"Tennis is mostly mental. You win or lose the match before you even go out there."
- Venus Williams
As it relates to excellence and mental preparedness, Venus Williams would know. She has 10 Grand Slam singles, 4 Olympic records, 49 WTA singles titles, and a singles’ win percentage north of 72% as a pro. Talk about excellence!
Venus' quote above also has parallels to investing. The most successful stock market operators are the ones that prepare and put in the work. But beyond that, they are also the most mentally disciplined.
Whether it is tennis, investing, or life; unforced errors (particularly of the mental type) are typically what negatively taint records and performance. Think about your own performance. What led to your most significant mistakes as an investor?
Below are few areas that classically lead to investing mistakes:
- Anchoring - Classically this occurs when investors overly focus on an initial reference point. As a result of this initial reference point, quite often new and more important information is ignored. Internally, we push our research team to constantly evaluate and weigh new information versus their initial reference, if the preponderance of the evidence changes so does the thesis and view of the stock.
- Overconfidence - This is probably one of the biggest errors we can make in a complex system like the stock market, overconfidence in our own abilities. In fact, a recent study showed that when 80% of analysts are certain that a stock will go up, it goes up about 40% of the time. At Hedgeye, we have our Trade/Trend/Tail rules-based model to combat over-confidence. When a stock breaks to bearish and is confirmed, we get out. (Incidentally, my biggest mistakes have come from overconfidence – getting too big in positions based on overconfidence.)
- Myopic Risk Aversion – As humans, we are naturally risk averse and this isn’t always a bad thing. But when it comes to investing, some prudent amount of risk is important particularly when maximizing longer term returns. Often, of course, many people sit in treasuries or cash because they are overly cautious about the short term. We developed the full cycle investing process to, hopefully, give people the confidence to be fully invested throughout the cycle.
Back to the Global Macro Grind…
The news of the day is related to regulators calling for a pause in the use of Johnson and Johnson’s one-shot vaccine regimen. In the U.S., six recipients have developed rare blood clot disorders out of 6.9MM recipients so far. Similarly, in the EU there have been 222 cases out of 34MM recipients.
We will leave the vaccine analysis to the experts, but as of now we don’t see any change to the thesis that the countries that are leading in vaccinations will see a stronger and more immediate economic recovery. This is most noteworthy in comparing the U.S. and U.K. versus the E.U.:
- U.K. has administered 60 doses per 100 people;
- U.S. has administered 57 doses per 100 people; and
- The E.U. has administered 22 doses per 100 people.
While global COVID-19 cases are going back towards the highs, the U.S. (admittedly seeing a surge in some areas) is at ~25% of prior highs and the U.K. is at ~10% of prior highs. Meanwhile in the E.U. cases are at much higher relative levels and we are seeing incremental lockdowns on the continent.
As it relates to the U.K., we can see this follow through from higher vaccines and much lower COVID-19 cases in retail spending. This morning the British Retail Consortium reported that total retail sales in March were 13.9% higher than March 2020 and 8.3% higher than March 2019. On a like-for-like basis these numbers were +20.3% and +8.4% respectively. So, the British recovery, on this metric, is more than comping easy comps.
The most noteworthy U.S. data out this morning (outside of the incoming CPI data) is the NFIB Small Business Confidence survey. The report this morning makes it 4 for 4 of business confidence surveys that have been rate of change positive in March. The forward outlook in this report jumped +11 points, hiring plans increased +4 points, and Jobs Hard to Fill hit an all-time high. If it wasn’t clear before, it should be now: businesses are getting more and more confident.
In the chart of the day, I’ve highlighted Household Growth Spending expectations 1-year ahead. This is a classic #Quad2 chart showing both year-over-year and sequential increases. The fact that expectations of household spending are at/near all-time levels shouldn’t be a surprise as stimmies get received, savings go up, employment and aggregate wage income accelerate, and revolving/credit card debt makes new lows.
The question as always is when does this accelerating economic data peak and roll over, we don’t have a strong view on that yet. But rest assured we will be measuring and mapping it daily, but for now business and consumer confidence is strong and accelerating. And as Vince Lombardi famously said:
“Confidence is contagious. So is lack of confidence.”
Indeed.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 1.63-1.78% (bullish)
UST 2yr Yield 0.13-0.19% (bullish)
SPX 4029-4187 (bullish)
RUT 2 (bullish)
NASDAQ 13,130-14,156 (bullish)
Tech (XLK) 134.60-144.60 (bullish)
Energy (XLE) 47.48-51.31 (bullish)
Financials (XLF) 33.92-35.69 (bullish)
Utilities (XLU) 63.16-65.55 (bearish)
Shanghai Comp 3 (bearish)
Nikkei 29151-30181 (bullish)
VIX 14.75-19.96 (bearish)
USD 91.62-93.12 (bearish)
EUR/USD 1.169-1.199 (bullish)
USD/YEN 109.01-110.93 (bullish)
GBP/USD 1.366-1.392 (bullish)
Oil (WTI) 58.13-62.38 (bullish)
Nat Gas 2.42-2.68 (bearish)
Gold 1 (bearish)
Copper 3.94-4.17 (bullish)
Silver 24.02-25.81 (bearish)
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research
