U.S. economic data has been accelerating. European economic data has been slowing.
These two simple facts are driving financial market returns this year. The S&P 500 is up 6% year-to-date. The Euro Stoxx 600 is down -3.7% this year.
Now just look at the economic data. While the U.S. continues to post ISM and PMI numbers around 60, European country PMI and ISM readings have been trending closer and closer towards 50. ISM and PMI data are based on surveys and, by this methodology, readings below the 50 mark are considered contractionary. Hedgeye CEO Keith McCullough calls this 50 level the “shark line,” because the financial markets of economies that dip below this line tend to get “crushed.”
“If you’re around 45 on a PMI or an ISM, basically the shark has eaten you,” McCullough explains in the clip above. “And a lot of these numbers, particularly Latin American, European and Chinese numbers, have nowhere to go but down. The U.S., on the ISM number, looks dramatically better than things in China, Europe and Latin America.”
Watch the full clip above for more.
