Informational Edge Stacking - Part IV
Key Baskets to Support Macro
By now we’re a long way from staring at a single index chart and calling it “macro.”
In Part I (Link), we started with Cyclicals vs Defensives – a clean, forward-looking read on whether the equity market is quietly upgrading or downgrading its growth expectations.
In Part II (Link), we added Value vs Growth and High Beta vs Low Vol, which gave us a three-dimensional view of growth, inflation/rates regime, and risk appetite.
In Part III (Link), we moved closer to the real economy with Small Caps vs Large Caps, Transports vs Industrials, and a first pass at a Purchasing Managers’ Equity Basket – using equity internals to listen to domestic demand, freight, and capex before the top-down data catches up.
In this instalment, we go one step further and make two of those ideas much more explicit. Instead of staring at broad indices, we’re going to build two very deliberate, equal-weighted internal composites:
A Purchasing Managers’ Equity Basket built from freight, industrial, and capex bellwethers:
Purchasing Managers Basket=(UPS+FDX+CAT+HON+DOV+FAST)/6
A Labour Demand Basket built from staffing and recruitment firms that live on the front line of hiring:
Labour Basket=(MAN+RHI+KFRC)/3
On a chart, they are just two lines. In practice, they are a direct line into the CFO’s office and HR department – a way of watching orders, freight and hiring decisions in real time, without waiting for the economic calendar to drip out backward-looking data.
If the earlier ratios tell you what kind of regime you’re in, these two baskets tell you what corporates are actually doing about it.
The Purchasing Managers’ Equity Basket: Orders, Shipments, and Capex
The first composite is deliberately simple: freight, industrial equipment, diversified manufacturing, and industrial distribution rolled into a single equal-weighted basket of UPS, FDX, CAT, HON, DOV, and FAST.
Think about what that group sees before almost anyone else:
UPS and FedEx feel B2B and parcel volumes tick up or down in near real time.
Caterpillar sits on heavy equipment orders, mining, construction, and infrastructure.
