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Van Sciver: Can $FDX Still Outperform?

Hedgeye Industrials Sector Head Jay Van Sciver gives his take on FedEx which he presented as a "Top Long" idea a year ago. Shares have risen sharply since then, raising the question of whether FDX shares can continue to outperform.

 


INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN

Takeaway: Adjusting for the effects of Hurricane Sandy this time last year we find that the rate of labor market improvement continues to accelerate.

Below is the detailed breakdown of this morning's claims data from the Hedgeye Financials team.  If you would like to setup a call with Josh or Jonathan or trial their research, please contact 

 

More Good News on the Labor Front

This week's data shows a continuation and modest acceleration in the rate of improvement in the labor market. As is our convention we largely disregard the seasonally adjusted data and instead look at the year-over-year rate of change in the non-seasonally adjusted data.

 

This week is a bit difficult on that front because we are lapping the impact of Hurricane Sandy. This week last year we saw a 78,000 W/W increase in claims from Sandy. If we adjust the numbers for Sandy we find that the Y/Y rate of improvement this week came in at -8.9%, i.e. claims are lower than last year by 8.9%. This is a modest acceleration in trend from the previous week's -8.4%. On a rolling basis the dynamic is similar, where the rate of improvement strengthened to -8.1% from -5.1%, but we are also coming off the distortion of the California IT hiccup.

 

The net of it is that the labor market continues to gain momentum and this should, on the margin, push up tapering expectations and push up the long end of the yield curve. Beneficiaries include asset sensitive and credit sensitive financials.

 

Nuts & Bolts 

Prior to revision, initial jobless claims rose 3k to 339k from 336k WoW, as the prior week's number was revised up by 5k to 341k.

 

The headline (unrevised) number shows claims were lower by 2k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -4.75k WoW to 343.75k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -13.2% lower YoY, which is a sequential improvement versus the previous week's YoY change of -5.9%. This is unadjusted for the Sandy distortion we profile above.

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - JS 1

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - JS 2

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - JS 3

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - JS 4

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - JS 5

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - JS 6

 

 

Yield Spreads

The 2-10 spread rose 5 basis points WoW to 240 bps. 4Q13TD, the 2-10 spread is averaging 230 bps, which is lower by 4 bps relative to 3Q13.

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - JS 7

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - JS 8

 

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 



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INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN

Takeaway: Adjusting for the effects of Hurricane Sandy this time last year we find that the rate of labor market improvement continues to accelerate.

More Good News on the Labor Front

This week's data shows a continuation and modest acceleration in the rate of improvement in the labor market. As is our convention we largely disregard the seasonally adjusted data and instead look at the year-over-year rate of change in the non-seasonally adjusted data. This week is a bit difficult on that front because we are lapping the impact of Hurricane Sandy. This week last year we saw a 78,000 W/W increase in claims from Sandy. If we adjust the numbers for Sandy we find that the Y/Y rate of improvement this week came in at -8.9%, i.e. claims are lower than last year by 8.9%. This is a modest acceleration in trend from the previous week's -8.4%. On a rolling basis the dynamic is similar, where the rate of improvement strengthened to -8.1% from -5.1%, but we are also coming off the distortion of the California IT hiccup. The net of it is that the labor market continues to gain momentum and this should, on the margin, push up tapering expectations and push up the long end of the yield curve. Beneficiaries include asset sensitive and credit sensitive financials.

 

Nuts & Bolts 

Prior to revision, initial jobless claims rose 3k to 339k from 336k WoW, as the prior week's number was revised up by 5k to 341k.

 

The headline (unrevised) number shows claims were lower by 2k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -4.75k WoW to 343.75k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -13.2% lower YoY, which is a sequential improvement versus the previous week's YoY change of -5.9%. This is unadjusted for the Sandy distortion we profile above.

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 1

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 2

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 3

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 4

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 5

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 6

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 7

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 8

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 9

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 10

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 11

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 12

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 13

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 19

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 14

 

Yield Spreads

The 2-10 spread rose 5 basis points WoW to 240 bps. 4Q13TD, the 2-10 spread is averaging 230 bps, which is lower by 4 bps relative to 3Q13.

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 15

 

INITIAL CLAIMS: THE JOBS PICTURE CONTINUES TO STRENGTHEN  - 16

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


Janet's Wilted Dollars

Takeaway: This is your centrally planned market life now. Deal with it.

So, after testing Hedgeye TREND resistance of $81.39, the US Dollar Index (sadly) faded like a wilted flower yesterday.

 

Janet's Wilted Dollars - yell3

 

Reality check: This is your centrally planned market life now. Deal with it.

 

On a related note, I don’t think there’s a hope in hell that Janet Yellen signals a December taper. Heck, the Yen might even be a long here going into her hearing. That’s how scary dovish she is.

 

Janet's Wilted Dollars - lightning


Scary Dovish

Client Talking Points

US DOLLAR

So after testing our Hedgeye TREND resistance of $81.39, the US Dollar Index (sadly) faded like a wilted flower yesterday. The reality is that this is your centrally planned market life now. Deal with it. On a related note, the Yen might even be a long here going into the Yellen hearing. That’s how scary dovish she is.

UST 10YR YIELD

The 10-Year yield fades at a lower-high and now Hedgeye TREND support of 2.66% comes in play into the Fed front-running circus event in Washington. I don’t think there’s a hope in hell that Janet Yellen signals a December taper. No way, no how. That’s why I am long the long bond (and Gold) here.

GOLD

Gold does not have the pop Silver (+1.4%) has this morning, but at least its not going down. We’re now long of Gold in Yellen terms (closer to $1262), but Mr Market doesn’t care what we own and where. Today is game day. Gold resistance is $1311, then $1342 after that

Asset Allocation

CASH 48% US EQUITIES 8%
INTL EQUITIES 8% COMMODITIES 8%
FIXED INCOME 8% INTL CURRENCIES 20%

Top Long Ideas

Company Ticker Sector Duration
FXB

Our bullish call on the British Pound was borne out of our Q4 Macro themes call. We believe the health of a nation’s economy is reflected in its currency. We remain bullish on the regime change at the BOE, replacing Governor Mervyn King with Mark Carney. In its October meeting, the Bank of England voted unanimously (9-0) to keep rates on hold and the asset purchase program unchanged.  If we look at the GBP/USD cross, we believe the UK’s hawkish monetary and fiscal policy should appreciate the GBP, as Bernanke/Yellen continue to burn the USD via delaying the call to taper.

WWW

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.

TROW

Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks.  T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.

Three for the Road

TWEET OF THE DAY

This has to be one of the most confusing weeks of global macro signals in recent years... Lot of fundamental/quant mismatch = #RegimeChange? @HedgeyeDDale

QUOTE OF THE DAY

"Is the program actually proving effective? My short answer is yes."

-Janet Yellen on the efficacy of QE on 1/8/11

STAT OF THE DAY

Kohl's shares fell sharply this morning after posting earnings and revenue that fell far short of market expectations. Shares stumbled 9% in pre-market trade. Hedgeye Retail Sector Head Brian McGough nailed this call. Click here to watch video from Tuesday.


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