Below is a chart and brief excerpt from today's Early Look written by Hedgeye Director of Research Daryl Jones.
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In his quarterly themes deck yesterday, our Industrials Sector head Jay Van Sciver addressed false narratives head on with this: "We think the size of ESG has led to more inflows targeting an insufficiently large investment universe. That, combined with less traditional/retail trading, has led to tremendous gains for naïve, counterintuitive strategies. That NKLA’s shares are still above their SPAC offering price and BLNK, PLUG, and BTC have soared to absurd prices signals, to us, untethered valuations chasing idiotic stories. That said, fighting the froth is likely to prove unrewarding as the economy reaccelerates amid renewed stimulus and inflationary concerns (Quad 2). Instead, we are looking for industries & names with exposure to strong narratives that are, so far, underrecognized. Our newer, favored shorts tend to have more ‘staples’ character, with muted/negative exposure to the post-pandemic recovery.” His point is simply that whether a narrative is true and based in facts or, if it may not matter so much if it false in certain market periods. But, to be sure, there are also economic fundamentals at play driving many of these “stories”. In part, there is economic growth that is underlying much of this. As we highlight in the Chart of the Day, we are likely to see year-over-year economic growth that is near 70-year highs in Q1 and to some extent in Q2 of 2021. While this growth comes on the back of easy COVID comps, that acceleration is still real and buoyed by the free monies of central banks. |
