Not Now, Or Not Ever?

“No, we don’t do that, not now, not ever. Please don’t call us again. Period.”
-Paul Brown

That’s what the legendary NFL football coach told Ernie Adams in response to his application to join the Cincinnati Bengals coaching staff as a kid out of college who’d never played the game.

For those of you who don’t know who Adams ultimately became, he’s Bill Belichick’s long-time coaching partner and currently the Director of Research for the New England Patriots. Those two guys definitely have a #process.

For some in this game, the process isn’t to buy “expensive stocks.” Not now, not ever. That’s totally cool with me. But that doesn’t mean they don’t continue to miss “expensive” getting more expensive as growth continues to accelerate.

 

Back to the Global Macro Grind…

For those of you who are new to reading my rants, today is what we call Macro Monday. It’s the day where I contextualize last week’s Global Macro moves within the context of intermediate-term TREND views @Hedgeye.

In the USA, Week 1 of the 2018 season was a beauty for both growth and reflation:

1. Energy Stocks (XLE) led the charge +3.8% on the week and remain Bullish TREND @Hedgeye
2. Tech Stocks (XLK) were right on Energy’s heels +3.7% on the week and remain Bullish TREND @Hedgeye
3. Consumer Discretionary Stocks (XLY) were up a solid +3.1% on the week and remain Bullish TREND @Hedgeye

Since Tech (XLK) and Consumer Discretionary (XLY) are currently in my Top 3 Sector over-weights (alongside Biotech), I was happy with the start to the season on the long side. The short side was pretty tasty too:

1. Utilities (XLU) led losers down -2.6% on the week and remain Bearish TREND @Hedgeye
2. Consumer Staples (XLP) were only +0.1% on the week and remain Bearish TREND @Hedgeye
3. REITS (MSCI Index) were down another -2.3% on the week and are back to Bearish TREND @Hedgeye

I’m not short REITS but, thankfully, my risk management signaling #process had me sell what I had as an initial trading long position (in Real-Time Alerts) a few weeks ago. That sell signal was driven by Oil breaking out > $60/barrel on WTI.

REITS (especially those that are business cycle sensitive like certain hotel REITS, for example) will be one of the 1^st sectors I look to buy when A) Reflation tones down in rate of change terms and/or B) UST 10yr Yield taps the top-end of the @Hedgeye Risk Range.

Being long anything reflation and/or growth crushed being long Treasury Bonds and/or bond proxies last week. That makes sense given what Mr. Market priced into Reflation Expectations last week:

A) Oil (WTI) was up another +1.7% last week and remains Bullish TREND @Hedgeye
B) Inflation Break-evens (5yr 5-year Break-even Yield) were up +4 basis points last week to +2.03%
C) 2yr UST Yield was up another +8 basis points last week to 1.96% and remains Bullish TREND @Hedgeye 

Despite a meh US Wage Inflation growth rate of +2.5% year-over-year in Friday’s US jobs report, the UST 10yr Yield was still +7 basis points last week as well. My view on both the short and long-end of the yield curve remains Bullish TREND @Hedgeye too.

That said, as I explained in our Q1 Global Macro Themes call, I’m expecting both:

1. Reported (headline) Inflation
2. Long-term (10yr) UST Yields

To make a series of lower-highs vs. Reflation’s Peak of Q1 2017. Especially with inflation expectations (fully loaded with asset class pricing reflated) having moved higher, I think even a subtle Reflation Rollover could really matter from here. So stay tuned on that.

In the meantime, it was rip-roaring fun across most Global Equity indices last week as many of them love it when growth and reflation go up, at the same time:

1. SP500 was +2.6% on the week and remains Bullish TREND @Hedgeye
2. Nasdaq was +3.4% on the week and remains Bullish TREND @Hedgeye
3. EuroStoxx600 was +2.1% on the week and is back to Bullish TREND @Hedgeye
4. Germany’s DAX was +3.1% on the week and is back to Bullish TREND @Hedgeye
5. Nikkei225 was +4.2% on the week and remains Bullish TREND @Hedgeye
6. EM (MSCI Index) was +3.7% on the week and remains Bullish TREND @Hedgeye
7. The Russian Trading System Index (RTSI) was +5.7% breaking out to Bullish TREND @Hedgeye

And 2017 US Stock market bears wonder why US Equity Volatility remains in crash mode (VIX down -17% in Week 1 of 2018)…

Finally from a US Equity Style Factor perspective:

1. LOW DEBT (to EV) started 2018 off +2.8% on the week
2. Top 25% SALES Growers were +2.7% on the week
3. HIGH BETA Stocks were +2.6% on the week
   *Mean performance of Top Quartile vs. Bottom Quartile, SP500 Companies

Not long high quality companies (good balance sheets) with high sales growth rates and some beta? Not now, or not ever? Or just waiting for the same “correction” that most US growth bears now have to buy alongside the bulls buying more anyway?

With the Nasdaq and SP500 signaling immediate-term #overbought, this morning isn’t the time to be buying. There were plenty of “correction” days in December where we signaled to buy the damn dip.  I look forward to signaling the same on the next #oversold one.

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

UST 10yr Yield 2.40-2.50% (bullish)
SPX 2 (bullish)
NASDAQ 6 (bullish)
Biotech (IBB) 107-111 (bullish)
Nikkei 224 (bullish)
DAX 122 (bullish)
VIX 8.70--10.36 (bearish)
USD 91.25-93.04 (bearish)
Oil (WTI) 58.41-62.55 (bullish)
Copper 3.17-3.32 (bullish)

Best of luck out there this week,
KM 

Keith R. McCullough
Chief Executive Officer