Five Macro Indicators to Watch

Is the game of stock market “Musical Chairs” back on?

“Musical Chairs” was a term we used to describe the market dynamic pre-August, where stocks were grinding to new highs despite gathering macro threats.

We used the term “Musical Chairs” because if you didn’t stay in the market, then you risked underperforming, because money flows were pushing stocks higher despite deteriorating fundamentals.

So, you had to run while the music was playing, and hope you got a seat when the music stopped (like it did in August).

And, we’re concerned the game of “Musical Chairs” is back on.

The S&P 500 has rallied more than 8% from the August lows primarily on:

1.  A “dovish” Fed, as expectations for the first rate hike are now March of 2016.

2.  A reversal of “Too Bearish” investor sentiment, as the spike lows of August and September did not reflect economic or fundamental market realities.

We are concerned that nether one of those reasons is strong enough to push stocks materially higher from here.

So, despite the surge in bullish sentiment recently, we believe this market remains at much more of a tipping point than it seems due to two factors:

  • Fundamentals Headwinds on Stocks Have Been Reduced, Not Eliminated
  • Major Macro Leading Indicators Have Not Broken Key Downtrends

In fact, this environment reminds me a lot of July, in that another eerie sense of quiet has descended on the markets despite gathering headwinds.

To be clear, we’re not perma bears, but our job for our paid subscribers (wire house advisors, RIAs, Portfolio Managers) is to look past the volatile bullish or bearish headlines and every day at 7 AM give an independent, fundamental and technical outlook on the markets over the short, medium and longer term that can help advisors and investors:

1) Increase market knowledge while saving time (Current subscribers say our Report saves them an hour of research time each day)

2) Outperform major benchmarks (at the end of the day, this is a results business)

3) Always have market related talking points ready to impress clients and prospects so you can strengthen relationships and increase AUM.

Because of our current caution on the market, we told our paid subscribers twice so far this week that adding new money broadly to this market is a risky proposition, because you’re looking at maybe 1% – 2% of near term upside if things go right, and 6% – 7% of near term downside if things go wrong. 

The remainder of 2015 is going to be very tricky because we’re still in a “Risk On/Risk Off” macro driven market, and getting the macro environment “Right” from an allocation standpoint will be the key between outperforming for 2015 or underperforming the competition.

As a courtesy we’ve included a brief excerpt from today’s edition of The Seven’s Report that describes why we remain cautious on stocks here. 

Two Reasons Markets Are At a Tipping Point (Sevens Report Excerpt)

Reason 1:  Fundamentals Headwinds on Stocks Have Been Reduced, not Eliminated

There’s no better example of this than the Chinese data out Monday morning.

If you read the financial website headlines you would have come away with two equally incorrect interpretations:  One, that the Chinese data was better than expected (and as such a positive) or Two, Chinese growth just hit a 6 year low (and as such is negative). Neither interpretation is correct.

Here is what you need to know:

1.  Chinese data has stabilized.   The past six weeks has shown that the Chinese economy is stabilizing and that the panic in late-August/early September has receded.

2.  Data Needs to Go from Stable to “Better” If We Are To See a Material Rally in US Stocks. To use the medical analogy, the patient is now stabilized, but he’s not exactly going to jump off the table and dance.  Point being, the stable Chinese data was already priced into US stocks at these levels and that’s why the better than expected GDP report didn’t cause a further rally.

3.  The Market Fully Expects More Easing this Quarter and Chinese Authorities Better Deliver. It was the surprise yuan devaluation that really got markets spooked back in August, because it implied Chinese authorities weren’t in control of the economic situation, and that loss of confidence is what really led to the collapse in US stocks in late August. So, the idea that Chinese authorities are in control of the economy is very important for market psyche.

So, bottom line, if you don’t know what is expected from China between now and year end, you are at risk of getting macro sentiment towards China “wrong,” and as such put you and your clients at risk of suffering another August/September like drop.

Subscribers to the paid edition of The Sevens Report received an itemized list of what three stimulus measures are expected from Chinese authorities by year end.  They know we will be watching that market for them and will tell them if and when those measures are enacted (and tell them what it means for stocks).

If you aren’t reading someone who is understands Chinese economic data and policy and can give you the key takeaways in real time, then you and your clients are at a disadvantage for the remainder of 2015. 

Subscribers to The Sevens Report are confident that we will tell them the “need to know” on China for the rest of the year, and they know they won’t get blindsided by any more surprise Chinese economic news.

Click this link to start your quarterly subscription today and ensure you have a dedicate macro analyst working for you. 

Reason 2:  Major Macro Leading Indicators Have Not Broken Key Downtrends

One of the biggest benefits of The Sevens Report is that it monitors for subscribers all the major macro leading indicators for the stock market (these indicators predicted the drop in August/September).

Macro Indicator 1 is in the riskiest sector of the bond market.

Macro Indicator 2 is a real time barometer on Chinese economic sentiment.

Macro Indicator 3 is the single best indicator of global risk sentiment

Macro Indicator 4 contains two currencies that are a real time gauge on global economic activity

Macro Indicator 5 is a proxy for Emerging Market Growth.

We have a “macro dashboard” we watch that is comprised of these 5 Indicators (which span all asset classes:  Stocks, Bonds, Commodities, and Currencies).

Importantly:

All 5 of them broke down before the stock market dropped in August.

All 5 of them put in a bottom in late September.

All 5 of them are now against multi-month downtrends that began before US stocks broke down.

The takeaway from this is simple:  There’s nothing definitive to say that this rally in stocks isn’t just a large, oversold bounce in a still downward trending market.

However, if these macro indicators do break these downtrends, then that will be a clear sign that a bottom is in, and that it’s time to add stock exposure to try and outperform into year end.

We are watching this macro dashboard each and every day and have alerts set on the key technical levels, and our paid subscribers will know whether these macro indicators breakthrough resistance (which will be bullish) or fail at these downtrends (which will be bearish) and they will be able to alter their client asset allocations accordingly.

We provide critical, succinct, daily macro analysis that helps advisors growth their book and outperform markets, all for $195/quarter ($65/month) with no longer term commitment (it’s pay as you go).

Click this link to subscribe today and ensure you have the macro analysis you need to outperform into year end.

Don’t Get Blindsided in the 4th Quarter 

We are very proud of the warnings we provided to subscribers leading up to the August meltdown, which started on August 19th. Our warnings began one week before the breakdown:

On August 12th, the day after Chinese authorities shockingly devalued the yuan, we told subscribers that the market was losing confidence in Chinese authorities ability to handle their slowing economy, and that it represented a new, material risk to portfolios.

On August 13th we alerted clients to two bearish technical signals:  1) Dow Theory turned bearish, and 2) The Dow Industrials traced out a death cross, adding to an increasingly negative environment.

Most importantly, our analysis was actionable, because during that entire week we provided subscribers with a liquid ETF that was a “pure play” hedge to China related turmoil, and that ETF (which is not leveraged) rose over 20% as the stock market tanked over the next two weeks.

Finally, on September 1st, proving we are not perma-bears and instead focus on the macro, we provided subscribers with “Six Steps to a Market Bottom” that identified six events that needed to occur before a bottom could be declared “In” and offered three tactical long ETFs that were worth buying on the dip.

Some subscribers took advantage of the hedge ETF we provided, and some bought the dip via our three tactical ETFs.

But all of them were able to confidently and directly explain to their clients and prospects 1) Why stocks were falling, 2) Whether it Represented a “Bearish Game Changer” and 3) How they planned to protect portfolios and seize opportunities.

And, by doing so, they strengthened relationships and got more assets. 

One of the key benefits of The Sevens Report is that our subscribers are almost never blindsided by a client calling asking for an opinion on some macro topic, whether it’s Greece, the Fed, or the collapse in Chinese stocks.

That’s because the Sevens Report is:

  • Delivered daily to subscribers by 7 AM EST
  • Can be read in under 7 minutes
  • Contains “need to know” information on stocks, bonds, currencies, commodities, economics and any broader macro topic that’s moving markets (like China). 

Our job is to provide you the timely, need-to-know, critical information that will demonstrate to your clients:

1) That you are on top of the markets, and

2) That you are in control of their financial situation.

Actual subscribers to The 7:00’s Report have told me that discussing the information contained in the Report with prospective clients has helped them land accounts as big as 25 Million Dollars!

Thanks for your continued insight; it has saved my clients over $2M USD this year… Keep up the great work!” – FA from a Bulge Bracket Firm.

The rest of 2015 is going to continue to be a volatile year. Subscribe today and give yourself the market intelligence you need to help strengthen relationships with your current clients, and acquire new ones.

Subscriptions start at just $65 per month, billed quarterly, and with the option to cancel any time prior to the beginning of the next quarter, so there’s simply no reason why you shouldn’t subscribe to The 7:00’s Report right now.

If you want to make your business more successful, you have to possess unshakeable confidence in your knowledge, and helping you acquire that knowledge is what The 7:00’s Report is all about. Begin your subscription to The 7:00’s Report right now by simply clicking the button below:

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So, if you commit to an annual subscription, you get one month free, a savings of $65 dollars.  To sign up for an annual subscription, simply click here.
Best,
Tom

Tom Essaye,
Editor of The 7:00’s Report

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