No Santa rally here, folks. You (not subscribers, of course) get to deal with Krampus this year - the half-goat, half-demon Central European mythological creature that beats the naughty until they're nice. And if you're been long high-beta and growth, I'm sure you feel like your were clubbed.
It's important to understand the macro indicators are not with the bulls. Whether we look at the deflation/reflation/inflation proxy (DRIP), the industrial proxy or retail and global trade/logistic bellwethers United Postal Service and FedEx, something is wrong.
DRIP (orange); Yield/FX Component (white); Commodities/FX (blue); Industrial Proxy (yellow)
I will continue to drill this ad nauseam: It wasn't the death of Saudi dissident Khashoggi that cause markets to roll over but the repricing of waning growth and inflation.
Market internals, such as tightening financial conditions and credit spreads in mid- to late September. The correlation between high-yield junk and the Russell 2000 (IWM) and oil remain significant.
The U.S. CCC Bond Total Return Index (CCTRI) is down almost 11 percent while small caps are well into bear market territory. The Russell was the first major U.S. index to feel the heat.
The investment grade OAS of 154 bps is seemingly meager compared to CCC or below OAS of 1,095 bps; but it's the rate of change that has me worried.
CCC or below OAS is up a whopping 28.98 percent YoY while investment grade OAS was up nearly double that at 57.14 percent YoY.
This is eriely similar to the 2015-16 recession scare when YoY growth in IG spreads rose over 60 percent.
This comes on the back of record A-rated credit getting knocked down to the lowest investment grade of triple-B, which makes up 30 percent of the $5 trillion in investment grade corporate bond market.
Until October, General Electric (GE) was A-rated. It's now junk.
Transports are down 26 percent from their all-time high in September.The United Postal Service and FedEx are getting massacred, down 23 and 36 percent respectively.
The SPDR retail sector ETF (XRT) may be a representation to how many kids got coal this year, down 25 percent.
UPS + FDX (white); XRT (orange)
UPS + FDX rate of change
There ain't no bones about it. The economy is turning with the seven-week rate of change in UPS + FDX the steepest since 2009.