“Some are born great, some achieve greatness, and some have greatness thrust upon them.”
-William Shakespeare
And some of us are just data dependent with a great cartoonist…
That classic quote comes from Shakespeare’s Twelfth Night where everyone seems to fall in love with everyone. I don’t fall in love with economic data, but I can empathize with how one might after a record 8 straight quarters of US GDP #GrowthAccelerating.
The post “globally synchronized recovery” and post US Tax Reform #acceleration in US Earnings Growth has achieved a measure of historical greatness as well. As we move towards 2019, It will be increasingly difficult not to slow against these epic comparisons.
Back to the Global Macro Grind…
“To be, or not to be”… They have been great. Earnings, that is.
Here’s your real-time rate of change update on that front (Q2 of 2018 Earnings Season data):
- 418 of the SP500’s companies have reported aggregate year-over-year Earnings Growth of +25.2%
- 56 of 71 Tech companies in the SP500 have reported aggregate year-over-year Earnings Growth of +37.3%
- 76 of the NASDAQ 100 companies have reported aggregate year-over-year Earnings Growth of +35.2%
- 26 of the Dow’s 30 companies have reported aggregate year-over-year Earnings Growth of +27.1%
- 1244 of the Russell 2000’s companies have reported aggregate year-over-year Earnings Growth of +27.9%
Incredibly epic and huge, really.
But, did you know, that Q2 of 2018 was the last easy comparison for US Earnings growth? If you know your time-series history, you’ll recall that even US Tech Earnings (SP500) were NEGATIVE on a year-over-year basis in Q2 of 2016.
You’ll also recall that:
- Q2 of 2016 marked the low of the mid-cycle US GDP slow-down at +1.3% y/y … and
- Q2/Q3 of 2016 market the all-time lows in the US 10yr Treasury Yield
I know. What we know we should know is still surprising when we look back.
Imagine we look back at Q2 of 2018 (we’re almost midway through Q3 btw) and it was the peak of both the GDP and Earnings Cycle? You don’t have to imagine dragons or anything spectacularly complex to get there.
The UST 10yr Yield’s YTD high was in Q2 too, don’t forget. I also don’t want you to forget what’s happened every time US Equity Market Volatility (front-month VIX) has dropped below 12 in 2018.
Call it complacency by the bulls and/or capitulation by the bears. It’s easy to see both AFTER the US stock market rallies towards all-time highs. Here’s another way that we’re constantly contextualizing complacency and/or capitulation:
- As you can see in today’s Chart of The Day, we’re measuring and mapping @Hedgeye Volatility Metrics
- Implied vs. Realized Volatility (30-day) has generally mapped towards implied volatility DISCOUNTS post equity market ramps
- SP500, NASDAQ, and Russell 2000 all currently have implied vol DISCOUNTS of -4% to -13%
Digging into the sub-sector exposures and some widely held stocks:
- Implied Volatility (vs. 30-day realized) in Tech (XLK) has gone from a +125% PREMIUM to a -14% DISCOUNT in the last 2 weeks
- Facebook’s (FB) Implied Volatility DISCOUNT has been smashed to -66% (post its bounce after crashing)
- Apple’s Implied Volatility DISCOUNT has dropped to -30% (post its epic ramp)
If you’re not into talking about PREMIUMS vs. DISCOUNTS, the simplest way to summarize why this is happening is that people are forced to chase last price. AFTER Facebook (FB) got smoked, the world bid up FAANG and Tech protection, big time.
Then, AFTER Apple (AAPL) didn’t get smoked, all of those risk PREMIUMs reversed and follow through buying of the bounce in Tech perpetuated the eye-twitching DISCOUNTS you’re looking at this morning.
I haven’t shorted Tech (XLK) in over 2 years. But now I’m getting ready to. Timing matters.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.89-3.00% (neutral)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 7 (bullish)
VIX 10.75-14.32 (neutral)
USD 94.01-95.40 (bullish)
Oil (WTI) 67.43-70.30 (bullish)
AAPL 198.47-213.76 (bullish)
FB 150-191 (bearish)
NFLX 325-366 (bearish)
TSLA 270-359 (bearish)
Bitcoin 6 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
