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Client Talking Points

M&A

According to Bloomberg, $406B of M&A deals has been announced globally this quarter, including $170B in the past week alone. This puts 2015 on track for a record year with projected volumes north of $1T. Q3-to-date is on track to surpass the previous quarterly record of 3Q07, which occurred during the prior peak year of M&A activity with $933B proposed deals. The annual record prior to that? You guessed it: 2000. As we’ve said over and over again in the year-to-date, when the economic cycle slows capital markets activity peaks as management teams try either sell before it’s too late or front-run the slowdown with financial engineering. 

EARNINGS

FactSet data reports that S&P 500 earnings growth is on track to fall -0.7% year-over-year in 1H15, marking the slowest rate of change since 2009. The same data has EPS projected to fall another -2.7% year-over-year in Q3. Despite this fundamental weakness, broad market valuations in the 99th percentile of all readings and dramatically narrowed market breadth, sell-side strategists are sticking with their forecasts for the S&P 500 to rise +8% by year-end 2015. Hedgeye CEO Keith McCullough talked about how certain market participants can only get away with ignoring data for so long in today’s early look and this juxtaposition seems appropriate to highlight on the heels of that.  

CONSUMER CONFIDENCE

Lost in yesterday’s dead-cat bounce across the reflation sectors of the market was the noticeable lack of a bounce in consumer confidence. Specifically, the Conference Board’s measure plunged to 90.9 in July from 101.4 in June, marking the lowest reading since September of 2014 and confirming the slowdown on both a sequential and trending basis. All told, we reiterate our #ConsumerSlowing theme, which calls for domestic consumption growth to continue slowing from its 1H15 peak in rate-of-change terms through a likely recession in 2016.

 

**The Macro Show - CLICK HERE to watch today's edition at 8:30AM ET.

Asset Allocation

CASH 47% US EQUITIES 7%
INTL EQUITIES 10% COMMODITIES 0%
FIXED INCOME 22% INTL CURRENCIES 14%

Top Long Ideas

Company Ticker Sector Duration
GIS

General Mills (GIS) remains on the Hedgeye Consumer Staples Best Ideas list as a LONG. Key segments across the company are turning the corner and improving performance. Specifically GIS has figured out the yogurt category, after 3 years of struggling with Greek and losing on the core business, management has turned the Yogurt division into a growth segment. Cereal has obviously been a struggle for all companies participating. Although still down, the trend is looking better, in FY16 we hope to see the switch to Gluten Free Cheerios and other improvement, turn performance around.

PENN

Penn National Gaming reported Q2 profit of $16.9 million on Thursday. The company's profit of 19 cents per share beat analysts' expectations.  PENN posted revenue of $701 million in the period, which also beat forecasts.  Shares have climbed 40% since the beginning of the year and 58% over the last 12 months, obviously much higher than the S&P 500. Gaming, Lodging and Leisure Sector Head Todd Jordan was at Penn National Gaming's investor day on July 24th. He will provide a detailed update this week.

TLT

Those long of #LowerforLonger enjoyed another solid week of 2%+ gains for TLT and EDV. VNQ followed up last week’s gains with a pullback of equal size, but we received a positive sloth of data this week that confirms our long housing theme. A positive housing outlook within a bearish rate environment should be positive for VNQ.

Three for the Road

TWEET OF THE DAY

Hedgeye reiterates longstanding SELL calls on both $YELP and $TWTR @MariaBartiromo

@KeithMcCullough

QUOTE OF THE DAY

It is one thing to not know, it is another thing to not know that you don’t know!

Eric Hunsader

STAT OF THE DAY

In a survey Hedegye’s Restaurants Team asked 2,000 people whether they would go to MCD more often if they could get breakfast for lunch, 33.3% of people said yes.