This past week was crazy, wasn’t it? A huge, panic-driven sell-off to start the week, followed by the markets marching back up to all-time highs. Not to mention the flooding in China that could have a massive impact on supply chains…
Well, I hate to break it to you, but things aren’t going to calm down. The only difference is we at least have an idea of what’s coming…
Instead of reacting to media-induced panic, we’re looking at some of the most important macro data this week.
Here’s what I’m looking at to start the week:
Source: Bloomberg
The macro data this week could be some of the most important information we’ll get in our lifetimes, so here’s the rundown, starting with housing.
Housing Data to Lead Off the Week
We’ve been bearish on housing prices and bullish on rents for the past month — if not more. New home sales confirmed our bias on Monday…
The data came in at 676,000 versus the expectations of roughly 800,000.
On top of new home sales, durable goods orders — i.e. household appliances — get released Tuesday.
Because durable goods are such a big part of housing construction, I expect this report will follow the leader and disappoint as well. That being said, however…
Supply chains remain so constrained that lead/lag times between housing and goods sales could continue to stretch.
Source: Bloomberg
The bottom line: Over the next three to six months, expect a correction in durable goods.
Retail inventories will show us if consumer spending — which constitutes roughly 65% of gross domestic product (GDP) — is accelerating or not. If they remain low, we should remain bullish.
But if they start to surprise to the upside, well…
Keep in mind the only other significant decline in this metric over the past 20 years was the global financial crisis…
Source: Bloomberg
GDP and Yet Another Fed Meeting
The Federal Reserve meets again Wednesday and the markets are looking for the central bank to remain supportive of low interest rates.
But if there is any talk of raising interest rates and tapering Treasury purchases this year — which is possible, if not probable…
Then markets will be jittery as a result.
I don’t expect that to be the outcome of that macro data, given that the Fed’s metrics are backward-looking… and they didn’t even blink at 5.4% inflation last month.
And while personal consumption expenditures and consumer sentiment are both important releases of macro data this week…
All eyes will be on Thursday’s GDP print.
Out of all of the releases coming up this year, this particular GDP release is the most important. It sets the stage for future expectations regarding economic success and failure. This will most certainly drive the near-term financial media narrative.
Quarterly GDP growth consensus currently sits at 8.6%, but I wouldn’t be surprised by a significant beat, given that vaccination rates have skyrocketed since April 1, and government support for the unemployed remains robust.
How to Play the Macro Data This Week
And while I’m optimistic that GDP will outpace expectations, I’m far less than 100% sure how the markets will react. Both a significant rally and “sell the news” scenario are equally likely in my model…
So this is a week where having a tight “net” exposure (longs and shorts equally balanced), will be advantageous.
Possible shorts include Asian countries currently mired in stagflationary or deflationary periods like China, tracked by the iShares China Large-Cap ETF (NYSEArca: FXI)… Hong Kong, tracked by the iShares MSCI Hong Kong ETF (NYSEArca: EWH)… and Japan, tracked by the iShares MSCI Japan ETF (NYSEArca: EWJ).
While longs should be weighted to lower-volatility, larger-cap or mid-cap names, as per the table below.
One can certainly use the broad-based ETFs listed above to manage exposure to those investment factors. And over the course of the next few weeks, we plan to call attention to them on an increasingly frequent basis, as well as search for diamonds within their individual holdings.
Because whether it’s now or a month from now, we know for a fact the U.S. economy will transition from higher to lower growth. And because transitions are always messy, we consider it our job to help you navigate macro data this week.
So as your sherpa on this journey, the best advice I could possibly provide right now is…
Buckle up.
All the best,
Matt Warder
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