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Adding XLU to Investing Ideas | Stock Report: Utilities Select Sector SPDR Fund

Takeaway: We are adding Utilities Select Sector SPDR Fund (XLU) to Investing Ideas.

Adding XLU to Investing Ideas | Stock Report: Utilities Select Sector SPDR Fund - xlu box

THE HEDGEYE EDGE

Sometimes the macro rotation and allocation playbook is relatively straightforward. As growth slows and "reflation" deflates, you want to be buying A) Long-term Bonds and B) stocks that look like bonds. Bond proxies and defensive yield consistently outperform alongside the dual deceleration in demand and prices and Utilities remains the canonical go-to sector for growth slowing, defensive yield exposure.  

TIMESPAN

INTERMEDIATE TERM (TREND) (the next 3 months or more)

In the globally coordinated central-banking game of rotate-the-QE, ECB President Mario Draghi et al hold the policy ball currently with the next main event calendar catalyst being Jackson Hole on August 27-29th. Relative strength in the domestic economy and expectations for divergent monetary policy paths in the U.S. and EU have and should continue to support dollar strength in the nearer-term  – with the stronger $USD, in turn, perpetuating the deflationary environment via declining import prices, declining business investment and ongoing declines in things priced in those dollars (namely commodities). 

 

Away from Deflation’s Dominos, we also expect domestic growth to decelerate in 2H15 – a reality that should further extend the prevailing outperformance in low-beta, low-short interest style factors. In other words, being long “boring”, relative inelastic cash-flows with yield worked in July and should continue to work from here. 

 

LONG-TERM (TAIL) (the next 3 years or less)

In a global Macroeconomy constrained by secular demographic headwinds, ongoing over-indebtedness, top-heavy income distributions and pervasive liquidity trap conditions, lower-and-slower-for-longer remains our baseline expectation for  growth, inflation and the level and path of interest rates. 

 

We don’t want to hold everything at every price but the reality of slower-for-longer is that re-rotation into Utilities, REITS and the like will be recurrent whenever the slope of (cyclical) growth turns negative and the quantitative setup is favorable. 

ONE-YEAR TRAILING CHART

Adding XLU to Investing Ideas | Stock Report: Utilities Select Sector SPDR Fund - XLU chartfinal


MACAU CONFERENCE CALL TOMORROW AT 11AM

We will host a conference call on Friday, August 7th at 11am ET to discuss the latest Macau data, our outlook on the market and the stocks, and the implications of the recent earnings season. As always, we will entertain questions at the end of the presentation.

 

RELEVANT TICKERS INCLUDE:

LVS, WYNN, MGM, MPEL, 0027.HK, 1128.HK, 1928.HK, 2282.HK, 6883.HK, and 0880.HK.

 

DISCUSSION POINTS

  • Q2 earnings implications
  • Hedgeye company EBITDA estimates vs the Street for Q3, 2015, and 2016
  • Revised 2015/2016 monthly market projections
  • The promotional environment
  • "True" Mass trends
  • The increasing importance of non-gaming segments

CALL DETAILS

Attendance on this call is limited. Ping  for more information


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RTA Live: August 6, 2015

Watch a replay of today's edition below.

 


JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES

Takeaway: Challenger data showed a surge in July layoffs driven by military restructuring. Meanwhile, Energy appear poised for another round of pain.

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

 

 

Army Woes & Energy Waves 

This morning's labor data doubleheader (July Challenger & Weekly Claims) featured weakness stemming from both the Army and the Energy industry. As the chart below shows, large troop reductions caused a ~50-60k surge in announced layoffs in July.

 

Meanwhile, Energy sector cuts rose to 9k from 0k in June. While we expect the troop count reduction was one-time in nature, our expectations on the energy front are the opposite. In speaking with our Energy Sector Head, Kevin Kaiser, many energy companies are hedged through year-end 2015, implying that later this year/early next year (assuming no bounce in energy) we'll see a second wave of job cuts from Energy.

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Challenger

 

On the claims side, rolling SA claims bounced nominally W/W (+3k to 270k) but remain at/near frictional lows. Recall that a few weeks ago, claims put in a 42-year low. 

 

The Data

Prior to revision, initial jobless claims rose 3k to 270k from 267k WoW, as the prior week's number was unchanged. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -6.5k WoW to 268.25k.

 

The 4-week rolling average of NSA claims, another way of evaluating the data, was -8.6% lower YoY, which is a sequential improvement versus the previous week's YoY change of -7.8%

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims2 normal  1

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims3 normal  1

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims4 normal  1

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims5 normal  1

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims6 normal  1

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims7 normal  1

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims9

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 



JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES

Takeaway: Challenger data showed a surge in July layoffs driven by military restructuring. Meanwhile, Energy appear poised for another round of pain.

This morning's labor data doubleheader (July Challenger & Weekly Claims) featured weakness stemming from both the Army and the Energy industry. As the chart below (Hat tip to Christian Drake of our Macro Team) shows, large troop reductions caused a ~50-60k surge in announced layoffs in July. Meanwhile, Energy sector cuts rose to 9k from 0k in June. While we expect the troop count reduction was one-time in nature, our expectations on the energy front are the opposite. In speaking with our Energy Sector Head, Kevin Kaiser, many energy companies are hedged through year-end 2015, implying that later this year/early next year (assuming no bounce in energy) we'll see a second wave of job cuts from Energy.

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - July Challenger

 

On the claims side, rolling SA claims bounced nominally W/W (+3k to 270k) but remain at/near frictional lows. Recall that a few weeks ago, claims put in a 42-year low. 

 

The Data

Prior to revision, initial jobless claims rose 3k to 270k from 267k WoW, as the prior week's number was unchanged. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -6.5k WoW to 268.25k.

 

The 4-week rolling average of NSA claims, another way of evaluating the data, was -8.6% lower YoY, which is a sequential improvement versus the previous week's YoY change of -7.8%

 

<chart2>

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims3

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims4

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims5

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims6

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims7

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims8

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims9

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims10

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims11

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims19

 

Yield Spreads

The 2-10 spread fell -5 basis points WoW to 154 bps. 3Q15TD, the 2-10 spread is averaging 164 bps, which is higher by 6 bps relative to 2Q15.

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims15

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims16

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.33%
  • SHORT SIGNALS 78.51%
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