No Growth?

Takeaway: Domestic economic growth remains fairly anemic with mounting risks to the downside as we progress through the balance of the year.

The Good: With the inclusion of this morning’s [fairly soft] personal income and spending data, Real PCE (~70% of GDP) is averaging +3.2% YoY for Q1-to-date (up from ~2.8% in Q4). That remains supportive of our #Quad1 forecast for 1Q15.

 

No Growth? - Personal Income   Spending

 

The Bad: Outside of housing, not one key economic indicator category is accelerating on both a sequential and trending basis. This pervasive lack of economic momentum will become a major headwind to annual growth rates once base effects become unsupportive throughout the following two quarters. Our full-year estimate of +2.4% real GDP growth – which is already well below the Street and below the Fed’s latest downwardly revised target(s) – could have a 1-handle on it by the time Q3 GDP is reported if growth surprises our expectations to the downside over the next 3-6 months.

 

No Growth? - U.S. Economic Summary Table

 

The Ugly: If GDP comes in at the +3% YoY midpoint of our GIP Model forecast range in 1Q15 (up from +2.4% in Q4), the QoQ SAAR growth is likely to be in the +0.2-0.3% range (down from +2.2% in Q4). As always, we should not anchor on any QoQ SAAR forecast given its sensitivity to even the most marginal changes in our YoY growth rate forecast range, but just being in the area code of 0% sequential growth is not good. It’s worth noting that “forecast” is perfectly corroborated by the Atlanta Fed GDPNow Model, which many FOMC and market participants anchor on.

 

No Growth? - UNITED STATES

 

The Conclusion: We reiterate our bullish bias on long-term Treasuries – a view we’ve held for over a year now – as the Fed is likely to continue downwardly revising their “dot plot” closer to subdued market expectations, at the margins. 2015 is shaping up to be the 2nd straight year in which long bonds bulls outperform their counterparts in the equity market: TLT and EDV appreciated +23.6% and +39.6%, respectively in 2014 vs. a return of +11.3% and +7.5% for the SPY and DIA, respectively. For those of you who must remain long of U.S. equities, we reiterate our preference for domestic revenue and EPS exposure in lieu of international exposure, which translates to favoring small-caps (IWM) over large-caps (SPY), as well as being long of Consumer Discretionary (XLY) and Housing (ITB) stocks.

 

No Growth? - FOMC Dot Plot

 

No Growth? - S P 500 Revenue and EPS Growth

 

Best of luck out there,

 

Darius Dale

Associate


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more