Wall Street's Misguided Bet Against the U.S. Economy - wall st bull girl

Source: Anthony Quintano


There's no other way to say this: Wall Street is betting that U.S. economic growth will slow in 2017. Big banks and hedge funds are building short positions in the Russell 2000 while getting long U.S. 10-year Treasuries.

We think these trades are extremely misguided. U.S. growth is accelerating and if we're right investors should stay away from bonds and buy stocks.

But before we get to that, let's back up. The CFTC's Commitments of Traders (COT) report tracks data on the futures and options positioning of institutional investors. We aggregate this data to get a read on the largest investors on Wall Street, then do some historical analysis to compare how the current net contract positioning stacks up against the averages over 1-year and 3-year averages (see Z-score in chart below).

The end result is some interesting intel on Wall Street consensus positioning. Here are some key callouts from the CFTC data released most recently:

  1. The net LONG positioning in the Russell 2000 swung -23,048 contracts last week to a net SHORT position of -15,348
  2. 10-year Treasury’s net LONG position ramped +87,660 contracts to +372,991

These are classic U.S. growth slowing exposures.

Wall Street's Misguided Bet Against the U.S. Economy - CFTC Wall Street

In the Chart of the Day below, you can clearly see the rise in Wall Street's misguided U.S. growth slowing positioning. Don't do this. 

Wall Street's Misguided Bet Against the U.S. Economy - 06.26.17 EL Chart

Wall Street Is On The Wrong Side of the U.S. Economy

As Hedgeye CEO Keith McCullough writes in today's Early Look:

"In other words, Wall Street is positioned net short US Equities and super long Growth and/or Inflation Slowing via a massive net LONG position in long-term Treasuries, right before US growth accelerates over the next 3 quarters."

That's our call. U.S. growth is accelerating. The U.S. economy fell from 3.3% year-over-year in the first quarter of 2015 before bottoming out at 1.3% in the second quarter of 2016. We expect the economy to continue to accelerate throughout 2017 rising above the first quarter's year-over-year growth of 2.0%. (For more on U.S. growth accelerating, check out our post, "What the Media Missed About the "Fall" in Today's Durable Goods Data.")

That's why you want to be long "Large Caps, Growth Stocks & Tech" which all rise in a U.S. growth accelerating environment.