1.2% year-over-year. 

Where do we go from here?

Here's Hedgeye CEO Keith McCullough in today's Early Look:


"Post yesterday’s economic data, our GIP Model (predictive tracking algorithm) has GDP accelerating again in Q4 to +1.94% year-over-year = Quad2 (i.e. U.S. growth accelerating, inflation accelerating)  = Bullish for U.S. Dollar, Rates, and Stocks."


Simple as that.


The U.S. Economy: Growth Accelerating - Durable Goods

Cartoon of the Day: The Elephant in the Room

Cartoon of the Day: The Elephant in the Room - Dollar cartoon 12.22.2016


Cha-Ching! The U.S. Dollar index is up 8% in the quarter-to-date.



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The Real Obamacare Story? Massive Medicaid Expansion

There are 73 million Americans currently covered by Medicaid.


Thank President Obama. Or don’t.


“The first thing to note about the Affordable Care Act is that it’s really a story about Medicaid expansion,” says Healthcare Policy analyst Emily Evans in the video above. “There are approximately 73 million people now on Medicaid. That’s up from 52 million before the Affordable Care Act was implemented.”


In other words, based on current numbers, enrollment in Medicaid and CHIP (the Children’s Health Insurance Program) increased 28% since ACA became effective. Moreover, the current number of Medicaid enrollees fluctuates on a monthly basis. The Congressional Budget Office (CBO) estimates it could be as high as 98 million on any given month.


By Evans’ back-of-the-envelope calculation, the repeal of Obamacare would affect roughly 10 million people, after accounting for the natural increase in the number of Medicaid enrollees.


But Republicans have a plan to replace ACA.

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.


Early Look: Mature Market People

Early Look: Mature Market People - nelson mandela2

Being that young gun at a major hedge fund who was supposed to make money every day was no life to live. The short-term performance expectation wasn’t realistic; the stress impossible to sustain. Not losing money, over time (and compounding returns along the way). For me, that’s achievable.

Poll Of The Day: Did You Spend More Money or Less Money on Gifts This Holiday?

Takeaway: What do you think? Cast your vote. Let us know.

Poll Of The Day: Did You Spend More Money or Less Money on Gifts This Holiday? - po ima


Is The U.S. Stock Market Actually Expensive & Should You Sell It?

Is The U.S. Stock Market Actually Expensive & Should You Sell It? - expensive image

The stock market is expensive. 


No doubt about that.


But does that matter? And does the S&P 500's price-to-earnings ratio of 21 times mean the stock market is going to crash tomorrow?


Another valuation favorite: Currently the S&P 500 Index has a CAPE Ratio of 28.26. That measure is the cyclically adjusted price-to-earnings ratio, commonly known as the Shiller P/E. It's calculated by dividing price by the average of ten years of earnings (moving average) and adjusting for inflation.


It's true. Bull markets are hard to come by with a CAPE ratio this high. As Hedgeye Senior Macro analyst Darius Dale points out in today's Early Look about CAPE at 28.26:


"That’s in the 96th percentile of all readings (dating back to January 1881). If you concentrate on the trailing 30-year time period – which is arguably far more relevant than readings 100+ years ago – its 83rd percentile reading is still elevated, though not by as much."


Dale points out, over the past 30 years, "At this current extreme CAPE Ratio, the expected value of buying the S&P 500 today is +1.2%, -3.8% and -5.3% on a 1-year, 3-year and 5-year forward basis, respectively."


As the Chart of the Day below shows, these outcomes pale in comparison to lower decile (meaning CAPE Ratios in the bottom 10% of readings over the last 30-years). When the CAPE ratio is in the bottom 10%, forward 1-year, 3-year and 5-year returns are 4.2%, 9.2% and 17.2%.


This isn't a reason to sell stocks today. There is a significant amount of variability around these averages. Here's Dale again:


"Over the last 30 years, the average of the top ten 1-year forward returns of CAPE Ratio readings between the eighth and ninth decile is +31.1%. Can you afford to miss a +31% move to the upside in your benchmark?"


That's the point. As Hedgeye CEO Keith McCullough says, "Valuation is an opinion." It's the prevailing macro conditions that dictate what happens to both the P (price) and E (earnings). In short, expensive can always get more expensive and cheap can always get cheaper.


The question you should be asking yourself, is U.S. economic growth accelerating?


We think it is. That's why we told subscribers to buy stocks. 


Is The U.S. Stock Market Actually Expensive & Should You Sell It? - CoD 12 22 16

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