The consensus among Wall Street money managers is that U.S. economic growth is slowing. How else could you explain big banks and hedge funds piling into the 10-year Treasury bond? That's right, Wall Street's net long position in 10-year U.S. Treasuries has swollen to levels not seen in quite a while, at least since 2015.
That's problematic because U.S. growth is accelerating.
As you can see in the Chart of the Day below, from today's Early Look, institutional investors are now net long 10-year U.S. Treasuries by 365,011 contracts, according to CFTC futures and options data. That's quite a swing – of more than 600,000 contracts – since being net short back as recent as March.
In other words, institutional investors are betting that the U.S. economy is poised for a tumble, since bonds typically rally when economic growth slows. Here's analysis from Hedgeye CEO Keith McCullough:
"Since Consensus Macro is as long of #GrowthSlowing as it has been in 2017 (there’s a non-commercial net LONG position in the 10yr Treasury Bond of +365,011 contracts as of last week which registers +2.06x on a 1-year z-score), when will that consensus capitulate into being long real #GrowthAccelerating?"
THE U.S. ECONOMY: HEDGEYE VERSUS WALL STREET
To be clear, our call is the complete opposite side of Wall Street's trade. The U.S. economy is accelerating. Consider the facts. Year-over-year GDP growth peaked at 3.3% in the first quarter 2015, fell to 1.3% by the second quarter of 2016, and has since rebounded to 2% for the first quarter of 2017.
We expect rebounding U.S. growth to continually surprise Wall Street consensus throughout 2017.
IT'S WORTH NOTING...
To close the month of May, the S&P 500 sectors reflect a growing U.S. economy. Here are the leaders year-to-date:
- Technology (XLK): +16.7%
- Consumer Discretionary (XLY): +11.9%
Think about it. Tech and Consumer Discretionary stocks should outperform as growth accelerates since these are the sectors that are tethered to U.S. consumer spending.
