There's always a bullish or bearish data point somewhere. All you have to do is look. Case in point, yesterday's economic data, from disappointing auto sales to the strong ISM Manufacturing survey, offered up affirming evidence for bulls and bears alike.
Falling prey to your own biases is no way to invest your wealth.
Behavioral economists have a word for this human tendency to favor new evidence that confirms one's existing beliefs, it's called "confirmation bias." It's why you need a repeatable risk management process that looks at the essential U.S. growth indicators, not just one data point in isolation.
The alternative is equivalent to desperately grasping around in the dark, climbing through what you thought was a door and finding out it's a window.
Depending on your biases, stock market permabulls or permabears looked at yesterday's ISM and Auto Sales data relishing one and dismissing the other.
- ISM Manufacturing hit 64.5 down marginally, while the Employment subindex rose to its highest level since June 2011. The Prices Paid and New Orders subindex were also strong.
- Auto Sales: Auto Sales disappointed with unit sales dropping -5.38% sequentially.
Journalists, in writing this morning's headlines, search for a single data point on which to craft their stories around. With stocks down globally, the editor's at Bloomberg conveniently settled on "weak car sales" as the culprit for the stock market pullback.
Hang on though. "The peak in auto sales appears to be in and that is notable," writes Hedgeye U.S. Macro analyst Christian Drake in today's Early Look. "However, historically, peak auto sales are more of a mid-cycle phenomenon so the cresting in vehicle demand isn’t a particularly acute concern from an expansion longevity perspective."
So don't freak out.
Bloomberg's Misguided Headline
Forget mainstream media myopia. Tune out the noise. Instead, keep measuring and mapping the economic cycle. "The #1 reason stocks move higher is U.S. growth continues to accelerate off its mid-2016 lows," the Hedgeye Macro team wrote in a note sent to subscribers earlier this morning. The S&P 500 Growth Index is up +8% YTD for a reason (versus up only +2.4% for the S&P 500 Value Index).
Our proprietary GDP track algorithm – which incorporates 30 key economic indicators, reported 3 times per quarter, for a total of 90 data points – suggests U.S. economic growth will continue to heat up through the remainder of 2017.
U.S. growth accelerating evidence?
- Retail Sales recently hit a five-year high.
- Durable Goods and Capex for March both accelerated to up +5% year-over-year and +2.7% y-o-y respectively.
- Jobs Growth recently picked up for the first time in 23-months.
- Consumption: fourth quarter GDP was revised +10 basis points to +2.0% year-over-year with a positive +50 basis point revision to Consumption growth leading the upside.
- Corporate Profits ramped to +9.3% year-over-year. Recall this TREND of profits #accelerating comes after 5 consecutive quarters of negative year-over-year profit growth
Bottom Line
Don't freak out over individual data points or go hunting for bear scraps to confirm your emotional biases. Take the totality of economic evidence and let your agnostic process guide you to an investment conclusion. The data will set you free. The U.S. economy is accelerating.
