“He fought the battle well and he fought it alone.”
-Andrew Jackson
That’s what Old Hickory (Andrew Jackson) had to say about James Polk reducing the “Whig” party majority in the South. The quote comes from a good American history book I’m finishing titled Polk: The Man Who Transformed The Presidency and America.
In the short-term, one man or woman can transform anything they are leading. But that’s definitely not how I think about long-term leadership. If you’d like to battle bulls or bears alone, you can try – but I doubt you’ll find a way to consistently win that war.
For me, winning has everything to do with playing on a team where everyone is inspired to play their role with passion and a pursuit of excellence. Internal leadership thrives when teammates are motivating one another.
Back to the Global Macro Grind…
When I’d wake up at the top of the risk management morning in New Haven, CT going on 9 years ago (i.e. on the couch in the humble office space we leased to start the firm), I had far less information about macro markets than I have today.
For what I have today, I can only thank my teammates. Without our team of research analysts, I’m not sure what I’d write to you every morning (for proof of that, I can send you some of the rambling rants I’d write in 2008!).
One major addition to our Macro Team’s Research Process in the last few years has been measuring and mapping both market positioning from a futures and options perspective and market expectations through the lens of the options market.
One major callout that our options market analyst, Ben Ryan, has been making in the last 3 months is that as US stock market indices hit consecutive all-time highs, implied volatility continues to make all-time lows.
Shorthand for that: ATH (all-time highs in price) = ATL (all-time lows in expected volatility).
While most market professionals can see that the most popular front-month expectation of US stock market volatility (the VIX) has crashed -32% YTD, the historical context of this crash in “political” expectations may not be as obvious.
Put simply, as you can see in today’s Chart of The Day, when looking at an aggregated, multi-duration, implied volatility percentile reading for the Dow, Russell, and SP500, volatility EXPECTATIONS have literally NEVER been lower. And, in history’s time-series, never implies a long time.
So the US stock market has to have been a short on that, right?
Nope. It has not. In fact, AFTER most modest “market corrections”, consensus bids protection higher and/or sells gross exposures low. Then, once the short-term selling pressure subsides, short-term price momentum chasers are forced to buy/cover higher.
To be clear, this pattern of predictable-performance-chasing-behavior (PM #PPCB, please see a doctor if it persists) should eventually run its course, bleeding out all of the bears inasmuch as it should make perma-bulls complacent.
But The Question remains when does “eventually” happen?
- I really have no idea
- So I wake up humbly, every day, waiting for data and/or market signals to give me a better idea
- Today’s US economic data (real growth) continues to accelerate on a TRENDING cycle basis
- Today’s macro market signals continue to suggest this remains a bullish TREND for growth assets
- Today’s immediate-term risk range for front-month VIX = 8.99-11.16
In other words, the volatility of volatility (the VIX’s risk range is one way to consider that), is still suggesting that lower ATL’s (all-time-lows) in US Equity Market Volatility are probable, inasmuch as the SP500’s 2 risk range implies higher ATH’s (all-time highs).
That said, if something like:
A) Our predictive tracking algorithm for US growth and inflation or
B) Earnings Season
Were to slow in the face of the market’s aggregate signals, across durations, suggesting otherwise… that would make my job a lot tougher. But, fortunately, that’s not happening right now. So this has made what is always a tough job, less tough.
So far, “Ex-Energy” (since 0 of 34 S&P Energy companies have reported what will be big “up” year-over-year earnings growth vs. last year’s energy crash), aggregate SP500 EPS growth for Q2 of 2017 is running +14.5% year-over-year.
Admittedly, Tech Earnings are already running up +53.1% year-over-year for Q2-to-date. So should we back that out too? Or has the performance fight this year been won by those teams who understood that valuation is not a catalyst for market events?
Our immediate-term Global Macro Risk Ranges (intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.28-2.39% (neutral)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 6211-6365 (bullish)
VIX 8.99-11.16 (bearish)
EUR/USD 1.13-1.15 (bearish)
Oil (WTI) 43.83-46.93 (bearish)
Gold 1 (neutral)
AAPL 144.51-150.48 (bullish)
AMZN (bullish)
FB 155-164 (bullish)
GOOGL 951-990 (bullish)
NFLX 155-180 (bullish)
TSLA 301-336 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
