As the US and and global economies are entering a recession, this is when I start actively monitoring global macro-economic trends.
My investment and tactical trading decisions are informed by directional price trends, momentum, volatility, and investor sentiment. So, this quantitative data is my primary focus as a global macro/tactical investment manager.
That is, until economic trends shift outside their range and reach extremes.
Then I start observing these global macro trends to observe what has changed. We monitor thousands and data streams and time series, daily, with quantitative alerts that signal when these trends change, or when their rate of change shifts. For example, we monitor 4,136 global Gross Domestic Product (GDP) indicators alone.
US GDP Growth released today indicates the longest U.S. economic expansion in history is over.
The Bureau of Economic Analysis releases quarterly figures for US Gross Domestic Product. In addition to the Real GDP, the report also includes data for income, sales, inventories, and corporate profits. It is one of the most important parts of the National Income and Product Accounts.
US Real GDP Growth is measured as the year over year change in the Gross Domestic Product in the US as adjusted for inflation. Gross Domestic Product is the total value of goods produced and services provided in a the US. Real GDP Growth is a vital indicator to analyze the health of the economy. Two quarters of consecutive negative real GDP growth officially signifies a recession. Additionally, GDP is used by the Fed (FOMC) as a gauge to make their interest rate decisions. In the post World War II boom years, US Real GDP grew as high as 12.8% in a year, but in the late 20th century 0-5% growth was more the norm.
US Real GDP Growth is now at -4.80%, compared to 2.10% last quarter and 3.10% last year, which is materially below the long term average of 3.18%. This GDP is sharpest drop since 2008 as governments and consumers responded to the new coronavirus.
I expect the second quarter will be worse.
I’ve been pointing out a few years now that this is the longest economic expansion in U.S. history as well as the longest bull market for stocks that was very aged.
But, after a -37% decline in the popular market proxy, the Dow Jones Industrial Average, the stock market is climbing a wall of worry.
Despite the negative GDP, the Dow Jones is up 2.7% today.
And the Dow Jones is now just -13.28% year to date, after starting 2020 up 3.55% and then crashing down -35% just a few weeks ago.
I have tactically operated through bear markets, so investors should be prepared for many significant swings along the way, but for now, it seems on March 24th stock prices reached a low enough point to attract buying enthusiasm that exceeds the desire to sell.
Of course, the buying enthusiasm may be mostly the Federal Reserve, but notwithstanding who is driving up prices, the trend is up for now.
The stock market is forward-looking, so what is, is.
For investors who have been afraid to invest with their long-only advisors strategy, I manage a hedged portfolio using options and volatility trading for asymmetric hedging. Our minimum is $1 million, but we may make an exception depending on the circumstances.
Mike Shell is the Founder and Chief Investment Officer of Shell Capital Management, LLC, and the portfolio manager of ASYMMETRY® Global Tactical. Mike Shell and Shell Capital Management, LLC is a registered investment advisor focused on asymmetric risk-reward and absolute return strategies and provides investment advice and portfolio management only to clients with a signed and executed investment management agreement. The observations shared on this website are for general information only and should not be construed as advice to buy or sell any security. Securities reflected are not intended to represent any client holdings or any recommendations made by the firm. Any opinions expressed may change as subsequent conditions change. Do not make any investment decisions based on such information as it is subject to change. Investing involves risk, including the potential loss of principal an investor must be willing to bear. Past performance is no guarantee of future results. All information and data are deemed reliable but is not guaranteed and should be independently verified. The presence of this website on the Internet shall in no direct or indirect way raise an implication that Shell Capital Management, LLC is offering to sell or soliciting to sell advisory services to residents of any state in which the firm is not registered as an investment advisor. The views and opinions expressed in ASYMMETRY® Observations are those of the authors and do not necessarily reflect a position of Shell Capital Management, LLC. The use of this website is subject to its terms and conditions.