“Don’t quack like a duck, soar like an eagle!”
-Ken Blanchard
Wow was that an air attack last night. Philadelphia Eagles Quarterback, Nick Foles, got it done in style over my New England Patriots. Congrats to the Eagles faithful on their well-deserved first-ever Super Bowl win!
I’m actually on the train headed to Boston right now and expect to hear some serious quacking today. Whether people are complaining about finally having a US stock market correction or the Patriots loss, I’ll be empathetic to both plights.
It’s been 404 trading days since the SP500 corrected more than -3%. On the heels of the best January (SP500 +5.6%) since 1997, that was the longest streak going all the way back to 1928. What goes straight up, eventually comes down.
Back to the Global Macro Grind…
Is this the beginning of the end? Or is this the end of another correction? Calling tops is beyond my pay grade. If you’d like someone to do that for you, there are legions of guys who have been calling the alleged top for the last 20-30% of the move.
The easiest call for me to make this morning is to dive into the #process and do what we do for you every Macro Monday and contextualize last week’s market moves within intermediate-term @Hedgeye TRENDs.
On the heels of what I called US Dollar Exhaustion in the week prior, the US Dollar was up, barely, last week:
- US Dollar Index +0.1% week-over-week but it remains Bearish TREND @Hedgeye
- EUR/USD was +0.3% week-over-week and it remains Bullish TREND @Hedgeye
- Yen (vs. USD) corrected -1.4% week-over-week but is still Bullish TREND @Hedgeye
- Pound (vs. USD) was -0.3% week-over-week and remains Bullish TREND @Hedgeye
- Canadian Dollar (vs. USD) corrected -0.8% week-over-week and remains Bullish TREND @Hedgeye
Since 30 and 90-day inverse correlations between USD and most big things macro remains 80-95%, Dollar-Not-Down combined with Rates Up was not a good recipe for everything reflation (commodities) and/or stocks:
- CRB Index corrected -1.5% on the week but remains Bullish TREND @Hedgeye
- Oil (WTI) was -1.7% on the week but remains Bullish TREND @Hedgeye
- Natural Gas got tagged for a -9.8% loss last week and is back to Bearish TREND @Hedgeye
- Copper was -0.6% on the week and remains Bullish TREND @Hedgeye
- Silver was down another -5.3% on the week and remains Bearish TREND @Hedgeye
- Coffee dropped another -3.6% on the week and remains Bearish TREND @Hedgeye
So while it’s important to acknowledge what the bond market has since SEP 2017 (that growth and reflation were #accelerating, at the same time), remember that there is a reflexive reaction in market prices when both the data and rates get too hot.
Hot, like Nick Foles hot!
*Foles threw for 725 yards and 6 touch-downs in his last 2 games
How about them Eagles and this rates move?
- UST 2yr Yield was up another +3 basis points (bps) last week and is +26bps YTD = Bullish TREND @Hedgeye
- UST 10yr Yield was up another +17 basis points last week and is +43bps YTD = Bullish TREND @Hedgeye
- Yield Spread (10yr minus 2yr) was up +15bps last week and to +17bps YTD
With the Yield Curve STEEPENING another +3 basis points to +72 basis points wide this morning, I expect to hear crickets from the “yield curve is flattening” crowd in Beantown today. It’s at its steepest level going back to November.
Oh, and did I forget to recap what happened with stocks last week? C’mon man, I just wanted to keep you focused on the entire macro market picture instead of those 50-day moving monkeys:
- SP500 corrected -4.1% last week and remains Bullish TREND @Hedgeye (will register a buy signal < 2744)
- Nasdaq corrected -3.5% last week and remains Bullish TREND @Hedgeye (will register a buy signal < 7195)
- Russell 2000 corrected -3.8% last week and remains Bullish TREND @Hedgeye
I’m not going to tell you to buy the Russell 2000 AFTER reflation drove rates to immediate-term #overbought highs and ahead of what we think will be a subtle Reflation Rollover in headline inflation data in the coming months.
The Russell is A) smaller cap and B) more rate sensitive than the Nasdaq and Sector Styles we still like (Tech, Biotech, Consumer Discretionary), so that’s why I’ll focus on signaling BUY on ETFs like QQQ, IBB, and XLY this week in Real-Time Alerts.
Unlike the Reflation Sectors that got hammered to flat YTD, Consumer Discretionary (XLY) beat the market again last week:
- Energy Stocks (XLE) were down a big -6.5% last week to +0.3% YTD
- Basic Materials (XLB) were down -5.7% last week to +0.1% YTD
- Consumer Discretionary (XLY) was down -3.1% last week to +7.0% YTD
So while there’s been a healthy debate with our clients on timing Reflation’s Rollover Part II, there is no debate that the Sector Styles you might have been long on a Bullish Inflation view got smoked relative to real growth accelerating exposures last week.
The other thing that happened last week was the continued TRENDING under-performance of European Stocks vs. US Stocks:
- EuroStoxx 600 was down another -3.1% last week to DOWN -0.3% YTD
- London’s FTSE was down another -2.9% last week to DOWN -3.2% YTD
- Germany’s DAX was down another -4.2% last week to DOWN -1.0% YTD
Being DOWN in 2018 isn’t good. It’s not like I’m cherry picking European Indices like Denmark’s stock market that was down another -6.7% last week to DOWN -5.4% YTD either.
If you’re not used to having DOWN weeks, get used to having some (especially if equity volatility starts to TREND). While it may feel like the end of the world in New England and on Zero Edge this morning, we don’t make calls on how things “feel.”
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.61-2.85% (bullish)
SPX 2 (bullish)
NASDAQ 7195-7550 (bullish)
Biotech (IBB) 110-120 (bullish)
RMZ 1069-1120 (bearish)
DAX 129 (bearish)
VIX 9.20-18.99 (bearish)
USD 88.35-90.43 (bearish)
EUR/USD 1.22-1.25 (bullish)
YEN 108.01-110.80 (bullish)
GBP/USD 1.39-1.43 (bullish)
Oil (WTI) 63.43-66.44 (bullish)
Nat Gas 2.75-3.40 (bearish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
