Want to know how to play our U.S. growth and inflation slowing outlook for 4Q 2018 to 1Q 2019? Here are four videos, hosted by Hedgeye CEO Keith McCullough, explaining our call on growth and inflation along with the investing implications.
1. McCullough: What To Do When The Yield Curve Inverts
Did someone say slowdown? An important historical precedent is emerging which investors should keep a close eye on—it may be another signal that the U.S. is in the late stages of its current economic cycle. The yield spread between the U.S. Treasury 10-year and 2-year is getting tighter.
This yield spread just dropped to a “decisive” new low – and that is a key signal according to Hedgeye CEO Keith McCullough. Before every recession over the last 40 years, “the yield curve starts to compress, then it goes inverted,” McCullough explains in the clip above. “What’s happening right now is what happens every time. The market is starting to discount the cycle, and most importantly the end of inflation.” What should investors do when the curve starts to invert?
2. McCullough: Are We At Peak Tech Earnings?
It’s been another eye-popping earnings season in the second quarter of 2018. The Tech sector, in particular, has posted 35.6% year-over-year earnings growth so far. Is this as good as it gets for S&P 500 earnings? Probably, Hedgeye CEO Keith McCullough explains in the clip above. Simply put, it gets progressively more difficult to produce earnings growth that exceeds currently stratospheric levels.
As earnings have rebounded, the “comps” – the numbers against which earnings must exceed to show further growth – get progressively more difficult from here. “By this time next year the Tech sector is going to be comparing against 35%-plus,” McCullough explains. “You don’t have to have done macro for more than two days of a subscription to know that that is highly unlikely that earnings will look even remotely close to that kind of a number.”
3. McCullough: Get Inflation Right, You Get The Bond Market Right
Have exposure to the $40 trillion swirling around in the U.S. bond market? We thought so. Here’s a simple investing relationship to help you risk manage your bond exposure: Accurately forecast the rate-of-change in U.S. inflation, and you’ll be able to more easily predict the future direction of bond yields.
It’s a simple relationship to understand, but harder to forecast, according to Hedgeye CEO Keith McCullough. “The number one predictor of getting the bond market right is getting inflation right on a longer-term inflation expectations basis,” McCullough explains in the clip above.
4. McCullough: The #1 Thing Institutional Investors Are Asking Me Right Now
The most popular question Hedgeye CEO Keith McCullough has been asked in meetings with institutional investors recently? “What is the number one thing that changes credit spreads?” The answer is very simple: The cycle.
“When we start going towards Quad 4 (i.e. year-over-year Growth and Inflation starts slowing), people are really in tune with what we’re saying about the credit cycle,” McCullough explains in the clip above. As McCullough explains, a slowing U.S. economy is not going to be good for the $2.4 trillion in BBB-rated debt.
