This Friday we'll get a critical first read on 2Q 2018 U.S. GDP.
Our models continue to suggest this report will be the eighth consecutive quarter of year-over-year GDP growth. If we are correct, this would be an unprecedented, record-breaking streak of #GrowthAccelerating.
From there, our outlook looks increasingly less sanguine. We see U.S. #GrowthSlowing from 3Q 2018 to 1Q 2019.
Obviously, front-running inflection points in the rates of change for both growth and inflation is how investors capture macro research alpha. Still, getting too far ahead of these rates of change is a recipe for leaving alpha on the table.
So how do we thread the needle? Be patient. Continue the exercise of diligently measuring and mapping that data. Tops are processes, not points.
Below is complimentary access to a recent Early Look (our daily financial market newsletter) written by Senior Macro analyst Darius Dale:
Any investor looking to “survive” 2H18E should be proactively preparing their portfolio for #Quad4, both domestically and globally, at the margins. For those of you who are relatively new to our work, #Quad4 is the GIP Model quadrant whereby growth and inflation are decelerating, concomitantly, on a trending basis. It’s also the quadrant where Mr. Market tattoos investors who enter #Quad4 too long of pro-cyclical exposures.
Were NFLX (-5.2% yesterday), with its domestic subscriber adds miss and poor int’l subscriber guidance, OMC (-9.5%), with all its organic growth issues, and FHN (-4.0%), with its weak fee income and loan growth, all one-offs? Perhaps they were. But perhaps they weren’t. From our vantage point, the fact that core business trends in each were deteriorating or, at the very least, materially worse than expected at The Cycle Peak in domestic economic growth is extremely noteworthy.
Does that mean everyone should run out to sell down their exposure to risk assets at every price? Absolutely not. Tops, like bottoms, are processes not points...
What proactively preparing your portfolio for #Quad4 does mean, however, is that you should be stress-testing each of your holdings for a ~150bps slowdown in nominal GDP growth domestically and a ~75bps slowdown in nominal GDP growth globally over the next three quarters because that’s what our latest forecasts imply. It’s also means you should be diligently sequencing economic and financial market data to confirm or disconfirm our model’s base-case scenario.