“Some old-fashioned things like fresh air and sunshine are hard to beat.”
-Laura Ingalls Wilder
Considering how long “all-time” implies, Friday’s freshly squeezed all-time closing highs for the US stock market were hard to beat too! After some much needed time off with my family in the Canadian Rockies, it’s good to be back at my post this morning.
Fresh air, hiking, and fishing – my wife and I did it all with all 4 of our kids, and loved it. The hiking part was particularly exciting not only because we did it with one of those BOB strollers (big wheels!), but those were the highest-highs my kids have ever seen.
While they were rightly worried about bears, they didn’t get eaten by any. And they didn’t complain about “valuation” up there either.
Back to the Global Macro Grind…
Oh no they didn’t. Right before I left for vaca, you don’t have friends who shorted the Nasdaq (right before another earnings growth accelerating season) at yet another higher-low within a bullish @Hedgeye TREND, do you?
Not that Corporate #ProfitsAccelerating has been “hard” enough “data” for the bears to swallow in 2017 but so far Q2 Earnings Season is off to a splendid start with 29 S&P 500 companies reporting an aggregate EPS growth rate of +14.6% year-over-year.
Alongside Reflation’s Rollover in last week’s CPI (Consumer Price) and PPI (Producer Price) data and a fresh 30 month high in US Industrial Production growth (not highlighted by #MSM), here’s how US Equity Market Indexes responded where it matters most:
- SP500 +1.4% on the week to +9.9% YTD = all-time closing high
- Dow +1.0% on the week to +9.5% YTD = all-time closing high
- Russell 2000 +0.9% on the week to +5.3% YTD = all-time closing high
I know. Even though it was the highest-high in US history, that YTD gain for the Russell isn’t anything to write home about. At +2.6% on the week and +17.3% YTD, the Nasdaq’s is.
If you look underneath the hood at US Equity Sector Style Factors, Tech and FAANG were flat out ripping last week:
- Tech Sector ETF (XLK) +3.4% on the week to lead Sector Style gainers at +17.6% YTD
- Facebook (FB) +5.6% on the week to +39.0% YTD
- Amazon (AMZN) +2.4% on the week to +33.6% YTD
- Apple (AAPL) +3.4% on the week to +28.9% YTD
- Netflix (NFLX) +7.3% on the week to +30.2% YTD
- Google (GOOGL) +3.8% on the week to +23.3% YTD
In other words, if your #1 and #2 longs in the FAANG are the two “cheapest” of the 5 components, you’re under-performing as the Top 3 most “expensive” components get more expensive.
From a non-sector US Equity market Style Factoring perspective, Mr. Market’s macro message was the same last week:
- LOW YIELD stocks led the way at +2.4% on the week and are now +14.6% YTD (vs. High Yield = +0.3% YTD)
- TOP 25% SALES GROWTH stocks were up another +2.1% last week to +12.3% YTD (vs. Slow Growth at +1.6% YTD)
- TOP 25% EPS GROWTH stocks were up another +2.2% last week to +11.5% YTD (vs. Slow Growth at +1.5% YTD)
*Mean Performance of Top Quartile vs. Bottom Quartile for SP500 Companies
Put another way, if your Best Ideas are “Growth Slowing” asset allocations like Treasuries and/or Utilities (XLU only +0.8% last week to +6.9% YTD), you’re not very happy with my instagram of the scoreboard.
Don’t worry, be happy.
From a sentiment perspective, market positioning remains an asset to the US growth bulls. Looking at the positioning of CFTC non-commercial futures & options contracts that is:
- SP500 (Index + E-mini) net LONG position is still only +77,562 contracts = +0.15x on a 1-year z-score
- Russell 2000 (mini) net SHORT position is still there at -37,433 contracts = -0.99x on a 1-year z-score
- 10yr Treasury net LONG position of +223,553 is still relatively large = +1.1x on a 1-year z-score
*We use the z-score to show the standard deviation of the position relative to where it’s been
And no, I’m not telling you to buyem again up here after the move. I’m just here to remind you that if we see another buying opportunity, I’ll make the same call I have been making on every dip for 7 going on 8 months now. That strategy has been hard to beat.
Our immediate-term Global Macro Risk Ranges (intermediate-term TREND Research Views in brackets) are now:
UST 10yr Yield 2.28-2.40% (neutral)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 6191-6336 (bullish)
XOP 30.24-32.59 (bearish)
VIX 9.26-11.19 (bearish)
EUR/USD 1.13-1.15 (bearish)
GBP/USD 1.28-1.31 (bullish)
Oil (WTI) 43.63-47.37 (bearish)
Gold 1 (neutral)
AMZN (bullish)
FB 154-163 (bullish)
GOOGL 945-988 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
