The Race

While that may be true for a regatta, that’s definitely not true for the Old Wall’s stock marketing game.


With Earning Season underway (86 S&P 500 companies have reported) sales “growth” is -3.6% and earnings “growth” is -7.9%, so the substitution on why everyone should be levered long stocks instead of Treasury Bonds is that “it’s all priced in.” #Cool


In other race to the bottom of 2015 “growth” thesis-drift news, Ferrari (not a new company) successfully priced its 17.2M share offering at the “high-end” of the $48-52/share range this morning. And yes, the ticker is RACE!


The Race - Earnings cartoon.spare


Back to the Global Macro Grind


While there was a race for Morgan Stanley to print summer-time US equity strategy notes that explained how the US profit cycle was not peaking (if you look at it “ex-Energy”), here’s the fact of the matter so far in the Q3 US Earnings season:


  1. Energy – Sales -33%, Earnings -56%
  2. Materials – Sales -8%, Earnings -30%
  3. Industrials – Sales -10%, Earnings -6%
  4. Information Technology – Sales -6%, Earnings -15%
  5. Financials – Sales -3%, Earnings -8%
  6. Consumer Staples – Sales -3%, Earnings -1%
  7. Healthcare – Sales +14%, Earnings -1%
  8. Consumer Discretionary – Sales +2%, Earnings +5%


But, if you “back out IBM” … and Industrials and Financials … and you don’t back out that Energy Stocks are the best performing S&P Sector Style to be long for Q4 (OCT) to-date at +11.2%, you should be making a ton of sense to your clients.




How can you not laugh out loud at the thesis-drift that’s out there versus the prior “GDP is going to be +3-4%, Earnings +8-10%, and 10yr Bond Yield > 3%” in 2015?


Yesterday’s stock market (SP500) return was -0.14%, but if you looked a foot beneath the surface:


  1. Biotech Stocks (IBB) were -3.2% on the day
  2. Healthcare (XLV) was -1.6% on the day
  3. Capital Markets (IPO) were -0.7% on the day


Meanwhile Oil & Gas Stocks (XOP) tacked on another +0.8% as the US Dollar continued to drip in the face of both #SuperLateCycle GDP and EPS Season #GrowthSlowing.


Once the race started in Q4 (October 1st), remember that most couldn’t have been long this “reflation” trade in Energy and Basic Materials stocks (and short Healthcare) without having had a horrendous time for the year-to-date.


“So”, as Wall Street likes to say, this makes this macro market much more like what Blackrock’s Chief Fixed Income Strategist, Jeff Rosenberg, told me it was on Fox yesterday - “paranormal.”


By “paranormal” Rosenberg accurately explained that bad news is good (for Stock Market Bulls) and good news is bad (for Long Bond Bulls)… all the while, the credit & growth quality side of this setup continues to punish the companies that miss numbers.


That’s also explains why “active” managers who are selecting:


  1. Contrarian Macro Exposures (Long Duration Bonds, Munis, Utilities, Gold, etc.)
  2. Organic Growth Longs (GOOGL) vs. GDP Slowing Shorts (CAT, WMT, IBM, etc.)
  3. Fortress Balance Sheet Credits (long) vs. Credit Spread Blowups (short)


Are absolutely crushing the field in 2015 and haven’t been forced to substitute a new narrative every 3-6 weeks to their investors in order to explain why their performance boat is taking on water.


This is not to suggest that organic growth stories (companies who can show Sales #GrowthAccelerating during a Top-Down #GrowthSlowing phase) won’t slow. Last night, high-flying multiple Chipotle (CMG) talked about October sales being choppy.


As we head into the final leg of the 2015 performance race, the leadership (in US Equities) is narrowing. That makes high expectation stocks like Amazon (AMZN) reporting earnings big bottom-up macro events. And there will be no time-outs.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.98-2.09%

VIX 14.74-20.41
EUR/USD 1.12-1.15
Oil (WTI) 44.64-47.49


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


The Race - 10.21.15 chart EL

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