Editor's Note: Below is an excerpt and chart from today's Early Look written by Hedgeye U.S. Macro Analyst Christian Drake.
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Think about it like this. Trump tweets are the weather. The GIP model (Quad 4, currently) defines the climate. And betting on the path of the climate is always better than guessing whether it may rain next Tuesday. Sector and style factor performance QTD agrees, as does the consistency of backtested performance. That said, active risk management is about helping you not get wet if it’s raining today. This morning’s Jobs data for October should show sequential strength as we comp last month’s hurricane distortion and as weather distortions from last year provide favorable base effects for earnings growth ….. which should see an acceleration to a new cycle high, confirming the higher cycle high in ECI Salary and Wage growth for 3Q18 reported on Wednesday. The call remains Wage Growth up, Broader Inflation down over the nearer-term. If late-cycle WageAcceleration is hawkish enough this morning, that may get yields to the top end of the 3.03-3.24% risk range and an attractive re-entry point for a quintessential Quad 4 exposure, fixed income. Climate is what you expect, weather is what you get. The GIP model defines the former, the quantitative overlay helps you risk management the latter. |
