Enjoy Your Work

“Don’t just work for money. Choose work you believe in, work you enjoy.”
-David McCullough

That was part of the conclusion to a commencement speech David McCullough gave to the 2008 graduating class of Boston College. He titled the speech, The Love of Learning. It was a beauty.

In case you couldn’t tell, despite all the bearishness in mainstream media this year, this Canadian still loves living in America. I love my American family. I love my Made In America firm. And I love working in America too.

Getting paid for what you love to do is a blessing. Getting paid in a currency that isn’t being devalued is a bonus. The US Dollar was up for the 4^th week in a row last week. That means I can buy more Canadian beer with less Dollars. I love that!

Back to the Global Macro Grind… 

It’s all about the love this morning. While I understand that you may not be a beer lover, if you’re long US Growth via the Nasdaq, you have to love that it closed at yet another all-time high on Friday. It was +1.5% on the week to +22.4% YTD!

With all-time highs being established daily, last week was generally a great week for US stocks:

1. The Dow closed up another +1.6% on the week to +15.2% YTD
2. SP500 closed up another +1.5% on the week to +13.9% YTD
3. The Russell 2000 closed up another +1.3% to +11.3% YTD
4. Financials (XLF) led the Sector Style charge, +1.9% on the week to +13.3% YTD
5. Tech Stocks (XLK) tacked on another +1.4% on the week to a league leading +24.0% YTD 

That’s right. Despite some of the “valuation” boys crying wolf out there with claims that “when the Financials start going up, this Tech bubble is going to burst”, both sectors enjoyed seeing US Wages #Accelerate on Friday.

With US Wage Growth #Accelerating to +2.9% year-over-year in SEP (vs. +2.5% in AUG), both the US Dollar and US Interest Rates rose again last week (bank stocks and people who are paid in Dollars love that):

A) US Dollar Index +0.8% on the week to 93.81
B) UST 2 and 10yr Yields +3 basis points each on the week to +1.51% and +2.37%, respectively

From a US Equity Style Factor perspective, Quality Growth continues to deliver alpha:

1. LOW DEBT (to EV) was up another +1.3% last week to +17.4% YTD
2. LOW SHORT INTEREST was up another +1.4% last week to +20.6% YTD
3. TOP 25% SALES GROWERS were  up another +1.2% last week to +20.2% YTD
4. TOP 25% EPS GROWERS were up another +1.2% last week to +17.5% YTD
   *Mean performance of Top Quartile vs. Bottom Quartile, SP500 companies

Low quality (levered balanced sheets) slow growers continued to lag last week. As you can see in these 2 Sector Styles:

A) Consumer Staples (XLP) DOWN -0.3% in a bright green tape last week to +4.1% YTD
B) Energy Stocks (XLE) DOWN -0.6% last week to -9.7% YTD 

A big part of Energy lagging last week had to do with Oil (WTI) dropping -4.5% week-over-week. Generally speaking, it was not a good week to be long of “Commodities” as an asset class:

1. The CRB Commodities Index corrected -1.2% last week to -6.0% YTD
2. Corn dropped another -1.5% last week to -7.9% YTD
3. Wheat and Sugar prices were -1.1% and -0.9% last week to -4.9% and -24.8% YTD, respectively

Put simply, if the WAGES you are paid + the CURRENCY you are paid in are going UP … while the things you buy are going DOWN in price, you gotta be lovin’ that like I love British Columbia’s Kokanee beers!

Now, no offense to where I wouldn’t love building a firm (Italy), but the Italians neither have wage growth nor real #GrowthAccelerating. Last week’s non-mainstream-macro-news that Italian Retail Sales slowed to -0.5% year-over-year (from 0.0% in the month prior), was not lovely.

Italian and Spanish stocks were down -1.3% and -1.9% last week, but that was mainly due to the surprise “vote” in Catalonia. That said, you should not be surprised to see less people enjoy their European work unless the dynamics of their labor markets change like USA’s have.

Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:

UST 10yr Yield 2.26-2.40% (bullish)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 6 (bullish)
XOP 32.65-34.70 (bullish)
VIX 9.10-10.69 (bearish)
USD 92.40-94.11 (neutral)
EUR/USD 1.16-1.18 (neutral)
GBP/USD 1.30-1.35 (bullish)
Oil (WTI) 49.02-52.63 (bullish)

Best of luck out there this week,
KM

Keith R. McCullough
Chief Executive Officer