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Our macro team hosted their big, quarterly "Macro Themes" presentation last week. It was unusually important for cyclicals.
We’ve been seeing weakness in basically every sensitive series we track, with a big part of the problem stemming from mid-2018 being an impossibly hard compare. The critical takeaways for Industrials and Materials?
Heading into 2Q19 earnings season, a quarter in which industrial activity decelerated markedly, don’t expect companies to say great things about the 3Q19 set-up.
If anything, cyclicals seem late in responding to the weakness in indicators like freight traffic, PMIs/ISM indices, and equipment orders.
In our experience, share price respond to the outlook more than the print from the trailing quarter. It may yet get hot this summer, but the benefit from a weaker currency will likely come through on a long lag.
For names like Deere (DE) and Cummins (CMI), where industrial optimism remains fairly high, the macro tide can often have a surprisingly strong effect.