Multi-Dimensional Bull Market

“Think of dimension, not as an inherent property, but as a tool of measurement.”
-Benoit Mandelbrot 

GDP Up, Profits Up, Capex Up, Dollar Up, Oil Up, Rates Up… 

That’s what happened last week as this raging bull market in US stocks ramped to all-time closing highs on Friday. If you’re into measuring and mapping the rates of change in the aforementioned macro factors, you’re obviously seeing multiple dimensions to this move.

Don’t get piggy though. I issued plenty of immediate-term #overbought signals in Real-Time Alerts on Friday. Selling the rips after buying the damn dips remains my risk management plan, for now.

Back to the Global Macro Grind…

It’s Macro Monday, baby! If you live where I do, that means you need to shake off the gribblies of nasty winds and rain this morning and get after it. It’s time to contextualize last week’s macro market moves within our multi-factor, multi-duration framework (TRADE, TREND, TAIL).

Let’s start with what was a big week in FX:

1. US DOLLAR INDEX was +1.3% on the week, registering its 6^th week of gains in the last 7 and is now Bullish TREND @Hedgeye
2. EURO (vs. USD) sacked for a -1.5% weekly loss post Draghi’s pivot back to #Dovish = Bearish TREND now @Hedgeye
3. YEN (vs. USD) finally signaled immediate-term #oversold vs. USD but remains an ongoing Bearish TREND @Hedgeye 

Yep, that’s how you do it. Measure and map weekly moves within the intermediate-term TREND and long-term TAIL risks. One of the biggest TAIL risks to Consensus Macro market positioning remains LONG Euro vs. SHORT USD (see CFTC futures/options positioning for details).

Despite Dollar Up, Rates Up… we also saw Reflation #Accelerate again last week:

1. CRB Commodities Index was up another +1.5% on the week and is now Bullish TREND @Hedgeye
2. Oil (WTI) drove commodities gains tacking on another +4.0% last week = Bullish TREND @Hedgeye
3. Corn, which was #oversold in the week prior, bounced +1.2% last week but is still Bearish TREND @Hedgeye
4. Live Cattle ripped another +3.6% on the week to +20.1% YTD = Bullish TREND @Hedgeye
5. Aluminum was up another +1.5% week-over-week to an impressive +26.3% YTD = Bullish TREND @Hedgeye

And looking at 5-year 5YR Forward Break-evens (which is also a good inflation expectation’s proxy) they climbed another +4 basis points last week to +1.99%, which looks like it’s close enough to that “2% target” to me for the Fed to remain hawkish, raising rates in DEC.

Oh, “but Powell”…

Yeah, we’ll factor him in if we get him as the new Fed Head on Friday. But we definitely won’t make an anti-multi-dimensional call on all of macro due to a dovish bureaucrat. Instead, we hope Global Macro Tourists give us an opportunity to short more long-term Treasury Bonds.

On that front, it was another week of Bullish TREND confirmation for US Treasury Yields:

A) UST 2-year Yield was higher intra-week but closed the week +1 basis point at +1.59%
B) UST 10-year Yield was higher intra-week but closed the week +2 basis points at +2.41%

Then, of course, there was the rip-roaring FAANG fun we saw in the US stock market last week. And, by the way, consensus sold the darn things into the Amazon (AMZN) and Google (GOOGL) prints. In hindsight (into month end) that wasn’t very bright.

1. NASDAQ led last week’s USA Growth Investing charge, closing +1.1% on the week at +24.5% YTD
2. Tech (XLK) led Sector Style gainers, ramping another +2.4% on the week at +29.3% YTD
3. SP500 was up +0.2% on the week registering an all-time closing high on Friday of 2581 = +15.3% YTD

Not all was rainbows and puppy dogs in terms of US and Global Equity dimensions, however:

1. REITS (MSCI Index) were dogs, down another -1.6% on the week at DOWN -0.5% YTD
2. Energy Stocks (XLE) were down (despite Oil Up!) another -0.6% on the week to DOWN -10.6% YTD
3. LONDON (FTSE) continued to lag, down -0.2% week-over-week at only +5.1% YTD

In US Equity Style Factor terms, some of that Sector Style under-performance reflects what we call LOW QUALITY investments in a raging bull market for US Growth exposures:

1. HIGH DEBT (to EV) companies were down -1.3% last week to +8.0% YTD
2. HIGH SHORT INTEREST companies were down -1.9% last week to only +1.3% YTD
3. SLOW GROWERS (Bottom 25% SP500 EPS Growers) were down -1.6% last week to only +1.2% YTD

*Mean performance of Top Quartile vs. Bottom Quartile, SP500 Companies

While there have been multiple low-quality-non-process-driven narratives on why stocks “can’t go higher” for the last 3-6-12 months, there’s been no better multi-dimensional view of this bull market than US growth and profits accelerating into the back-half of 2017.

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

UST 10yr Yield 2.33-2.48% (bullish)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 6 (bullish)
RMZ 1130-1160 (bearish)
Nikkei 217 (bullish)
DAX 13027-13296 (bullish)
VIX 9.36-11.75 (bearish)
USD 93.35-94.98 (bullish)
EUR/USD 1.15-1.17 (bearish)
YEN 112.20-114.63 (bearish)
Oil (WTI) 51.45-54.01 (bullish)
AAPL 158.07-163.73 (bullish)
AMZN (bullish)
FB 172-180 (bullish)
GOOGL (bullish)
NFLX 191-203 (bullish) 

Best of luck out there this week,
KM

Keith R. McCullough
Chief Executive Officer