Don’t Fight The Data. Don’t Fight The Tape. Don’t Fight The Fed - money falling

Global growth is picking up. Meanwhile, "hedge funds are bracing for a market selloff," citing peak stock market valuations and bloated Trump policy expectations. Talk about cognitive dissonance.

But don't fret. We think money managers aren't long enough based on how good the fundamentals have been. Here's why.

Why is the U.S. Stock Market heading higher?

As we've noted before, valuation is not a catalyst. To get the direction of macro markets right there are three key catalysts that we watch: economic growth, inflation and earnings. We're watching whether each of these factors is accelerating or decelerating in rate of change terms (year-over-year growth). 

On that score, the global growth picture is clear as day. Case in point, let's take a look at one component of our economic growth analysis for all countries around the world. As you can see in the Chart of the Day below, manufacturing and services PMI readings have been almost universally accelerating recently. It's a sea of green.

If you can't read the chart here are some key takeaways from Hedgeye Senior Macro analyst Darius Dale in today's Early Look:

  • Of the 32 countries and economic blocks that release monthly Manufacturing PMI data, all but five of them are accelerating on a trending basis.
  • Of the 19 countries and economic blocks that release monthly Services PMI data, all but two of them (India and Mexico) are accelerating on a trending basis.
  • Of the 19 countries and economic blocks that release monthly Composite PMI data, all but one of them (India) is accelerating on a trending basis.
  • The mean reading for each of the aforementioned 70 indicators is in the third quartile on a trailing twelve month percentile basis, which would imply not only are most PMI readings tracking higher, but also that they are elevated in an absolute sense with ample room to run.

Don’t Fight The Data. Don’t Fight The Tape. Don’t Fight The Fed - 03.08.17 Chart of the Day

Bottom Line 

Here's a final message from Darius: "Don’t fight the data. Don’t fight the tape. Don’t fight the Fed. Simple enough, eh?"