On Friday, we held a live webcast of our quarterly investment themes, which are three top-down catalysts our models indicate are increasingly likely to drive returns that our proprietary sentiment indicators suggest investors are not yet broadly positioned for. 2018 was indeed a banner year for our team in terms of helping our clients proactively prepare for each of the major shifts in the investment landscape. And with The Machine operating as ruthlessly and efficiently as it ever has, the need for investors to have the right Macro Risk Management overlay has never been more important.
CLICK HERE to access a replay of the webcast and associated slides.
1Q19 Macro Themes:
- Quad 4, Then Quad 3: Amid the carnage associated with Quad 4 In Q4, buyside consensus remained hopeful that popular longs (read: “secular growers”) were presenting investors with generational buying opportunities in key names. On the contrary, our model continues to signal the next economic phase transition is unlikely to rotate back to the Quad 1/2 environment that supported those positions, but rather to a more stagflationary environment that is typically characterized by multiple compression and the outperformance of inflation hedges. In the presentation, we’ll detail the aforementioned transition, as well as how it is likely to impact asset markets in both relative and absolute performance terms.
- Earnings vs. Credit Cycle: What are credit markets signaling (e.g. new YTD wides in OAS for both IG and HY) that the equity market has not over the past few trading days of December? Simply put, we think the former market is sniffing out an ongoing deterioration of the outlook for corporate profits. In the presentation, we’ll detail each of the key risk factors driving corporate profits lower over the NTM. The risk of a corporate profit recession – as shallow as it may be – is not immaterial.
- Long Ideas: Housing, Gold, etc.: Implicit in our multi-quarter Quad 4 view is an expectation for a more discrete dovish pivot out of the Federal Reserve, which may lead to a further decline in interest rates and an eventual cessation of trending US dollar strength. In the presentation, we’ll detail the likely impact of that catalyst – namely continued outperformance of gold/gold miners, as well as the homebuilders. EM may start to signal a bottom in that scenario as well.
As always, if you have any follow-up questions, please feel free to email the team.
-The Hedgeye Macro Team