CLIENT TALKING POINTS
RUSSELL 2000
The Russell 2000 has a very positive relationship to the USD, we like the Russell when the dollar is going up and we don’t like it when the USD moves lower (as U.S. consumer purchasing power goes down as well). The Russell is now signalling bearish trade (immediate term) and trend (intermediate term).
GERMAN 10YR YIELD
The German 10YR Yield is up 157% since Monday (we care about rate of change not absolutes as a risk management factor). This is a mega move and it is driving the UST 10YR. People have been confused with the Fed getting easier and the USD going lower why bond yields haven't gone down as well...there has been a huge rate move that is correlated to European bond yields coming off of all time lows.
VOLATILITY
We have been highlighting this for the past few days, but risk ranges are WIDENING - this is a key leading indicator in our model and a signal to raise cash. Risk ranges are widening in the foreign currency markets and in the fixed income markets which eventually gets to the equity and commodity markets. Be very careful - Sell in May and Go Away on this bounce.
TOP LONG IDEAS
MTW
The Dodge Construction Starts Index accelerated at its highest rate since 1982. The index was driven largely by non-building projects, which was 74% higher for the first three months compared to last year. The Architecture Billings Index (ABI), a survey of architects, increased ~3% month-over-month and ~5% year-over-year for March. The ABI Index typically leads nonresidential and residential construction spending by 9-12 months. More importantly, the ABI Index leads Manitowoc Crane Orders by 2 quarters. This suggests MTW’s crane sales should see a pickup in the first half of the year. MTW reports April 29th after the close. Earnings Call will be held at 10:00am eastern time the following day.
ITB
iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call. Housing went 4 for 4 in a data heavy calendar for the sector this week with demand improving across both the new and existing markets and the fledgling acceleration in price growth finding some positive confirmation. The builder stocks had a choppy week of performance as investors held mixed opinions of earnings reports and management commentary out of DHI and PHM but, from a fundamental data perspective, the Trend remains one of discrete improvement.
TLT
Ten-year rates dipped 12bps on the week (forward-looking growth expectations) and the USD got crushed for a 1.5% loss. Growth and inflation expectations get priced in AHEAD of the more dovish policy tone resulting from any sign of deterioration in the labor market. Wednesday’s Fed meeting will be the next catalyst that will steer the market’s expectation on forward-looking growth and inflation. We expect the dots (forward-looking federal fund rate expectations) to be pushed out….again.
Asset Allocation
| CASH | 41% | US EQUITIES | 10% | |
| INTL EQUITIES | 12% | COMMODITIES | 0% | |
| FIXED INCOME | 31% | INTL CURRENCIES | 6% |
THREE FOR THE ROAD
TWEET OF THE DAY
LIVE at 130pm ET $ATHN Best Long Idea Q&A w/Healthcare Sector Head Tom Tobin Click here: https://app.hedgeye.com/insights/43841-live-athn-best-long-idea-q-a-with-healthcare-sector-head … cc @HedgeyeHC @HedgeyeHIT
@Hedgeye
QUOTE OF THE DAY
The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy.
Martin Luther King, Jr.
STAT OF THE DAY
ATHN reported 290 basis points year-over-year Gross Margin expansion driving majority of Non-GAAP EPS Beat of $0.24 v $0.14 consensus (Consistent with our view that ATHN has tremendous operating leverage).
