• [WEBCAST] Mega Market Trends: Risk Is Rising → Here’s Our Investing Playbook

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Editor's Note: Below is a complimentary Early Look written by CEO Keith McCullough on 10/11/18. Click here to learn more about the Early Look.

Early Look (Free): An Investing Playbook for U.S. #GrowthSlowing - quad4

Was the timing of Quad 4 in Q4 crazy? Trump says the Fed has “gone crazy.” Is Powell crazy? Or is Donald crazy? If we continue to be right on both Global and Local Quad 4, Trump might be right (i.e. the Fed is too tight) for the wrong reasons. 

Back to the Global Macro Grind… 

Early Look (Free): An Investing Playbook for U.S. #GrowthSlowing - Bull SCREAM 01.06.2015

There really aren’t many words for me to write this morning. There are lots of numbers though. That’s what our call for Quad 4 in Q4 was always about – not Tariffs, Tweets, or Trump – just the rate of change numbers. 

You’ll probably believe this, as it is human nature post a jarring move in one’s portfolio, but the #1 question in my inbox intraday and post market close yesterday was “what do you think happens next?” 

A: Quad 4 

Being right on short-term market timing doesn’t change my view of the timing of the economic cycle. The only thing Mr. Market did yesterday was reiterate what we think is the most probable economic and market outcome in the US in Q4 of 2018. 

And that’s that the rates of change for both US GROWTH and INFLATION are going to slow in Q4 of 2018. 

Yep, that’s what Quad 4 is locally. And if you haven’t seen it manifest globally this year, you may not have an internet connection and/or live quotes. If you’ve been on a 10 month vacation off the grid, here’s the recap: 

  1. China Slowing
  2. Europe Slowing
  3. Emerging Markets Slowing 

Got stock markets #crashing on that? 

  1. Chinese stocks down another -5.2% overnight taking their #crash since JAN to -27.4%
  2. Greek and Italian stocks hammered again this morning, crashing -30.1% and -20.8% from their 2018 highs
  3. In the last 6 months alone, Turkey’s stock market is down -43.1% and South Africa’s is down -29.5% 

So… almost 100% of our existing and prospective clients agreed to agree on China, Europe, and EM #slowing, after they slowed. But how many agreed with the call that the probability was rising that they’d slow before it was obvious that they were slowing? 

Some did. Some didn’t. Sometimes it takes Quad 4 hitting you in the PnL for it to make sense. 

As a reminder, the Top 3 Factor Exposures we told you to get out of 3 weeks ago in our Q4 Macro Themes presentation (slide 70) are: 

  1. Momentum
  2. High Beta
  3. Tech Stocks 

Q: Why were we talking about Style Factor Returns in Quad 4?

A: Playing Quad 4 with Style Factor Construction has historically created higher dispersion return streams than anything else 

For your friends who don’t subscribe to this risk management #process of making timely pivots in portfolio construction, you probably shouldn’t forward this to them. You get paid to beat what they are doing in their portfolio, don’t forget. 

Whether it’s a long/short or long-only portfolio that has underweights and overweights at both the Sector and Factor levels, you can really look good relative to the consensus crowd of PMs whining that “no one could see” this Quad 4 Hurricane coming. 

This morning’s Early Look should be the shortest of the year. The ones preceding it were much more important as they were proactively preparing you for what happened yesterday. As for what to do from here? Crazy answer, I know: Quad 4. 

Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets are now): 

UST 10yr Yield 2.98-3.28% (bullish)
SPX 2764-2888 (bearish)
RUT 1543-1675 (bearish)
NASDAQ 7268-7853 (bearish)
Utilities (XLU) 51.75-54.69 (bullish)
Industrials (XLI) 74.13-78.55 (bearish)
Shanghai Comp 2542-2775 (bearish)
DAX 11498-12197 (bearish)
VIX 13.50-24.77 (bullish)
USD 94.25-96.00 (bullish)
Gold 1179-1211 (bearish)
Copper 2.68-2.85 (bearish)
AMZN 1686-1914 (bearish)
FB 149-163 (bearish)
GOOGL 1060-1182 (bearish)
NFLX 311-356 (bearish)
TSLA 216-288 (bearish)
Bitcoin 6244-6671 (bearish) 

Best of luck out there today,


Keith R. McCullough
Chief Executive Officer

Early Look (Free): An Investing Playbook for U.S. #GrowthSlowing - 10.11.18 EL Chart