MacroVoices #263 Juliette Declercq: Why Equities Stand On Much Stronger Ground Than Consensus Seem To Believe

Episode Summary

Executive Summary: Macro Voices episode 263 centers on a nuanced debate about reflation, yields, and asset rotation. Eric Townsend sees crude oil and commodities as in a healthy bull market but due for a correction, while Juliet de Klerk argues higher yields reflect a stronger cyclical recovery and favor value/cyclicals over long-duration growth. Both are cautious on gold and uncertain on the dollar near term.

Main Topics: Equity market setup: crash risk vs crack-up boom: Eric frames the S&P 500 as technically extended and difficult to trade directionally, suggesting volatility could rise after options expiration and that a rolling straddle may be preferable to a directional bet. Crude oil and the commodity correction: Eric describes crude’s sharp selloff as a trend change or at least a major pullback after a near-vertical rally, citing trendline breaks, moving-average breaks, and broad inventory builds. Treasury yields and the reflation debate: Juliet argues the rise in yields reflects improving cyclical fundamentals rather than a policy mistake, and that bare steepening is historically consistent with stronger equities and earnings. Growth vs value rotation: Juliet and Patrick both emphasize the rotation away from long-duration growth/FANG toward value, cyclicals, banks, and financials as yields rise and earnings expectations broaden. Gold, real yields, and the dollar: Both guests are cautious on gold near term; Juliet says real yields moving higher remove gold’s anchor and leave her ambivalent on the dollar until a later regime shift. Secular inflation and the Fed reaction function: Juliet rejects a confident runaway-inflation call, stressing uncertainty, a vague FAIT framework, and the possibility that inflation itself could become self-limiting and reflate or disinflate the economy depending on demand response. Volatility and post-OPEX market structure: Patrick argues the market is pinned into expiry-related tight ranges, with volatility likely to return afterward, especially if the NASDAQ continues weakening while the equal-weight index and cyclicals outperform.

Key Arguments: The S&P 500 is near all-time highs and hard to trade directionally; volatility strategies may be better than outright long/short bets. Crude oil’s collapse is partly a natural pullback after an exceptionally strong run, but the trendline and moving-average breaks suggest a meaningful correction has begun. Inventory data turned bearish across crude, gasoline, and distillates, reinforcing the downside move in oil. Juliet argues higher Treasury yields are being driven by stronger growth prospects and a reflationary macro backdrop, not an imminent bear-market shock. Bear steepening historically tends to coincide with stronger earnings and equity performance, while bear flattening is what usually signals policy error and equity trouble. The market is questioning the Fed’s vague flexible average inflation targeting regime and pricing hikes earlier than the Fed would like. Juliet believes the U.S. equity market is not in a bubble like 1999; aggregate valuation is more reasonable, especially outside mega-cap growth. Sector rotation is being powered by both yield changes and the relative earnings recovery of cyclicals, banks, and financials. Gold is vulnerable because rising real yields reduce the support for non-yielding assets; Juliet has stepped back from a bullish gold and bearish dollar stance for now. The dollar may eventually resume a downtrend, but near-term price action and stronger U.S. growth make Juliet ambivalent rather than aggressively bearish.

Data Points: S&P 500 level: 3930 - At the time of recording, the index was down about 30 points after the FOMC statement period. S&P 500 daily move: down about 30 points - Eric and Patrick discussed market wobble off the highs after the FOMC. U.S. Dollar Index: 91.76 - Eric cited the dollar’s level during the discussion, noting it had not clearly broken out. Crude oil daily move: down over 7% - Eric described the day’s sharp selloff in crude. WTI from highs: approaching $9 down from the high - Eric said crude had already fallen more than $7 and was nearing $9 off the peak. WTI key resistance zone: $65.65 to $66.60 - Eric identified the area as the expected topping/resistance zone. WTI peak: $68 - Eric noted crude reached around this level before reversing. WTI at recording: about $59.60 to $59.70 - After the pit close, crude had dropped further below the trendline. Crude inventory build: 2.4 million barrels - Weekly U.S. crude inventory increased in a bearish report. Gasoline inventory build: 472,000 barrels - Inventories rose across finished products as well as crude. Distillates inventory build: 255,000 barrels - Additional bearish inventory build in products. Cushing inventory draw: 624,000 barrels - The only notable draw in the weekly petroleum data. Gold price: around $1,730 - Gold was described as hovering near this level during the interview. Gold bottom reference: $1,675 - Juliet and Eric discussed whether this could have marked a short-term low. Gold trend signal: daily close over $1,800 - Eric said this would be needed to confirm a trend reversal above channel resistance. 10-year Treasury yield: 1.73% - Discussed as making fresh highs and challenging market assumptions. 3-month T-bill yield: 1 basis point - Eric used this to illustrate near-zero front-end rates. SPX earnings contribution of FANG: from over 13% at end-2019 to more than 25% at end-2020 - Juliet cited this as evidence of sector concentration and strong growth dominance during the crisis. S&P operating EPS growth: minus 25% to plus 45% in 2021 - Juliet contrasted recessionary 2020 earnings with expected rebound. FANG earnings growth: expected to grow about 20% in 2021 - Juliet said growth would remain strong but down from 33% in 2020. FANG growth in 2020: 33% - Juliet referenced prior-year growth as a tougher comparison base. Financial sector valuation discount: 250 basis points - Juliet argued the discount versus tech is becoming less justified. Real yield move: from -70 bps to 0 - Juliet’s expected rise in long-term real yields. Nominal 10-year target: well above 2% - Juliet said 10-year nominals still have room to rise. SPX equal-weight vs cap-weight performance: 32% vs 20% - Patrick used this to show breadth and cyclicals/value leadership. NASDAQ behavior: Fibonacci retrace bounce; below/near 50-day MA - Patrick described the index as lagging and potentially rolling over. Crude rally from November low: about 60% - Patrick noted the magnitude of the oil rally before the pullback. Gasoline rally from November low: about 90% - Patrick highlighted gasoline’s stronger move relative to crude.

Pivotal Quotes: "this market is incredibly difficult... Frankly, I'm quite happy not to have any directional trade in either direction" — Eric Townsend: Eric on the S&P 500 and why he prefers non-directional strategies in the current environment. "the recent yield shock is very unlikely to trigger an equity bear market, quite the opposite, in fact" — Juliet de Klerk: Juliet on whether rising Treasury yields threaten equities. "My strong belief is that the front-end rates remain highly accommodative" — Juliet de Klerk: Juliet summarizing her view that market pricing is still lagging the cyclical recovery.

Implications: Listeners should expect continued rotation into cyclicals, value, and financials if yields keep rising. Gold looks vulnerable near term, crude is due for volatility after a major run, and broad equity direction remains uncertain, making relative-value and volatility strategies more attractive.