The Weekly Equity Write Up: Thematic Diversification

The Evolving Macro Backdrop Has Created Shifting Thematic Opportunities

“Economic theory is devoted to the study of equilibrium positions. The concept of equilibrium is very useful. It allows us to focus on the final outcome rather than the process that leads up to it. But the concept is also very deceptive. It has the aura of something empirical: since the adjustment process is supposed to lead to an equilibrium, an equilibrium position seems somehow implicit in our observations. That is not true. Equilibrium itself has rarely been observed in real life — market prices have a notorious habit of fluctuating.”
― George Soros

Big Picture:

The greatest aspect of being an equity macro trader is the flexibility to capitalize on market regimes and thematic shifts. In our evolving macroeconomic environment, only the individuals who can rapidly adapt will outperform. Today we’re going to cover the following Topics

1. Macro Pulse

2. Institutional Positioning Pulse

3. Sector Pulse

1.) Macro Pulse

This will be a short week since markets will be Closed on Friday in observance of Good Friday. All eyes and ears will be on the durable goods report on Tuesday, followed by the Core PCE inflation report, and Chair Powell’s speech hosted by San Francisco Fed Daly on Friday.

San Francisco Fed Pres. Daly will host Powell on Friday at the San Francisco Fed’s Macroeconomics and Monetary Policy Conference. I think he will stay the course from his FOMC Presser. As noted in my previous article, I’ve included my takeaways from Powell’s presser.

My 3 takeaways from Powell’s press conference:

1. Powell is not concerned about the hot January & February inflation prints.

2. FOMC raised its 2024 GDP growth forecast meaningfully, due to the faster growth of labor supply and therefore not an argument against rate cuts.

3. FOMC participants think it will be appropriate to slow the pace of balance sheet runoff “fairly soon.”

Once again I’m still a little more conservative than the street and believe we’ll get a July Cut instead of a June Cut while the S&P500 continues to rally.

What I’m Monitoring:

Gasoline prices are up 2.21% WoW and 6.06% this month.

The Container Freight Index continues to come down. Currently down 12.7% this month

The Baltic Dry Index came down from this month’s peak and now it’s flat on the month.

I believe US 2yr and 10yr bonds will remain range-bound over the next few months and will break to the upside on the first decelerating MoM inflation print

The breakout in Crude is showing strength and if we stay above $80 energy stocks will continue to rally. In our Sector Pulse, I’ll share a few names I like outside of our OXY 0.00%↑ pitch we mentioned back on February 20th which is up +8.77%

2.) Institutional Positioning Pulse

Active managers continue to be very well-hedged. According to GS, their Hedge Fund client’s gross exposure is at the 96%-tile, and net exposure is at the 62%-tile on a three-year look-back which is nowhere near the 2021 peak of net exposure. Also, this defensive posture is being expressed through ES1 positioning as active managers are net short -194k contracts.

3.) Sector Pulse

Since the start of our Publication the SpearPoint Team has been trading along the tech risk curve within the momentum trade and in February we flagged the rotation into the old economy and so far both have worked out well

I still believe the momentum trade has legs and I recommend reading the previous article on my reasoning

But thematically diversifying your portfolio will be essential to performance over the next 18 months