1/ Time for a comprehensive thread on current Labor market conditions incl some key indicators to watch closely:

These charts look under the hood of payrolls & unemployment to see how conditions are shifting

We know employment is still increasing:

#macro #stocks $SPY $QQQ 2/ But less well understood is that under the payroll strength is both falling Hires and Separations.

With labor demand still strong, Quits remain elevated and Layoffs low. But Hires & Separations have both already normalized back to 2019 levels.

1/ $AUD ALERT

The RBA today raised expectations it may follow the BoC & pause hikes soon despite inflation still high (but falling).

With the rate spread between AU & US one of the key determinants of the AUD & the #Fed expected to hike 3 more times, this is material...
#macro

https://twitter.com/ShaneOliverAMP/status/1632953104428843009

2/ On the back of this, we have flowed through a scenario of an AU rate pause to the HQ AUD model, with US rates still rising to 5.3%

This scenario, if it eventuates, knocks >3c off the HQ fair value target for the AUD (Dec 23) to $0.6314 vs FV $0.6680 prior to today...

CYCLICALS vs DEFENSIVES:

Renowned investors like Stanley Druckenmiller routinely monitor the performance of Cyclicals vs Defensives as a signal for #stocks, $SPY and #macro economy.

At HQ, we use the following monitor (chart). Whats it telling us now? a 🧵 2/ Lets focus on whats happened, before future expectations

The top panel of the chart shows the relative performance of Cyclical sectors over Defensive sectors ("CDR")

Panel 2 is the #SPX

Panel 3 is the Z-score of the 13 week move in the CDR with 2 std dev movements marked...

HedgQuarters S&P500 EPS Forecast Model Update:

1/ In Oct 22 we released our S&P 500 multi factor earnings forecast model based on data releases up to Sept 22. Now with 4-5 months more data we have updated the model and highlight the interesting changes

$SPY $QQQ #macro #stocks 2/ As always we present 2 scenarios. With variable lags to the impact of rate hikes, these models map out 2 assumption sets:

A. the impact on FUTURE EPS of the latest leading econ data, by extending current settings of leading indicators into the future unchanged "STATIC MODEL"

INTERPRETING THE CPI NOWCAST & how it works - a 🧵:

I, like many, have seen the rise in the CPI Nowcast over the last month & used it as a basis for expectations for Tuesday's #CPI release.

But how accurate is it at times like these. See chart:

#macro #inflation $SPY $QQQ #SPX 2/ The chart shows that as inflation rose, the Nowcast underestimated it and as it falls, theres been overestimation. Why?

Well the CPI Nowcast is based on an econometric model specified here: clefed.org/40Um5DE

I summarize how it works below and draw conclusions

Have #Fed rate hikes led to the slowdown in #inflation we've seen so far?

That's the conventional wisdom anyway. BUT, the San Francisco Fed's own index actually says "NO"!

Why & implications. A thread...
#macro #Stocks #SPX $QQQ

1/8 2/8

This chart (YoY before & MoM below) breaks out Core PCE #inflation into cyclical & Acyclical components

Cyclical are those influenced by the eco cycle, Acyclical are those that have had a statistically insignificant relationship w/ past cycles

Cyclical inflation...

WHATS HAPPENING WITH US EMPLOYMENT / PAYROLLS and implications
a thread:

1/x

After a +517k Jan 23 payrolls & resilient employment mth after mth despite a year of rate hikes, whats really happening & does it mean soft landing?

read on

#macro #unemployment #stocks $SPY $QQQ 2/x I'm not delving into statistical adjustments, this is about the real backdrop & whats driving overall trends. From that I'll draw some clarifying conclusions.

Here's the recent payrolls numbers charted. The trend shows payrolls normalizing down from elevated levels w/ chop

#SPX $SPY Breadth Ratio update 🧵:

This situation continues to get more intriguing. After the rally the last 2 days, I expected this signal to be resoundingly rejected

But the % of stocks > their 20 day MA relative to those above 200 MA has fallen below 1... 1/4
$QQQ #stocks

https://twitter.com/andycwest/status/1620230875542847488

2/4 Whats this really showing?

Individual components of the ratio shown below

An increasing % of #stocks are above their 200 MA as expected in a rally, but the % above their 20 MA is flat potentially presaging declining momentum of the rally...

$SPY $QQQ #SPX

PREPARE FOR HIGHER VOLATILITY:

Important 🧵:

We’ve had a bear mkt rally which has now failed and partially unwound. Brief Santa rally or not, the following chart pack tells a clear story of impending volatility:

#macro #stocks $SPY $QQQ Financial conditions:

This chart isn’t a mirror image - it’s the GS Fin Cond index against the #SPX. I’ve been tweeting updates on this for 6 mths because when conditions tighten, #stocks roll. Once again the Fed and now BoJ have triggered the tightening needed for inflation 🧯

#Fed day: the down/up reaction of #stocks shows something here for both hawks & doves.

For me (looking ahead), the Fed faces a dilemma in 1H '23. Cool/negative goods/energy inflation but still strong wage gains given tight labor.

Headline CPI...
#macro will fall (particularly in Q1), potentially to even ~5% by March data, but wage gains will see medium term services & core inflation drivers inconsistent in the Fed's lens with a sustainable return to 2-3% target.

So Mr Mkt is saying based on history, the Fed never keeps...

Updated Inflation, rates outlook & prospects for #bonds and #stocks:

We're moving into a new phase of disinflation from here. This is what I expect to see unfold: Update 🧵:

#macro $SPY $QQQ #inflation Back in early August I wrote that we were about to experience a surge in core inflation into end Q3.

At the time #stocks had rallied strongly and this presaged another pullback given it meant the #Fed had to be more hawkish.

I was a touch early w/ mths:

https://twitter.com/andycwest/status/1557110837059325952?s=20&t=3Ezw1vdqQ1s372hDh4O60A

$GOOGL: I honestly don't even know where to start in breaking down this disaster of a quarter from $GOOG (and no, I'm NOT short, except by way of sector ETF).

Read the usual bulge bracket broker reports and you'd think this is ok. Its NOT and here's why

a 🧵:
$QQQ $SPY First - is this rev growth a pass or fail? Simply - BIG fail. Here's the internet advertising price growth chart from HedgQuarter's Info Tech Sector Drivers dashboard

Ad prices are still up 10-20% YoY so the 10% rev growth for search ads & 3.8% for YouTube is abysmal.

PART 2 of 2 - Bond crash implications for stocks:

Why does the #bonds crash signal further pressure for #stocks?
(& why do rate hikes take so long to show in earnings?)

Here I deal with general corporates, consumer & the banks:
$SPY $QQQ #macro CORPORATES:

As cost of capital rises, the direct impact on corporate earnings starts small then builds. The direct impact of higher rates on corporate borrowings can be estimated to be only approx -2-3% on EPS extra each year due to termed out debt at past low rates. But

Why does the #bonds crash signal further pressure for #stocks?
(& why do rate hikes take so long to show in earnings?)

High inflation & rate hikes transmit through the economy with a range of 1st to 3rd order effects with varying lags. Lets map those out:

PART 1 of 2 threads: This is complicated to map given various dynamics, sectors & lags, particularly with 280 char limits! But lets give it a go anyway. This is descriptive to help you think through aspects & trades you may not have yet considered

Theres 2 PARTS to this thread due to length

What the updated US Inflation Model shows will happen from here:

The Fed's primary input into rate decisions continues to be CPI & as we know CPI is a lagging indicator. So what does data show will happen to CPI from here & the implications for rates?

#macro $SPY $QQQ #SPX #CPI We've updated out HedgQuarters.com US #Inflation model with recent data and the forecasts are critical for the rates outlook and timing.

Chart shows Actual CPI (light blue) vs model (dark blue).

An investment process is critical to generating consistent ideas & sustainable returns.

Over the last 20 years I've used the same process, "C.I.V.C", to generate long & short ideas across US, Asian & European #stocks.

Our latest HedgQuarters Playbook is summarized below:
$SPY Why is process so critical?

Having a proven process is about creating repeatable & more consistent returns.

For personal investors its the secret sauce to generating more ideas, getting better conviction in them so you size them right & navigating markets as conditions shift

What does data show will happen to EPS for the S&P500 (#SPX) over the next 18 months? An important 🧵 for #stocks

We all know that economic data impacts with a lag. What that means is that theres data avail now to forecast into the future. Here's what it shows:

$SPY $QQQ Using the HedgQuarters.com multi-factor S&P 500 #SPX earnings regression model built from over 30 years of monthly change data in M2, USD, sentiment, PMI, housing data, commod prices, CPI, the yield curve & hrly earnings, I've modeled 2 scenarios as follows:

$SPY $QQQ

The hidden importance of jobs data for tech stocks & the Fed Put - a 🧵: Many recent investors think that tech (growth) is a safe haven in slow times as tech performs when 10yr yields decline. This is a recent trend & directly related to the Fed Put. See chart & thread. $QQQ 1/7 The chart shows the Nasdaq 100 (white) overlayed with job cut announcements (green) and 10yr yields (orange). Critically, employment is the largest driver of tech spend. When job cuts rise as macro deteriorates, tech spend growth stagnates or falls. 10 yr yields fall as well. 2/7

Beware Fed cuts, not hikes & the dreaded ISM Services 52/53 band. An equities timing 🧵: The equities market has front-run the economy driven by a reset in stimulus fueled P/Es but not yet by earnings. What to expect from here? See 2 charts & discussion. 1/5
$QQQ $SPY #SPX #macro Cycle timing: In the '01 and '08 cycles, the real #recession (rising #unemployment) did not start till after the Fed had broken something and stopped hiking. Its at this time we see the ISM services really deteriorate. But in past thats been 19-36 mths after hikes started. 2/5