Earlier today the Hedgeye Macro Team, led by CEO Keith McCullough, hosted its quarterly Macro Themes conference call in which it detailed the THREE MOST IMPORTANT MACRO TRENDS it has identified for 1Q17 and the associated investment implications.
- For the video replay CLICK HERE
- For the audio replay CLICK HERE
- To access the presentation materials CLICK HERE
Q1 2017 MACRO THEMES OVERVIEW:
- #Quad123: Our GIP model maps second derivative changes in growth and inflation to the most appropriate asset allocations for those prevailing macro conditions. After being long #GrowthSlowing (Quads 3&4) allocations for most of the last 6 quarters, our model signaled a positive inflection in both Growth and Inflation (Quad2) in 4Q16 – a shift the post-election data has continued to confirm. As we traverse the next few quarters, we think the fundamentals are likely to progress in the following manner: 4Q16 = Quad2 (Growth & Inflation ↑), 1Q17 = Quad3 (Growth ↓, Inflation ↑), 2Q17 = Quad1 (Growth ↑, Inflation ↓) . We’ll contextualize the current fundamental reality domestically, discuss what it means from a GIP and exposure perspective and detail how we plan to navigate 1H17 and a potentially choppy peri-inauguration period.
- #Reflation’sPeak: The reflation trade and all its substitutes will see the biggest tailwind from a growth perspective in Q1 of this year. On a sector-specific level, materials and energy have the easiest earnings comps against consumer discretionary the most difficult. With WTI crude oil and copper +22% and +50% Y/Y respectively, and the CRB index as a whole +12% Y/Y, headline inflation is set-up to accelerate meaningfully in Q1. The U.S. dollar having the strongest quarter in Q1 of 2016, and the Y/Y second derivative compares for the U.S. dollar become easier into Q2 against more difficult comps for reflation-levered assets, helping push the U.S. economy into a Quad 1 set-up for Q2 2017 (Growth accelerating as Inflation decelerates).
- #TrumpTrades: While it’s been difficult to ascertain exactly what policies the Trump administration has in store for investors, one thing is for sure – there will most certainly be winners and losers all throughout the global economy. One key region to focus on in particular is Asia, where Trump’s trade policy proposals largely favor Japan (via a weakening yen) in lieu of China, which is likely to be targeted with some combination of hawkish trade policy. Elsewhere, Trump’s affinity with Vladimir Putin favors Russia in lieu of other emerging markets like Turkey, Mexico, Indonesia and South Africa – each of which is vulnerable to further USD tightening. Lastly, a weaker euro may make European equities a key place to be on the long side in 2017.
-The Hedgeye Macro Team