A Macro Checklist for Stocks: The Dollar, Credit and Rates

Write the checklist first. Order matters here. Do it before you open a single company filing, because the economy sets the questions and the company’s numbers answer them, so the page should run from broad conditions at the top down to one stock at the bottom.

Each line needs a word or two. Once a month is enough for most holdings, and most of the information comes from comparing this month’s answers with last month’s, since a direction that has just flipped says more than one that has held for a year.

The checklist

• Rate direction: rising, falling or flat?
• Inflation trend: above or below forecast lately?
• Jobs and claims: payrolls holding, claims creeping up?
• PMI orders: above or below 50, and which way?
• Credit spreads: widening or narrowing?
• The dollar: stronger or weaker against the currencies your holdings earn in?

The rate, inflation, jobs and orders lines recap the course so far. Rates and inflation set the discount rate applied to every stock and jobs and orders set the outlook for revenue, so for each line write the direction and whether it surprised, because a rising rate path the market fully expected is already in prices and changes little.

Credit spreads

A credit spread is the extra yield a company pays on its bonds above a government bond of the same maturity, and when spreads widen, lenders want more to take on company risk, which usually means they see a greater chance of defaults ahead. Weaker borrowers feel it first.

For a stock picker, widening spreads are a prompt. Check the balance sheet of every holding that must refinance debt in the next year or two, look at the interest rate on what it owes now, and ask what happens to earnings per share if the new debt costs a couple of points more. A company with net cash barely notices. One with heavy borrowing due soon gets squeezed. Bond investors sometimes move before stock investors do, so the spread is worth a glance even if you never trade a bond.

The dollar and foreign sales

A US company that sells abroad earns foreign currency and reports in dollars. When the dollar strengthens, each unit of foreign currency buys fewer dollars. The same foreign sales shrink on translation.

Local sales could have grown and the reported number would still fall. Many companies hedge part of the exposure. A weaker dollar runs the same sum in reverse. Where a filing splits sales by region you can see how much of the revenue line is exposed, and the argument that a strong dollar’s hit to earnings shows up in guidance covers where management tends to flag the effect, often in the outlook before it ever reaches a reported quarter.

Questions, never signals

Suppose the page reads: rates rising, spreads widening, the dollar strong. That’s a set of questions. How much debt does this company refinance soon? How much of its revenue is earned abroad? Would its multiple hold up at a higher discount rate? The answers sit in the filing and the next earnings report, and a company with little debt and domestic customers can pass through a grim checklist almost untouched.

Trading the checklist alone fails for a simple reason. Markets price each release within minutes of its printing, and by the time a trend is clear on a monthly page it has been in prices for weeks. The market regime entry covers labeling broader conditions. For practice at deciding when the right move is to change nothing, try the risk-on, risk-off game, which scores the reasoning behind each call and never the outcome of the trade that followed it.

With the economy covered, the company’s own report comes next, and Beat, Raise and Still Drop works through what happens on the day the numbers land.