Below is a brief excerpt from The Macro Show earlier today in which Hedgeye CEO Keith McCullough contextualizes how to properly position your portfolio given the recent stock market sell-off:
"Last week was what we call a counter-TREND move in real growth versus reflation. Tech shares (XLK) were down -2.5% on the week, versus a gain of +15.8% year-to-date, while Energy shares (XLE) were up 2.4%, versus a 2017 decline of -11.8%. In other words, the YTD winners (real growth) corrected whereas the YTD losers (reflation) bounced. With time and space comes market corrections.
To get your asset allocation right, you need to get the trending year-over-year rates of change in both growth and inflation right. Now, there are different factors within the stock market to get exposure to that. There’s debt, short interest, beta, and yield etc.
As you can see in the chart [below], small cap stocks, the bottom 25% of the S&P 500, outperformed last week. That's new but that's not where I would go. I like the larger cap stocks which had a down week of -0.2%.
If I'm listing the "style factors" I like, I want to be long large cap, growth, Tech and Consumer Discretionary. These are some of the different types of styles that we like that are down simply because you had a counter-trend move.
What's the catalyst for Large Cap, Growth, Tech and Consumer Discretionary stocks to go higher? We've updated our predictive tracking algo for recent data and taking up our second quarter US GDP forecast to +2.35% year-over-year growth which imputes +2.66% quarter-over-quarter GDP SAAR. That's 100 basis points of acceleration from last year's year-over-year second quarter low of 1.3%."
