“The question of success will be decided by your own level of commitment.”
-Greg Norman
It’s not Monday, but after the team I coach lost in the semi-finals in OT on Sunday, I am motivated! The “Monday Motivator” is something you can get from The Great White Shark’s Twitter feed. One of his favorite topics is learning from losing.
Winning a “Masters in humility” is a chapter in a book I’ve been citing as of late titled Win At Losing. In the author’s (Sam Weinman) interview, Greg Norman goes on to explain “that’s what makes failure so great…”
“You can’t really appreciate success – I mean really appreciate it – until you’ve failed. So let’s get after it.”
Back to the Global Macro Grind…
So, after the long weekend, let’s get up and get after it! Both the Nasdaq and SP500 closed at fresh all-time highs of 6210 and 2415 on Friday. And I liked it.
In case you couldn’t tell, I also like #process. The question of success, as always, is are we committed to both executing on and evolving the process. One part of the process is contextualizing weekly macro moves within our TREND and TAIL durations:
- US Dollar Index bounced +0.3% last week but is down -4.7% YTD = bearish TREND; bullish TAIL
- Euro corrected -0.2% last week vs. USD but is still +6.3% YTD = bullish TREND; bearish TAIL
- British Pound pulled back -1.8% last week vs. USD and is +3.8% YTD = bullish TREND; bearish TAIL
- Commodities (CRB) Index deflated another -1.7% last week and is -5.5% YTD = bearish TREND and TAIL
- Oil (WTI) sold off on the OPEC “news”, -1.7% last week and is -12.3% YTD = bearish TREND and TAIL
- Gold rallied +1.2% last week and is +9.6% YTD = bullish TREND and TAIL
- Copper’s reflation rolled over by another -0.6% last week and is +1.9% YTD = bearish TREND and TAIL
- UST 2yr Yield was +2bps last week at +11bps YTD = bullish TREND and TAIL
- UST 10yr Yield was +1 basis point last week at -20bps YTD = bullish TREND and TAIL
- US Equity Volatility (VIX) crashed (again) -19% last week and is -30% YTD = bearish TREND and TAIL
*TREND duration = 3 months or more; TAIL = 3 years or less
Don’t worry. I’ll get into what equity markets did in a second. It’s always critical to measure and map what stocks are doing within the backdrop of FX, Commodities, Rates, etc. obviously.
The simple takeaway = #Reflation’s Rollover. That’s partly why the USD has weakened. It’s definitely why bond yields have traded side-ways to down on the long-end of the curve. And it’s why our 0% asset allocation to Commodities has been right.
What happens when the inflation component of bond yield and FX expectations fall? Well, “reflation” stocks under-perform real-growth expectations stocks. And we saw that (again) last week too:
- Nasdaq rallies another +2.1% last week to lead the major leagues at +15.4% YTD = bullish TRADE and TREND
- Tech (XLK) was +2.1% last week, leading US Equity Sector Styles at +16.6% YTD = bullish TRADE and TREND
- Consumer Discretionary (XLY) was up another +1.7% last week at +11.5% YTD = bullish TRADE and TREND
- SP500 was +1.4% last week to +7.9% YTD = bullish TRADE and TREND
- Energy Stocks (XLE) were down another -2.2% last week to -11.6% YTD = bearish TRADE and TREND
- MLP (Alerian Index) Stocks were down -0.5% last week at -3.3% YTD = bearish TRADE and TREND
Yep. Long Real Growth vs. Short Reflation continues to be the winner’s portfolio in 2017.
Looking at US Equity Style Factors last week, I thought this was an important callout:
A) Big Cap Stocks (Top 25% of market cap) were up another +1.7% on the week to +9.5% YTD
B) Bottom 25% EPS Growers were only +0.6% on the week to +1.4% YTD
*Mean performance of Top Quartile vs. Bottom Quartile, SP500 Companies
And that makes sense in what we call a “Quad1” macro environment where inflation is slowing, sequentially, and real growth is #accelerating (i.e. you want to be overweight big cap growth and underweight smaller cap and slowing growth).
That’s also why my quantitative risk range process continues to signal that two major big cap names are going > $1,000/share:
- Immediate-term risk range for Amazon (AMZN) = $970-1,004
- Immediate-term risk range for Google (GOOGL) = $965-1,002
And, of course, since these big cap Tech/Consumption growth stocks rarely go down, that’s why the VIX is < 10 and my complacency (bulls) & capitulation (bears) call remains firmly intact.
Our immediate-term Global Macro Risk Ranges (and intermediate-term TREND research views in brackets) are now:
UST 10yr Yield 2.19-2.35% (bullish)
SPX 2 (bullish)
NASDAQ 6080-6258 (bullish)
XOP 33.01-35.16 (bearish)
VIX 8.61-11.60 (bearish)
USD 96.50-99.75 (neutral)
EUR/USD 1.09-1.12 (bearish)
GBP/USD 1.28-1.30 (bullish)
Gold 1 (neutral)
Copper 2.52-2.62 (bearish)
AAPL 150.68-155.99 (bullish)
AMZN (bullish)
FB 148-154 (bullish)
GOOGL (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
