Below is a chart and brief excerpt from today's Early Look written by Senior Macro analyst Darius Dale.
Imagine if you were one of the many investors that: A) chased the October 12th high thinking “Blue Wave” = $2+ TRILLION US DOLLARS in stimulus; B) sold last Friday’s lows thinking that we’ll never again see the word “TRILLION” in fiscal stimulus discussions; and C) chased yesterday’s highs on “Gridlock = great for stocks” expectations.
Man, that’s a lot of getting whipped around for my old knees and back to handle. Thankfully, no one paying for our research had to deal with all that PnL stress and associated emotional baggage. Nope, if all you did was proactively trade the @Hedgeye Risk Ranges and rising and falling probabilities of @Hedgeye Quad regimes throughout that entire process, you’re likely feeling #blessednotstressed this Friday morning.
On that note, the #1 reason stocks melted-up this week with broadening participation in beaten-down sectors and style factors is that the conditional probabilities of Quads 1 & 2 in 4Q20E went from a combined 5.1% last Friday to a combined 33.6% this morning. Neither regime is close to the modal outcome independently; that distinction still lies with Quad 3 at 33.8%. But it’s noteworthy given the slight improvement we’ve seen in our nowcast for Q4 GDP.