“Not just the size of the floods, but also their precise sequence, matters.”
-Benoit Mandelbrot
Oh yes. Once again, it is time to bring in The Brot. He’s my closer. I like to bring him in every time the world is about to end.
Isn’t it ironic that yesterday’s epic -0.6% selloff in the Russell 2000 (from the prior day’s all-time closing high) and smack-down of the FAANG came on the heels of yet another positive real-hard-data US Growth surprise?
On the heels of US GDP being revised up to +2.1% growth in Q117 (year-over-year, not q/q SAAR), the 10yr Yield tapped the top-end of my risk range and a massively youge flood of fake fear came into the US stock market on no volume.
Back to the Global Macro Grind…
To be fair, there was volume. But in rate of change terms, Total US Equity Market Volume (including dark pool) was down -2% vs. the prior day and -3% vs. the 1-month average. If volume accelerated meaningfully, I’d be more concerned.
As those of you who have risk managed portfolios for more than the last 6 months very well know, stock and bond markets generally correct. In terms of this one (SP500 -1.4% from its all-time high) the precise sequence matters.
A) It came after a day when the Russell closed at an all-time high
B) It came after a day when the SP500 was within -0.5% of its all-time high
C) It came after a week when long-term (10yr) Treasury Yields hit YTD lows
D) It came after a week when the net LONG position in 10yr Treasuries hit YTD highs
E) It came as European 10yr Yields ramped to the top-end of my immediate-term risk range
F) It came as a few big 50-day Moving Monkey charts “broke” and momo guys freaked out
And, again, while there is zero edge in trying to predict the end of civilization (for ad revs, daily), isn’t it entirely ironic that the premise for those moves in long-term bond yields was that growth is accelerating?
To review US GDP growth in a way that you can actually attempt to model and forecast it (not q/q SAAR!):
- US GDP Growth peaked at +3.3% year-over-year growth in Q1 of 2015
- US GDP growth slowed, for 5 straight quarters, to +1.3% year-over-year in Q2 of 2016
- US GDP growth accelerated, to +2.1% year-over-year growth in the most recent quarter
And we have it accelerating (again) in Q2 and Q3 of 2017 from what we’ve always thought would be the “low” quarterly year-over-year print of 2017…
So, as GDP was slowing, -200 basis points, for 5 straight quarters… you crushed it being long #GrowthSlowing macro and sector exposures. And, you’ve been crushing it being long #GrowthAccelerating exposures during the most recent +100 basis point acceleration in GDP from last year’s all-time lows in US bond yields (i.e. when GDP bottomed in Q2).
And now some people lose their mind because the things that were +15-30% YTD corrected -3-5% from their highs? Our subscribers did not. With the Nasdaq correcting -2.8% from its all-time closing high, I signaled BUY more (again) yesterday.
Not only did I signal buy in the index, I signaled buy in one of Todd Jordan’s favorite stocks right now, Wynn Resorts (WYNN). And I signaled to cover some shorts and buy some long-term Treasury exposure via TLT.
I don’t send out these immediate-term signals in Real-Time Alerts for kicks and giggles. Do I do it to be transparent and accountable to my views? Yes. But I also do it so that I don’t have to answer the same subscriber question 100x in the day.
Timestamps speak louder than tweets.
Yep, on every single pullback in the Nasdaq since November, I have been signaling buy-more. So this is getting to be old-hat for me. And, clearly, this time I could be wrong. But I could also be right again too.
If the entire sequencing of my macro process, across durations and market factors, said get the hell out, “believe me”, I would. That’s why I got you out of being long “reflation” at the end of Q1, don’t forget.
On our Q3 Macro Themes Call today at 11AM EST, I’ll review why I think it’s still time to be getting out of rate sensitive Southern European Equity exposures (in opposite direction they moved this week) and “long Chinese demand” ideas too.
Our immediate-term Global Macro Risk Ranges (intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.11-2.28% (bearish)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 6127-6299 (bullish)
Nikkei 196 (bullish)
VIX 9.66-11.83 (bearish)
EUR/USD 1.11-1.14 (bearish)
Oil (WTI) 42.04-45.65 (bearish)
Gold 1 (bullish)
Copper 2.59-2.71 (neutral)
AAPL 142.65-147.80 (bullish)
AMZN (bullish)
FB 150-156 (bullish)
GOOGL 935-991 (bullish)
NFLX 146-156 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
