4Q18 concludes the 10th consecutive year in which we have been publishing our quarterly investment themes, which are three top-down catalysts our models suggest are increasingly likely to drive investment returns that our proprietary sentiment indicators suggest investors are not yet broadly positioned for. All year, we’ve prospectively and accurately identified the various investable pivots in growth, inflation and policy – both domestically and internationally – and look to summon those same repeatable processes in order to help our clients generate incremental alpha in the fourth quarter.
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4Q18 Macro Themes:
- #Quad4: After a likely nine consecutive quarters of accelerating economic growth domestically, investor consensus is positioned for the so called “fiscal impulse” to perpetuate further upside. Unfortunately for new-wave U.S. equity and credit bulls, our proprietary GIP Model is suggesting the now-record acceleration in U.S. growth (and inflation) that we prospectively and accurately identified two years ago is coming to an abrupt end. In the presentation we shall detail the catalysts for the aforementioned inflections and the associated investment implications – not the least of which is an anticipated upside capitulation in the U.S. Dollar.
- #CyclicalPeaks: Two of the most underappreciated risks heading into Q4 of 2018 among investor consensus are the cyclical peaks in corporate profit growth and corporate profit margins – both of which have important sector and style factor implications. We’ll detail why investors would do well to adopt a defensive posture with respect to their respective portfolios as the associated rotation out of the domestic Momentum, High Beta, and Growth style factors could be quite violent given current positioning.
- #LongHousing: #Quad4 represents a macro environment typically characterized by falling rates, a more dovish policy lean and outperformance in defensive yield and select interest rate sensitive equities, including Housing. Unprecedented late-cycle fiscal stimulus has cultivated an interesting, somewhat anomalous macro condition set as it elevates the prospects for further acceleration in wage inflation and the potential for households to see improved consumption capacity at the same that both headline growth and inflation are slowing and yields are making lower highs. It’s within this broader setup and against a backdrop of significant 2018 underperformance that we’ll explore a contrarian long position in Housing.
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As always, our prepared remarks will be followed by a live, anonymous Q&A session. Please submit your questions to . Also, for those of you who cannot join us live, we will be distributing a replay video of the presentation shortly after it concludes.
-The Hedgeye Macro Team