Jeff deGraaf: Erase Chips From Your Memory

Danny Moses (0:02)

Welcome to the On The Tape Podcast, sponsored by Clear Street. I'm your host Danny Moses, and today I welcome back Jeff DeGraff, the CEO, Chairman and Chief Market Strategist of Renaissance Macro Research, affectionately known as RenMac, an independent macro research boutique firm based in New York serving both institutional and retail investors. I've known Jeff for decades, and have watched as he has built an incredible team at RenMac, including Neil Dutta, who heads global economic research, Howard Mason covering financials, Steve Pavlik, who covers Washington policy, and many other research analysts as well.

In addition to publishing research like their weekly survival guide, RenMac kicks off each week with their Monday macro meeting, and ends it with a podcast they call Offscript, which sums up the events of the week. Jeff and I get into his latest thoughts on the market and the trends he is seeing, including the large variance between the market weight and equal weight S&P 500, and what sectors he sees opportunity in. Hint, he loves energy. The widening we are seeing in credit spreads, mainly in the junk category, his thoughts on semiconductors and AI, including a recent guest he had on his podcast. The seasonality that might, just might, hold up the markets here. The trends he is seeing in treasury yields, the dollar, and why strong third quarter earnings are needed to keep this market stable. We cover all of this and more, so please enjoy my conversation with Jeff DeGraff.

Jeff, welcome back to On The Tape.

Jeff deGraaf (1:20)

Danny, great to see you. It's been a while.

Danny Moses (1:22)

About a year. For our listeners who didn't catch you last time or unfamiliar with you and your firm, a little bit of a background here on RenMac.

Jeff deGraaf (1:32)

Yeah, real quick, we're a macro shop dedicated to big picture stuff, Washington, econ, fed, balance sheets in the system. And then I do the macro strategy and quantitative work, and we've been doing that for 15 years at RenMac. I'm 37th year in this business, which is shameful almost, but I wake up every day and watch the pieces that have changed on the chessboard and figure out the next move, right? So that's why we stay with it. But yeah, no, we have a good time. We stay in our lane. And I think people, the biggest compliment I've ever had, Danny, and it comes from several different people, is they're like, nobody does what you do.

Which is, as I tell people that have no idea what I do, I'm like, I kind of just stare at the anthill all day. And when you stare at the anthill, you can figure out what these ants are doing. Oh, these ants are going here, and these ants are coming back over here, and like a little air traffic controller or whatever. And I just stare at the anthill all day. So that's my job.

Danny Moses (2:30)

Yeah, I do a great blend of kind of fundamental technicals, trends and so forth. So you were on here about a year ago, exactly. A lot has happened since then. We got a war, the on and off again tariffs, the feds actually back to raising rates. We got the midterm elections of which the outcome is probably different than people would have thought a year ago.

You got an AI bubble, not a bubble, large supply of equity and debt that hits the market and continues to at least try to come to market. So a lot going on. And right before we started recording, I said to you, and I've been talking about this to our people on Substack and so forth is that the market feels so fragile to me. It doesn't mean it's going to crack. Just feels like when you have the market move on various headlines, like Anthropics about to update investors on their revenues for 2000, and we're all waiting for that. That's not a healthy type of environment. So why don't we start with that, which is kind of the top heavy nature of the market, the dependence on a few names and what the equal weight versus the market weight S&P 500 is kind of telling you.

Jeff deGraaf (3:33)

Yeah, you know, look, I'm with you 100%. I would also warn people, and look, you've been at this long enough, right, that some of that becomes sour grapes, right, where I'm not keeping up with the benchmark and woe is me, and that's kind of the way it goes, right? And I think a couple of things happen on that. One is the weighting. It's very hard for people to mimic the weighting of the S&P when you get like this, right? In other words, having a disproportionate amount of exposure to a few names. So that's hard, and a lot of charters refuse or disallow that type of exposure. The other thing that we find is people are generally underweight momentum, and that sounds crazy. You know, if you think about what a cap weight index does, right? The higher it goes, the more exposure you're supposed to have, right? Vis-a-vis all the other stocks in the index. So you're adding to strength, not taking strength away or taking profits from strength. And that's really counterintuitive to the way most people manage money. So that becomes obviously a sticky point and more troublesome for people. But you're right. I mean, if we look at the equal S&P 500, I think we were down almost 5% from the peak. It's below the 50 day moving average. That 50 day moving average is now curling over, right? So you've got a downtrending 50 day moving average and price below that equal weight moving average. We had, I think the number was 17% of names above their 20 day moving average. So it was recently oversold.