The growth / inflation trade-off back to the macro epicentre
Bottom-up still matters. But increasingly, it’s macro that moves BYD.
After the benign NFP, focus this week will be on the May CPI report.
Core CPI is expected to edge up as tariffs start to creep into prices.
Following the climb of the wall of the worry,the path higher ahead is likely more a function of earnings revision momentumthan valuation multiple expansion. In other words, how much of the economic strength we have seen thus far has been front-end loaded?
We ran Qi’s Risk Model on the GVIP ETF – the 50 most popular HF stocks: the growth /inflation trade-off is at the macro epicentre.
· Good news is good news…as recession odds fall, less reason to stay side-lined…but we need the long-end anchored & subdued inflation.
· Sensitivity to growth vs. inflation is reaching extremes vs. recent history.
Empirically, the second chart shows the relationship between the Citi economic vs. inflation surprise indices and GVIP– this remains front and centre.
Why does this Matter?
Dissect your portfolio’s macro anatomy – which stocks are relative winners / losers to this narrative? Is the macro backdrop working for me or against me?
Other than tracking the data, remain vigilant on corporate commentary as Q2 comes to a close.
And don’t forget around the corner we have the July 9th deadlines for tariffs where negotiations continue.
