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May 31 9 tweets 3 min read Twitter logo Read on Twitter
1. Through April, our systems place Real GDP growth at 1.37% versus one year prior. Below, we show our monthly estimates of Real GDP relative to the official data: Image
2. Below, we show the weighted contributions to the most recent one-month change in real GDP, along with the recent history of month-on-month GDP. Additionally, we show the contribution by sector to monthly GDP in the table below. Image
3. April saw an improvement in investment activity, contributing significantly to GDP data. Combined with our inflation estimates, this place nominal GDP at 5.31% versus one year prior: Image
4. Overall, this picture does not look like one where inflationary pressures have cooled adequately for the Fed to begin the easing of monetary policy.
5. Against this backdrop, markets continue to be indecisive about their pricing of nominal growth conditions, which remain roughly unchanged (though somewhat recomposed, with a bias towards higher real growth vs. inflation). Image
6. This contextual understanding is extremely important for bonds. Especially, following the mixed reading we are getting from the bond trend factors (across both, the weekly asset class signal as well as the daily ETF signals). ImageImage
7. Markets continue to discount aggressive monetary policy easing by the Federal Reserve— only to be disappointed as data emerges to suggest this is unlikely. This sustained pattern in markets continues to create mixed trend readings in bonds.
8. The next likely sustained trend in bonds (if any) will be when bond market discounting aligns with the fundamental economic picture.
9. Said differently, the next sustained trend in bonds is likely to be if we begin to see recessionary conditions that force the Federal Reserve to cut interest rates more than currently discounted.

However, it doesn’t look like we will get there in the very near term.

#bonds

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More from @prometheusmacro

Jun 1
Disinflation requires a Recession, but we are not there yet 🧵

1. Economic #cycles generally follow cause-and-effect templates, and this cycle has followed the archetype, albeit with its unique twists.
2. As an economic expansion ages, the ability for output to accelerate begins to stall as the economy runs up on capacity constraints in the form of production and labor limitations.
3. However, if nominal growth remains strong relative to debt service burdens, credit and income can support employment and production to remain faster than population growth and production capacity.
Read 14 tweets
Jun 1
Resilient US Consumer 🧵

1. In April, households saw incomes increase as employment and inflation contributed to nominal incomes. Alongside this increase in employment income, we also saw continued support from income on assets total incomes. Below we show the composition: Image
2. Personal income increased by 0.36% in April, disappointing consensus expectations of 0.4%. This print contributed to a sequential deceleration in the quarterly trend relative to the yearly trend.
3. The primary drivers of this print were Employee Compensation (0.6%) & Income on Assets (0.25%). Over the last year, Employee Compensation (3.36%), Rental Income (0.5%), & Income on Assets (0.96%). have been the primary sources of the 5.43% growth in income.
Read 18 tweets
May 31
🧵 Our Thoughts On $SPY :

1. Over May, the S&P 500 rose 0.87%, primarily driven by valuations. Earnings expectations & valuations contributed 0.13% & 0.74% to the 0.87% rise in markets. Below, we show the sequential evolution of market prices, along a decomposition: Image
2. Over the last year, the S&P 500 has been dominantly driven by valuations, with total returns rising by 1.03%. We show cumulative returns on the S&P 500 over the last year, decomposed into earnings expectations and valuations: Image
3. We further decompose these yearly returns into their sector contributions. We begin by showing the primary drivers of the S&P 500. We show the top three drivers in blue (Technology, Financials, Industrials) & the bottom three in red (Consumer Disc., Healthcare, Energy): Image
Read 14 tweets
May 31
Weekly Recap

Do not worry in case you missed out on any action from @prometheusmacro last week. Below we pen down all the key takeaways & opinion threads that were shared with the wider community. Make sure to #SubscribeToday so that you don't miss any of the updates.
1. We introduced the 'Prometheus Daily Trend Signals' to share the latest trend updates for all 37 ETFs across four asset classes daily.

2. Next, we presented a first glimpse of the Cyclical Rotation Strategy for Equities.

Read 9 tweets
May 30
On Wages, Profits & Interest Expense

1. The current macroeconomic picture remains where heightened nominal demand continues to press against the economy's capacity constraints, creating heightened inflation. Image
2. We think these dynamics will
likely be resolved through the Fed's tightening cycle by raising interest burdens in the economy relative to incomes, creating pressure on profitability for companies, and leading to an eventual lay-off of
workers.
3. Therefore, the key to understanding whether the Fed's hiking cycle has been adequate is
whether profits will contract. This profit contraction will likely come from declining topline, sticky wages, and increasing debt service costs.
Read 8 tweets
May 30
🧵BEATING 60/40?

1/ Typically, in macro, we focus on making alpha via going long/short a variety of assets. However, these can often be too complex for everyday investors. Today, we try to bridge some of this gap & share a simple macro strategy that aims to time stocks & bonds: Image
2/ The performance of stocks and bonds is tied to the future outcomes for growth and inflation, and as active investors, we try to use our expectations for these variables to time our exposure to these markets. For a long-only, largely passive investor, we think...
3/ ...the biggest benefit our process offers is to allow you to side-step the worst drawdowns in these asset classes.

Recessions are the primary risk to stocks as nominal spending collapses. At the same time, inflationary episodes are the primary risk to bonds as their...
Read 12 tweets

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