“On ne change pas une equipe qui gagne.”
-French Proverb
Le youge stock market short squeeze ce matin, eh?
I’m not sure if you knew this or not (and not really sure you should care!), but I didn’t go to English school until the 6th grade. My mom’s side of the family is 1st language French-Canadian. Some elite Parisiens don’t like our accents.
The aforementioned French quote subs for “one does not change a winning team.” And I’m totally cool with reminding you of that in French, English, or Spanish this morning. Raging bull markets have an uncanny ability to find new catalysts.
Back to the Global Macro Grind…
“Je pense, donc, je suis.” That’s Decartes with one that’s surely familiar to you. “I think, therefore, I am.” And that’s really been the point for not only US equities, but European ones, for the last 6 months. Bull markets, they are, indeed.
Did I make “le call” that the French stock market (CAC40) would ramp +4.4% (in an hour) on what was a high-probability event (that Le Macron would win)? Nope. Didn’t tell you German stocks would hit an all-time high on this either.
More importantly, however, we didn’t get off the long USA and European Equity bulls; especially on their recent pullbacks. Again, why take the winning team off the ice/field when there is no fundamental reason to do so?
Last week’s macro moves set the stage for this morning’s US Equity Futures ramp:
- SPP500 bounced right off the low-end of my immediate-term risk range, closing +0.8% on the week
- Nasdaq did better than double that return, closing up another +1.8% on the week (making another all-time high)
- Russell 2000 squeezed les shorts, big time, closing +2.6% last week
- Consumer Discretionary (XLY) and Tech (XLK) were +2.0% and +1.5% week-over-week, respectively
- Energy (XLE) continued to lag, dropping another -2.2% week-over-week to -10.0% YTD
That’s right, down -10.0% YTD is not Le Macro performance we want to see out there.
In sharp contrast to being exposed to Reflation’s Rollover (Commodities, Energy, etc.), Consumer Discretionary and Tech are +8.4% and +9.9% YTD, respectively. As inflation rolls over, real consumption growth accelerates. Classic #Quad1.
The deflation of the inflation (Reflation’s Rate of Change Rollover) was actually le nasty last week:
- Commodities (CRB Index) were down -3.1% week-over-week = down -4.0% in the last 6 months
- Oil (WTI) was down hard, -7.4% week-over-week = down -7.5% in the last 6 months
- Gold was down small, -0.1% week-over-week = only +0.7% in the last 6 months
Gold, of course, doesn’t just trade with “inflation expectations.” It trades with real growth and real interest rate expectations. More on that later. I just did a few videos with Goldmoney’s head of research and Jim Rickards last week.
Rates rallied from last week’s lows and this morning we’re seeing a “real growth” move that I’d define as:
A) High Beta Stocks Up
B) Long-term Bonds Down (Rates Up)
So now, in addition to the UST 10yr Yield backing up to 2.30% (from 2.15% last week), you’re seeing the German 10yr Bund Yield ramp back above @Hedgeye TREND resistance of 0.29% to 0.35%. It got as low as 0.15% last week.
How much higher can stocks (and rates) go?
Most major US and European Equity indices will signal immediate-term TRADE overbought today. Since my risk ranges change, dynamically, with real-time price, volume, and volatility data… I don’t stress much over le market’s opinion.
In addition to more US Profits #Accelerating (so far 16 of 100 names in the Nasdaq have reported an aggregate year-over-year EPS acceleration of +46%!), we do have some big hard and soft US macro data this week:
- TUESDAY: US Consumer Confidence and New Home Sales
- THURSDAY: US Durable Goods
- FRIDAY: Q117 US GDP
Notice how I keep highlighting everything fundamental like growth, inflation, and profits? Anchoring on le politics (like Trump’s Tax Plan on Wednesday) is dangerous. Do macro in rate of change terms or Le Macro will do you.
Our immediate-term Global Macro Risk Ranges (and intermediate-term TREND views) are now:
UST 10yr Yield 2.18-2.40% (bullish)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 5 (bullish)
DAX 12000-12450 (bullish)
VIX 12.64-15.98 (neutral)
USD 99.05-101.24 (bullish)
EUR/USD 1.05-1.09 (bearish)
GBP/USD 1.26-1.29 (bullish)
Gold 1 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
