“It is wonderful how much may be done, if we’re always doing.”
-Thomas Jefferson
I hope that you and your loved ones had a great summer. Welcome back to the office!
Back to the Global Macro Grind…
There’s lots of data and weekly macro market moves to contextualize, so let’s get right into it. On both a relative and absolute basis, last week was another great one for US Growth Stocks. Friday’s 6435 close #timestamped yet another all-time high for the Nasdaq!
Week-over-week, here’s how the latest Nasdaq ramp looked relative to important US Equity exposures:
1. Nasdaq Composite Index was +2.7% on the week to +19.5% YTD = #ATH
2. SP500 was +1.4% on the week to +10.6% YTD, closing just inside its all-time high of 2480
3. Russell 2000 had a big +2.6% bounce on the week to +4.2% YTD but remains bearish TREND @Hedgeye
4. Healthcare Stocks (XLV) led US Sector Style gainers +2.9% on the week to +17.8% YTD
5. Tech Stocks (XLK) had another great week, +1.9% to +21.5% YTD
6. Financials (XLF) continue to lag last week, closing DOWN -0.2% to +6.5% YTD
Part of the under-performance of the Financials came on the heels of what I’d say was a meh US Jobs report. For the Dovish Fed to pivot back to hawkish, I think we’re going to need to see something more exciting than +2.5% year-over-year wage growth.
For now, given that USA’s ISM report came in at a 76-month high (condolences to our competition), it’s crystal clear that the long-end of the US Treasury market is still anchoring on Reflation’s Rollover rather than the #GrowthAccelerating data.
From a FICC perspective, here’s what moved last week:
1. US Dollar Index was +0.1% on the week to -9.2% YTD
2. EUR/USD was -0.5% on the week to +12.8% YTD
3. Yen (vs USD) was -0.8% on the week to +6.1% YTD
4. CRB Commodities Index was +1.8% on the week to -6.0% YTD
5. Oil (WTI) was down another -1.2% on the week to -17.1% YTD
6. Gold was up another +2.5% on the week to +14.1% YTD
7. Copper was +2.0% on the week to +23.5% YTD
8. Corn was +0.5% on the week to -6.5% YTD
9. UST 2-year yield was +1 beep on the week to +1.34% = +15bps YTD
10. UST 10-year yield was flat on the week at 2.17% = down -28bps YTD
Food price deflation in general continues to be a nice big tax-cut for the US consumer. While corn and wheat had bear market bounces last week, sugar prices were down another -2.0% to -26.3% YTD and coffee prices dropped another -1.8% to -12.0% YTD.
The under-performance of European Equities (vs. US Growth Equities) continued as well last week:
1. EuroStoxx600 was only +0.6% on the week to +4.1% YTD (vs. SP500 +10.6% YTD)
2. Germany’s DAX was DOWN -0.2% on the week to +5.8% YTD
3. Spain’s IBEX was DOWN -0.2% on the week to +10.4% YTD
Q217 Swiss GDP just came in this morning at only +0.3% year-over-year. That’s down from +1.1% growth in Q117 and represents the lowest Swiss GDP growth rate since 2009. French Services PMI slowed for the 3rd month in a row too.
No matter how anyone wants to spin it, the truth is that US Growth Equities continue to outperform both US and European “value”, big time in 2017. Here’s an update on the QUALITY and GROWTH Style Factors:
1. LEVERAGE: Low Debt/EV (Enterprise Value) was up another +2.0% last week to +14.1% YTD
2. SALES GROWTH: Top 25% Sales Growers were up another +2.0% last week to +15.4% YTD
3. EPS GROWTH: Top 25% EPS Growers were up another +1.9% last week to +13.8% YTD
*Mean performance of Top Quartile vs. Bottom Quartile of SP500 Companies
It’s wonderful how much money can be made if you are long the right Style Factors. You just have to be always doing - always measuring and mapping the rates of change of growth and inflation.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.11--2.22% (bearish)
SPX 2 (bullish)
RUT 1 (bearish)
NASDAQ 6 (bullish)
Nikkei 195 (bearish)
DAX 110 (bearish)
VIX 10.01-12.74 (bearish)
USD 91.90-93.65 (neutral)
EUR/USD 1.17-1.20 (neutral)
Oil (WTI) 45.65-48.69 (bearish)
Gold 1 (bullish)
Copper 2.96-3.17 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
