“Part of every misery is misery’s shadow.”
-C.S. Lewis
Trick or treat? TRADE or TREND? Happy Halloween!
Got friends in “the biz” who have been spooked by fundamental “hard data” realities like +3% headline US GDP Growth, Raging Profit Growth, +8% year-over-year Capex Spending, and all-time highs in the SPYs?
Tell them to stop being so miserable and dress up as a bull tonight. Do it for the kids!
Back to the Global Macro Grind…
The Quote of The Day comes from Sheryl Sandberg’s (of Facebook fame) latest book called Option B. It’s a very introspective and personal book about facing adversity and building resilience.
“My mom taught me how to breathe through waves of anxiety: breathe in for a count of six, hold my breath for a count of six, then exhale for a count of six” (pg 23). While I’m not anxious this morning, I just tried it. Felt good.
While I try to remove all emotion from my risk management process and remain as data driven as possible, I’m just as hostage as any human to non-linear life changing events. That’s why I try real hard to be thankful for all that I have in my life, every day.
I remain relatively surprised that so many US economic and stock market bears aren’t thankful for the #acceleration’s we’ve seen in the US economy this year. After all, despite the political noise, accelerating economic and profit growth is better than the alternative.
Un-reported by mainstream media, yesterday we had another trifecta of US economic #GrowthAccelerating reports:
- Real PCE (Personal Consumption Expenditure) #accelerated to +2.7% year-over-year in SEP vs. +2.5% in AUG
- Luxury Goods (personal aircraft, pleasure boats, jewelry, etc.) maintained its big 2017 ramp at +10% year-over-year
- Core PCE Deflator was flat, sequentially, at +1.3% year-over-year in SEP = a 2 year low
In other words, people have money spent more of their money (and saved less of it). That’s symptomatic of an economy that is not only accelerating but one that people have confidence in.
You don’t have to have confidence in Hillary or Trump to have confidence in your businesses’ profit cycle or, God forbid, your flag. I’m Canadian, and I’ll always be proud to salute the Red, White, and Blue. USA is where I built my company.
Looking at US Macro from the America’s Profit Cycle perspective, here’s the latest data dependent update:
- 288 of SP500 companies have reported aggregate year-over-year SALES and EPS growth of +6.3% and +7.8%, respectively
- 52 of the Nasdaq 100 have reported aggregate year-over-year SALES and EPS growth of +11.4% and +22.6%, respectively
- 651 of the Russell 2000 have reported aggregate year-over-year SALES and EPS growth of +6.9% and +10.2%, respectively
While there isn’t a 2017 growth or valuation bear on Wall Street who told you profit growth would be this good and they were still going to short this market the whole way up to a +28% YTD Nasdaq gain, this Earnings Season continues to deliver on the bulls’ expectations.
If you’re into buying dips and selling rips, from a Consensus Macro market positioning perspective, you’re best to be looking for longs in both the Nasdaq and Russell 2000. Here’s some hard data from a CFTC futures & options perspective:
- Nasdaq’s latest net LONG position is only +37,073 contracts which scores -1.34x on a 1-year z-score
- Russell 2000’s latest net SHORT position is still -1,495 contracts which scores +0.12x on a 1-year z-score
- The Dow latest net LONG position is still near its highs at +81,204 contracts which scores +1.12x on a 1-year z-core
As a reminder, we look at the standard deviation of the net long or short position relative to itself historically. That’s a much better way to gauge “sentiment” than going to an idea dinner. Positioning doesn’t lie; some people with performance problems do.
What’s super interesting about this net SHORT position in the Russell is that it’s effectively a bearish bet on interest rates (the Russell = 26% Financials) when one of the most consensus bets in all of macro is uber bullish on 2 and 5 year US Treasury yields!
Is the recent breakout in both Oil and bond yields a trick or a treat? While your answer to that question probably depends on your position, I’d rather just call 2 and 10 year UST Yields what they are right now – bullish TRENDs.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.31-2.48% (bullish)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 6 (bullish)
RMZ 1126-1158 (bearish)
VIX 9.36-11.75 (bearish)
USD 93.40-95.01 (bullish)
EUR/USD 1.15-1.17 (bearish)
Oil (WTI) 51.65-54.35 (bullish)
Gold 1 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
