Vive Les All-Time Highs

“Vive le sol – pure, shameless, total.”

-William Burroughs

Got some Burroughs style non-MSM “beat literature” about these markets? How about some paranoid fiction? When Burroughs wrote “Junkie” (1953) and “Naked Lunch” (1959), I don’t think he had the all-time stock market highs of 2017 in mind.

Yep. All-time, remains a very long time. It’s sort of soft and hard, all at the same time, really.

Was it the US jobs #accelerating report on Friday? Was it US corporate profits registering their best quarter in 6 years? Or was it neither the fundamentals nor Reflation’s Rollover – and simply all about a centrist winning in France?

Back to the Global Macro Grind…

Whatever it was, I say Vive Les All-Time Highs! Both the SP500 and Nasdaq registered all-time closing highs of 2399 and 6100, respectively on Friday. This comes on the heels of European all-time highs and the KOSPI in South Korea registering one today too.

This, of course, won’t last forever. Heck, maybe “it’s all over” as of this morning. Zero Edge must be all over that.

What I found most interesting about last week’s all-time highs was that US equity markets registered them in the face of a big Consensus Macro long position (reflation) continuing its rollover.

Looking at last week’s returns was more of the same on real-growth thumping the reflation and/or “Trump” trade:

1. NASDAQ led the way, up another +0.9% on the week taking its 6 month gain to +20.9%
2. Financials (XLF) had the best S&P Sector ETF return at +1.3% week-over-week = +22.3% in the last 6 months
3. Tech’s (XLK) rip continued, adding another +1.1% week-over-week = +19.0% in the last 6 months

I use the last 6 months because that’s what we call the intermediate-term TREND. Unlike daily, weekly, or monthly moves, it’s critical in contextualizing what’s really going on for intermediate-to-long-term investors and asset allocators alike.

In sharp contrast to the aforementioned TRENDING returns, here’s how commodities did:

1. CRB Commodities Index dropped another -2.1% week-over-week = down -2.5% in the last 6 months
2. Oil (WTI) deflated another -6.3% week-over-week = down -2.6% in the last 6 months
3. Gold corrected another -3.3% week-over-week = down -6.7% in the last 6 months
4. Nickel declined another -3.3% week-over-week = down -9.4% in the last 6 months
5. Orange Juice deflated another -7.6% week-over-week, crashing -23.0% in the last 6 months
6. Sugar was down another -5.1% week-over-week = down -18.8% in the last 6 months

Sugar and OJ? Yep. Some humans (like me) still consume that stuff. Youge real-consumption tax cut there.

If you’re more of a gluten-free type, I hope you’re not long energy stocks. The Energy ETF (XLE) had the worst S&P Sector ETF return last week, down another -0.8% and -0.7% in the last 6 months. REITS were down another -0.6% on the week as well.

Some other ways to not be long Reflation’s Rollover (not losing money usually starts with not having certain exposures):

1. Russian Stocks (RTSI) dropped another -2.6% last week
2. Chinese Stocks (Shanghai Composite) fell another -1.6% last week
3. 5yr Break-evens declined another -5 basis points to 1.76%

What’s most interesting about that last point (inflation expectations falling alongside pretty much everything commodities) is that US Treasury Bond Yields went UP last week. Jobs and profit growth accelerating, et vive le #Quad1, eh?

With 2 and 10yr UST Yields +5 and +7 basis points to 1.31% and 2.35%, respectively, it should be no wonder why two of the top performing US Equity Style Factors were Top 25% sales and earnings growers in the SP500 (top quartile vs bottom quartile).

With all the French fanfare about Vive’ing the all-time highs, it’s somewhat surprising, however, to see that the net LONG position in (non-commercial CFTC futures & options contracts) the SP500 (index + E-mini) dropped (again) ahead of the news.

Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:

UST 10yr Yield 2.27-2.38% (bullish)

SPX 2 (bullish)
RUT 1 (bullish)

NASDAQ 6010-6120 (bullish)

XOP 33.40-35.72 (bearish)

VIX 10.03-11.94 (bearish)
EUR/USD 1.07-1.10 (bearish)
Oil (WTI) 45.38-48.19 (bearish)

Gold 1 (neutral)
Copper 2.47-2.58 (bearish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer