TODAY’S S&P 500 SET-UP – June 24, 2014
As we look at today's setup for the S&P 500, the range is 47 points or 1.97% downside to 1924 and 0.43% upside to 1971.
CREDIT/ECONOMIC MARKET LOOK:
MACRO DATA POINTS (Bloomberg Estimates):
WHAT TO WATCH:
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
The Hedgeye Macro Team
Takeaway: 56% of voters would rather buy & hold U.S. stocks for one year over commodities.
"As Hemingway might have said, at first inflation happens slowly – then all at once,” CEO Keith McCullough wrote in today’s Morning Newsletter. “If you want to be a real baller, and be long the stuff in the U.S. stock market that’s crushing a low-single digit performance # for the YTD, you need to be long of both inflation and the slow-growth it drives into the consumption core of America.”
In the video below, Senior Analyst Darius Dale discusses dividends and style factors within the U.S. equity market and why he cast his vote to buy and hold U.S. Stocks.
What do you think?
In the poll this morning we asked: If you had to choose U.S. Stocks or Commodities, which would you buy and hold for a year?
At the time of this post, 56% would buy U.S. Stocks and 44% would choose to buy Commodities.
Those who view buying and holding U.S. Stocks as the better opportunity had this to say:
Those who voted for commodities reasoned:
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Eurozone equities closed squarely in the red today following the release of weak preliminary June figures for the Purchase Manager Index for the Eurozone, Germany, and France.
Eurozone Services slipped to 51.9 (52.2 est.) and Eurozone Manufacturing dropped to 52.8 (53.3 est.) vs. 53.2 prior. Similar results were recorded for Germany and France:
June marks the second consecutive monthly decline in PMIs, however on the margin we continue to like European equities over U.S. Equities. In fact, today Keith issued a buy signal in Austrian equities (etf: EWO) on the pullback in the Real-Time Alerts.
We expect interest rate policy from the ECB to remain “accommodative” and for ECB President Mario Draghi to keep the prospect of QE in his back pocket (forward expectations of its use should propel equities) and issue it only should a deterioration in fundamentals warrant its use. Over the weekend Draghi said interest rates “will” remain low until the end of 2016. CPI for May printed at +0.5% annualized which was the lowest level in four years. The full-year forecasts are now +0.7%, +1.1%, and +1.4% for 2014, 2015, and 2016 respectively.
Our quantitative outlook remains bullish:
With the interest in protein in the food space (TSN-HSH) heating up, we thought a recent note from the Hedgeye Macro team on livestock and poultry prices is particularly applicable to the Consumer Staples sector. A copy of the work is included directly below.
We continue to field arguments against the inflationary read-through on the commodity squeeze. Sharp increases in livestock and poultry prices over the last ten years in the face of stagnant wage growth, a decline in savings rates, and a declining U.S. dollar illustrate this reality in staggering fashion.
If Janet Yellen’s commentary yesterday is any indication, the fed will continue to promote yield-chasing from financial intermediaries and those lucky enough to hold equities and fixed assets. The PCE survey from the BLS reports the top quintile of income earners takes 66% of the aggregate income in the basket from interest, dividends, and investment related income. Needless to say, a majority of Americans consume meat.
2013 Meat Consumption Per Capita (KG/Person):
The average consumer we have continuously highlighted is reaching insolvency. Median net income margins have consistently compressed over the last five years to about 1.38% with savings rates decreasing over the same period.
Last Ten Years:
survey from both the USDA and the University of Oklahoma’s Department of Agricultural Economics this week provide evidence that people are eating the higher price tags (adding to the pain, they drove to the store --> WTI and Brent hovering at 9-month highs).
- Food Demand Survey from the University of Oklahoma’s Department of Agricultural Economics
Last Ten Years:
Disease or not contributing to the advances YTD, this kind of headline inflation is tangibly relevant on the wallet. Unfortunately most people were not granted the opportunity to add to their inflation hedges out of the FOMC statement yesterday where the Fed provided a downward revision to its 2014 GDP estimate for the SEVENTH year in a row:
Takeaway: We were well ahead of consensus, highlighting #InflationAcclerating risk and warning our subscribers of this development months ago.
As oil prices rise above $107, and head toward $110, the average price of a gallon of gasoline has topped $4 in California, and is moving rapidly in that direction in other states as well. The run up is rapid enough and high enough that anxiety is growing about how it will affect consumer spending and GDP. Hedgeye’s macro team was well ahead of the consensus curve, highlighting the risk of #InflationAcclerating and warning our subscribers of this development months ago.
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