In case there was any lingering doubt about the improving health of the U.S. economy, both retail sales and inflation reports were near or above 5-year highs in data reported last week.
As U.S. growth accelerates, there are three things investors should be concerned about, according to Hedgeye CEO Keith McCullough in The Macro Show video excerpt above:
- “You’re on the wrong side of bond yields.” As U.S. growth accelerates, bonds yields will continue to go up. In the past 6 months, the 10-year Treasury bond yield has risen from 1.581% to today’s 2.417%.
- “You’re on the wrong side of high beta versus low beta.” In the last 6 months, high beta stocks (i.e. companies most tethered to which way the broader market is heading) are up 16.7% versus 0.5% for low beta stocks.
- “You’re on the wrong side of high growth versus low growth stocks.” In the past 6 months, the top 25% of S&P 500 companies by earnings per share growth are up 11.3% versus 0.5% for the bottom 25% of EPS growth companies.
“There is no magic market multiple and no point in time where the market stops going up because it should. That’s the point here,” McCullough says.
Simply put, if U.S. growth continues to accelerate then the stock market will continue to head higher. And we’re sticking with our growth accelerating call here.
