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The S&P 500 (Still) Has the Widest Risk Range Our Model Has Generated Since 2008

The S&P 500 still has the widest risk range our model has generated since 2008.

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The range is 1,835-2,017 with the more probable level being the downside one (-7.7% from Friday’s close), given that the Fed could be tightening into a 0.1% GDP environment here in Q3 (our low-end scenario with the high end being at 1.5% and the Atlanta Fed tracking 1.2%).

 

The S&P 500 (Still) Has the Widest Risk Range Our Model Has Generated Since 2008 - z Slide37

 

This is an excerpt from Hedgeye morning research. Click here if you're looking for a trustworthy and accountable risk manager who has a habit of (correctly) making big calls.


McCullough: I Am Unnerved

 

On The Macro Show this morning, Hedgeye CEO Keith McCullough articulated his frustration at consensus’ lack of risk management after the recent market correction. He also shares some sage investing advice from an institutional subscriber following a meeting last week with this leading global investor.

 

Subscribe to The Macro Show today for access to this and all other episodes. 

 

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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 80.28%
  • SHORT SIGNALS 78.51%

RTA Live: August 31, 2015

 

 


Monday Mashup

Monday Mashup - CHART 1

 

Two quick changes to our LONG bench we wanted to make you aware of, we removed MJN and added HSY. We will be releasing a note on these changes later today.

 

RECENT NOTES

8/31/15 HAIN | LOW QUALITY & INCREASED BUSINESS RISK

8/28/15 GIS | Time to Close this Deal

8/21/15 WWAV | DON’T PANIC, BUY MORE…HAIN | PANIC, SHORT MORE

8/21/15 UNFI | GOING AGAINST THE GRAIN

8/20/15 LNCE | Black Book Presentation Replay

 

RECENT NEWS FLOW

Monday, August 31

BETR | Initiated neutral at Goldman Sachs (underwriter of the IPO), price target $18. Current price is $13.31, we see downside from here and continue to have it on our SHORT bench.

 

Friday, August 28

GIS | Rumors continue to swirl around the divestiture of the Green Giant assets (click here for Hedgeye article)

 

Wednesday, August 26

THS | Upgraded to overweight from equal-weight at Stephens, target increased to $85 from $75. Treehouse seems to be the leader in the deal for the Ralcorp assets.

 

Tuesday, August 25

KHC | Recalled turkey bacon products (click here for article)

 

Monday, August 24

POST | Reinstated outperform at BMO Capital Markets, target is $72

 

SECTOR PERFORMANCE

Food and organic stocks that we follow outperformed the XLP last week. The XLP was down -0.1% last week, the top performer from our list was Amira Natural Foods (ANFI) posting an increase of +29.1%. Worst performing company on our list was ConAgra (CAG), which was down -2.8%.

Monday Mashup - CHART 2

 

QUANTITATIVE SETUP

From a quantitative perspective, the XLP is bearish on a TRADE and TREND duration.

Monday Mashup - CHART 3

 

Food and Organic Companies

Monday Mashup - CHART 4

Monday Mashup - CHART 5

 

Consolidated Consumer Staples Valuation

After the volatile market last week, valuations remain near two standard deviations above the five year average EV/EBITDA multiple.

Monday Mashup - CHART 6

 

Keith’s Three Morning Bullets

  1. FEDERAL RESERVE – Fischer opted for dovish comments on Friday, making his Saturday comments more hawkish – I guess they look at the S&P Futures now before saying anything of consequence (today he’d be dovish); Fed Fund futures have ramped back up to 38% on a SEP hike probability – reminder: the Fed has never hiked into a slowdown
  2. COMMODITIES – dovish = commodity reflation; hawkish = commodity #Deflation – so the deflation TREND is right back on this morning w/ Oil, Copper, and Russia down -2-3%; WTI’s risk range blew out to $36.99-45.32 on Friday, all but ensuring that massive volatility remains in this asset class
  3. SP500 – still has the widest risk range my model has generated since 2008 at 1 with the more probable level being the downside one (-7.7% from Friday’s close), given that the Fed could be tightening into a 0.1% GDP environment here in Q3 (our low-end scenario with the high end being at 1.5% and the Atlanta Fed tracking 1.2%)

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst

 


MONDAY MORNING RISK MONITOR | VOLATILITY ABOUNDS

Takeaway: Dovish comments from the Fed and a favorable US GDP reading led short-term risk perception to cool, but intermediate term risk remains high.

Key Takeaway:

The VIX has "cooled off" to ~26 following an intraday surge above 50 last week - the highest reading since early 2009. Global markets bounced on Wednesday following comments from Federal Reserve President William Dudley that a September rate hike now seems less compelling and a favorable revision to US GDP (+3.7% vs +2.3%) restored a degree of confidence. Risk warnings in our heatmap below eased off for the week with slightly more green than red in the short term. However, looking at the intermediate term, risk perception remains one-sided in favor of the negative; eight out of twelve measures are red. From our standpoint, nothing has changed fundamentally. The key risk metrics we watch in China remain on the same negative trend. 

 

Current Ideas:

MONDAY MORNING RISK MONITOR | VOLATILITY ABOUNDS - RM19 

 

 

Financial Risk Monitor Summary

• Short-term(WoW): Positive / 4 of 12 improved / 3 out of 12 worsened / 5 of 12 unchanged
• Intermediate-term(WoW): Negative / 2 of 12 improved / 8 out of 12 worsened / 2 of 12 unchanged
• Long-term(WoW): Positive / 3 of 12 improved / 2 out of 12 worsened / 7 of 12 unchanged

MONDAY MORNING RISK MONITOR | VOLATILITY ABOUNDS - RM15

 

1. U.S. Financial CDS – Swaps tightened for 14 out of 27 domestic financial institutions on positive GDP data and dovish comments from Fed President William Dudley. U.S. GDP came in at 3.7% in the second quarter, and Mr. Dudley commented that the case for a September rate increase is now less compelling.

Tightened the most WoW: ALL, CB, ACE
Widened the most WoW: BAC, C, MS
Tightened the most WoW: CB, ACE, AXP
Widened the most MoM: GNW, MET, GS

 

MONDAY MORNING RISK MONITOR | VOLATILITY ABOUNDS - RM1

 

2. European Financial CDS – Swaps mostly tightened in Europe last week as a global market recovery began on Wednesday.

 

MONDAY MORNING RISK MONITOR | VOLATILITY ABOUNDS - RM2

 

3. Asian Financial CDS – Swaps were a mixed bag across Asian Financials last week. Chinese banks were mostly tighter, while Japanese banks widened. 

 

MONDAY MORNING RISK MONITOR | VOLATILITY ABOUNDS - RM17

 

4. Sovereign CDS – Sovereign Swaps were little changed over last week. Spanish swaps widened the most, by +3 bps to 101.

 

MONDAY MORNING RISK MONITOR | VOLATILITY ABOUNDS - RM18

 

MONDAY MORNING RISK MONITOR | VOLATILITY ABOUNDS - RM3

 

MONDAY MORNING RISK MONITOR | VOLATILITY ABOUNDS - RM4

 

5. Emerging Market Sovereign CDS – Emerging market swaps mostly tightened last week. Russian swaps saw the largest move, tightening by -45 bps to 375.

 

MONDAY MORNING RISK MONITOR | VOLATILITY ABOUNDS - RM16

 

MONDAY MORNING RISK MONITOR | VOLATILITY ABOUNDS - RM20

 

 

6. High Yield (YTM) Monitor – High Yield rates fell 3 bps last week, ending the week at 7.37% versus 7.40% the prior week.

 

 

MONDAY MORNING RISK MONITOR | VOLATILITY ABOUNDS - RM5

 

 

7. Leveraged Loan Index Monitor – The Leveraged Loan Index fell 4.0 points last week, ending at 1862.

 

 

MONDAY MORNING RISK MONITOR | VOLATILITY ABOUNDS - RM6

 

 

8. TED Spread Monitor – The TED spread fell 4 basis points last week, ending the week at 27 bps this week versus last week’s print of 31 bps.

 

 

MONDAY MORNING RISK MONITOR | VOLATILITY ABOUNDS - RM7

 

 

9. CRB Commodity Price Index – The CRB index rose 1.7%, ending the week at 197 versus 194 the prior week. As compared with the prior month, commodity prices have decreased -2.7%. We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

 

 

MONDAY MORNING RISK MONITOR | VOLATILITY ABOUNDS - RM8

 

 

10. Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread was unchanged at 10 bps.

 

 

MONDAY MORNING RISK MONITOR | VOLATILITY ABOUNDS - RM9

 

 

11. Chinese Interbank Rate (Shifon Index) –  The Shifon Index fell 7 basis points last week, ending the week at 1.77% versus last week’s print of 1.85%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.

 

 

MONDAY MORNING RISK MONITOR | VOLATILITY ABOUNDS - RM10

 

 

12. Chinese Steel – Steel prices in China fell 2.5% last week, or 58 yuan/ton, to 2273 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity and, by extension, the health of the Chinese economy.

 

 

MONDAY MORNING RISK MONITOR | VOLATILITY ABOUNDS - RM12

 

 

13. 2-10 Spread – Last week the 2-10 spread widened to 146 bps, 4 bps wider than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

 

 

MONDAY MORNING RISK MONITOR | VOLATILITY ABOUNDS - RM13

 

 

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 4.0% upside to TRADE resistance and 7.4% downside to TRADE support.

 

 

MONDAY MORNING RISK MONITOR | VOLATILITY ABOUNDS - RM14

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 

 

 

 



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