Client Talking Points
Oil led yesterday’s intraday U.S. equity ramp (every S&P Sector ramped > 1%), closing the day +3.1% WTI (post a -7.9% down week). Oil really isn’t seeing any follow through this morning as the Dr (formerly known as Copper) breaks down to fresh new #Deflation lows at $2.10/lb.
Energy stocks up +3.3% (XLE) led the rally so apparently “reflation” hopes from both JUL and OCT (both major headfakes) = the big beta the market wants to chase on up days. We are watching levels, USD, and the commodity very closely here as beta in general is a bearish style factor.
The VIX ramped from 14 to 22, then back to 18 yesterday, but the bullish TREND call we’ve had on volatility (since July 2014) is firmly intact – immediate-term risk range for front-month VIX = 16.59-20.25.
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Top Long Ideas
Restaurants Sector Head Howard Penney attended MCD's investor meeting in New York City early last week. His takeaway from the meeting was that it was "very very bullish" for investors. Expectations were high, but CEO Steve Easterbrook came to NYC with big changes which have ultimately exceeded those expectations. "The big smile on Steve Easterbrook's face when talking about the current quarter was very telling," Penney writes. "He could not hide the enthusiasm." MCD increased the dollar value returned to shareholders by $10 billion. Penney and his team still see +30% upside from here.
Restoration Hardware (RH) shares got caught up in the tumultuous selloff of other high-end retailers. But we're still bullish on RH. Here's why. RH Tampa has just opened. That makes 4 new Full Line Design Galleries in 90 days. And all will be open before the start of holiday shopping season and just in time to house the new product lines RH Modern and Teen. Add up the four stores and we’re looking at about 210k square feet. That alone represents about 25% growth in square footage.
When all is said and done, we still think this company has $11 in earnings power 4-years out, which is nearly double the consensus. We remain convinced that the debate should not be ‘if or when’ the stock hits $115, but rather is it going to $200 or $300? We’ll be looking at an earnings CAGR of 40-50% over five years. What kind of multiple does that deserve? 20x? 25x? 30x? We’d argue the higher end.
It was a nasty end to the week for the “growth is back” bulls. It was an equally nasty end to the week in equity markets. The S&P 500 was “going to all-time highs” Tuesday before retreating over 3% from Wednesday to Friday.
With continued data-driven confirmation that growth is slowing:
Three for the Road
TWEET OF THE DAY
In today's Early Look "Macrocosm" I preview our inaugural Global Macro conference (to be held tomorrow in CT)
QUOTE OF THE DAY
No man is happy who does not think himself so.
STAT OF THE DAY
Total U.S. Equity Market Volume was down yesterday -12% vs. its 1 year average.