Make no mistake, we are now at a critical turning point in the markets.
In case you didn’t already know, after (correctly) calling the U.S. stock market’s epic move higher, and advising our subscribers to get long all along the way, we have become much more bearish on the U.S. stock market.
The reason for our bearishness has everything to do with our outlook for a slowing U.S. economy.
So, in the spirit of “Throwback Thursday” we’re revisiting an important change we made back in 2016:
Our BEARISH-to-BULLISH investing pivot.
There’s an important investing lesson here which explains why we’re more bearish again today.
Below is complimentary access to a critical note written by our Senior Macro analyst Darius Dale on December 7, 2016.
Is It Early-Cycle, Late-Cycle Or Does the Cycle Not Even Matter Anymore?
In that note, Darius concluded:
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"A slew of recent economic developments have been supportive of the view that the current economic expansion has plenty of room to run… This has positive implications for equity beta and credit markets.” |
If you read this note, you will have a much better understanding of how we go about measuring and mapping the U.S. economic cycle.
Here’s the backstory…
Wall Street missed the mid-cycle economic slowdown from 1Q 2015 to 2Q 2016.
We did not.
- We were bullish on long-term bonds. As U.S. growth slowed, the 10-year yield fell to all-time lows.
- We were bearish on stocks. The Russell 2000 crashed -28% from its 2015 highs to its 2016 lows.
While we overstayed our welcome on long-term bonds in 2016, we made the important pivot to long U.S. equities in November ahead of the massive market move.
The S&P 500 is up more than 20% since then. As the U.S. economy rebounded, our GDP estimates were the highest on Wall Street for 5 consecutive quarters.
We were right.
That’s the key point about our repeatable risk management process:
We don’t nail absolutely everything. But we don’t miss the big market moves.
What Does This Mean For Our Call TODAY?
We’re getting more bearish.
Why?
- Our predictive tracking algorithm is mapping a peak in year-over-year U.S. growth into the back half of 2018.
- Our quantitative “Risk Ranges” continue to signal lower-highs for the S&P 500.
- We’re modeling a slowdown in the global economy in 2018.
We encourage you to read Senior Macro analyst Darius Dale's research note from 12/7/2016.
It will illuminate our research process…
Happy Thursday!
