“Anyone who is popular is bound to be disliked.”
-Yogi Berra
That’s one way to think about popularity. Another one is that “it’s much safer to say that popularity sucks, because that allows you to forgive yourself if you suck.” –Cameron Crowe
Either way, I’m not big on sucking. I don’t particularly care if I am disliked either. I didn’t like the book where the aforementioned quotes (NY Times fav titled Popular, by Mitch Prinstein) came from. So I stopped reading it.
Unfortunately (for money managers who have been bearish on both US growth and stocks since NOV 2016), sucking performance is not a perpetual option. As a result, this is the part of a raging bull market that becomes popular to chase. It’s existential, baby!
Back to the Global Macro Grind…
Does performance matter? Obviously we’re expected to understand (and forecast) what’s driving it. In order to do that, our job is to measure and map the rates of change in big fundamental research factors like growth, inflation, and profits.
On US GDP growth, here’s the latest @Hedgeye Predictive Tracking Algorithm update (post the 37 month high in US Industrial Production growth of +3.6% year-over-year in DEC17):
- Q417 year-over-year US GDP Growth = new cycle high of +2.70%
- Q417 q/q SAAR US GDP Growth = new headline high of +3.31%
That +3.31% forecast stands in stark contrast to a rising consensus Bloomberg forecast of +2.7%. The river card will be reported on Friday. If we continue to be right on GDP, that will be the 3rd straight quarter of headline GDP growth with a +3% handle.
On the US profit cycle, here’s your Q4 of 2017 Earnings Season to-date update:
- 56 of 500 S&P500 Companies have reported so far
- Aggregate SALES growth = +7.9% year-over-year
- Aggregate EPS growth = +14.0% year-over-year
How many guys/gals who were bearish on “valuation” at the lows of the profit cycle (Q2 of 2016) were using the right SALES and EPS numbers 1-year forward? A: Zero Edge.
If you’ve been buying every damn dip in US SALES and EPS GROWTH as Style Factors, you are probably long something like the Nasdaq and Russell right now. Here are the EPS updates on both:
A) Nasdaq Q417 aggregate year-over-year EPS growth is running +83%
B) Russell 2000 aggregate Q417 year-over-year EPS growth is running +22%
That’s what happens when you have GROWTH and REFLATION (yes, I’m going all caps on bears now) accelerating, at the same time, like you’ve seen since the SEP 2017 breakout in Oil.
Oil Up = Reflation + Rates Up. “Groovy, baby!” -Austin Powers
Austin Powers, International Man of Mystery is 1997, baby! That’s when “valuation bears” shorted the US stock market at a lower P/E “multiple” than we have today and… 1 is history (see Chart of The Day for details).
So now what? Should we just blindly chase stocks after they ramp? Or should we go back in time and study why buying the damn dips in December of both 2016 and 2017 worked?
That’s really up to you. As for me, I know I’m not popular on the Old Wall. That’s not my goal. But at least I’m more popular than buying this market has been. I realize that’s a low bar to beat. But maybe I should get some kind of a sticker for that?
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.50-2.67% (bullish)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 7 (bullish)
Biotech (IBB) 111-116 (bullish)
XOP 38.20-39.99 (bullish)
RMZ 1085-1125 (bearish)
Nikkei 231 (bullish)
DAX 132 (bullish)
VIX 9.14-12.55 (bearish)
USD 89.25-92.51 (bearish)
EUR/USD 1.20-1.23 (bullish)
Oil (WTI) 61.25-64.51 (bullish)
Nat Gas 2.85-3.37 (bullish)
Gold 1 (bullish)
Copper 3.14-3.21 (neutral)
AAPL 174.40-180.69 (bullish)
AMZN 1 (bullish)
FB 177-192 (bullish)
GOOGL 1101-1171 (bullish)
NFLX 219-260 (bullish)
TSLA 329-355 (neutral)
Bitcoin 9103-13238 (neutral)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
