• Reality Check: Why The "Millennial Boom" Won’t Save The U.S. Economy

    World-renowned demographer Neil Howe explains why Wall Street’s optimists should prepare for a “grim” U.S. economic outlook. Read the report free.

“It’s hard to fight when the fight ain’t fair.”
-Taylor Swift

Back when we started Hedgeye in 2008, a relatively unknown artist by the name of Taylor Swift had her first song move into the Billboard Hot 100. The song was called “Change” and it was eventually picked as one of the theme songs for the 2008 Olympics.

You don’t rock out to Taylor Swift? C’mon now. My wife Laura and my edition of the McCullough Clan has four children and three of them are girls. They may love their tunes but none of them are taught to believe that things in life “ain’t fair.”

For the last 14 months, we’ve woken up in a divided America where nothing seems “fair” to many. Thankfully, I’ve had few concerns about that. Bull markets don’t die at a “fair value” or on someone’s political opinion. They stop going up when growth stops #accelerating.

Back to the Global Macro Grind…

One of the Top 3 Billboard Hits for this US Growth Investing bull run has been this thing called the Profit Cycle. After almost 2 years of a US profit (and capex which is born out of profits) #recession, this has been nothing short of an epic profit #acceleration.

Tech's Fair Fight - z earn

There isn’t a “valuation” bear on Wall Street who was calling for year-over-year Tech EPS growth of 20-25% while they were whining about Trump 14 months ago. Newsflash: Trump didn’t drive the Tech earnings cycle – negative year-over-year compares did!

As you can see in today’s Chart of The Day where we’re showing you the year-over-year SALES and EPS growth rates by SP500 Sector Style, by Q3 of 2017 year-over-year Tech earnings growth peaked at +23.7% growth.

How do we know that was the peak?

  1. We don’t, for sure, yet – anything can happen… and we are data dependent so we’ll change if the data does… but
  2. 65 of the 67 “Tech” companies in the SP500 have reported year-over-year EPS growth of +22.5%

So, unless the last 2 Tech companies jack the aggregate year-over-year growth rate over +23.7%, the current peak of the Tech Earnings Cycle may very well be in, baby!


  1. Base effects get materially “tougher” in the coming quarter
  2. For Q1 of 2018, Tech has to “comp” a +21.7% year-over-year growth rate

We’re in a different cycle than when she nailed it in 2008, but I’m working with Swift to come out with a timely US #GrowthSlowing song titled “These Comps Ain’t Fair.”

Especially if you’re a perma bull on Tech, there’s nothing that is going to feel fair about cycling that +23.7% year-over-year EPS growth comparison (comp) in Q3 of 2018.

My pending problem is that I’m still bullish on US Tech. Next to US Consumer Discretionary (XLY), Tech (XLK) remains one of my Top 3 Sector Style longs vs. US Bond Proxy Sectors (and European Equities) on the short side (REITS, Utes, Staples).

Why is it pending? My problems are always pending. If you don’t think about risk that way, risk will eventually think for you. For 2018 YTD, everything has gone swimmingly for dip-buyers of those two US Equity Sectors:

  1. Tech was up another +1.0% to +6.9% YTD yesterday
  2. Consumer Discretionary (XLY) was +1.2% to +5.7% yesterday

That’s why “Relative Value” PMs (people who buy things that are “cheaper” than other things because they don’t see the valuation gap as fair and/or sustainable) aren’t particularly happy about this US growth and profits #accelerating song.

The causal factors in that song won’t play in perpetuity. Mr. Market usually signals when the last guys and gals at the party are having less of a buzz-accelerating time. Mathematically speaking in sine-curve terms, we call these lower-highs.

And while I still “like” the NASDAQ, Tech, XLY, etc., with each passing day my quantitative signaling process is flashing more lower-highs. The time and space between now and Q1 Earnings Season starts to really narrow between now and April 2018 too.

Is that fair? In markets, everything is a fair fight. Every day you can change your positions and/or market outlook as the data changes. Your job isn’t to complain about that. It’s to embrace it.

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

UST 10yr Yield 2.80-2.95% (bullish)
SPX 2 (bullish)
RUT 1 (neutral)
NASDAQ 7140-7430 (bullish)
Biotech (IBB) 106-112 (bullish)
VIX 15.38-22.97 (bullish)
USD 89.10-91.21 (neutral)
Oil (WTI) 60.33-64.42 (bullish)
Copper 3.07-3.20 (bearish)
AAPL 170.17-180.99 (bullish)
AMZN 1 (bullish)
FB 173-186 (neutral)
GOOGL 1063-1110 (neutral)
NFLX 274-322 (bullish)
TSLA 321-361 (bearish) 

Best of luck out there today,


Keith R. McCullough
Chief Executive Officer

Tech's Fair Fight - 03.06.18 EL Chart