Make no mistake. Wall Street had a terrible 2015. This year's consensus playbook was an absolute mess.
A sampling of some recent headlines that caught our eye:
- "For Stock Forecasters, 2015 Was a Hard Year to Get Right" -Wall Street Journal.
- "Warren Buffett has a year to forget" - CNN Money
- "The Big Short Was Only One Reason 2015 Was The Year of the Bears" - Bloomberg.
To be sure, the laundry list of Wall Street misses would be quite the Mea culpa. (But don't expect them to fess up.)
Let's take a quick run through some of this year's scorecard:
- Year-end S&P targets have come up well short of consensus' 2208 figure.
- Energy and financial stocks — supposed "must own" sectors — got train wrecked and are down 26%.
- Stratospheric U.S. economic growth estimates of around 3%-plus have been consistently confounded by economic reality.
- Meanwhile, Wall Street completely missed commodity-price deflation, (which has also run contrary to the Fed's prediction that it would all be "transitory"). The CRB index of commodities is down more than 20% this year.
Hedgeye CEO Keith McCullough reviews the worst calls
For good measure, here's one last example of the old Wall Street swing-and-miss. Oil has tumbled another 42% year-to-date. And yet, most 2015 storytelling began with the idea that lower "prices at the pump" would be a shot in the arm for consumer spending. That didn't work out so well. Consumption is slowing. (See the slide below from our October Q3 Macro Themes presentation.)
The list of Wall Street dogs goes on and on. We digress...
Luckily (for Hedgeye subscribers who stuck with our process) we tip-toed away from the consensus' face-plant and nailed investable ideas around #Deflation, #LateCycle / #GrowthSlowing and #LowerForLonger (rates). These are just a few of our non-consensus calls that proved correct, but confounded Wall Street throughout the year.
To be sure, our 30-some-odd analysts are also having a great year.
- Hedgeye Energy analyst Kevin Kaiser nailed the precipitous fall from grace of Kinder Morgan (KMI) along with broader bearishness on MLP stocks,
- Internet & Media analyst Hesham Shaaban has been spot-on with calls on LinkedIn (LNKD) and Twitter (TWTR)
- Our Healthcare team, led by Tom Tobin with their #ACATaper theme, continues to bear out what they see as a "Perfect Storm Is Brewing in Healthcare."
These are just a few of the many highlights.
Another prescient warning came from Hedgeye Senior Macro analyst Darius Dale back in late July, right before the death knell drop in the S&P 500. The S&P 500 had just made fresh all-time highs and, as Dale wrote, we were seeing a breakdown in a number of key market signals.
That raised this simple question:
"... Sell everything? As predicted in our previous refresh, the recent bullish-to-bearish reversals in Emerging Market Equities, Foreign Exchange and Commodities were, in fact, a harbinger for similar breakdowns across the Domestic and International Equities asset classes. Our recent decision to add SPY to the short side of our thematic investment conclusions confirm how we are thinking about this risk in real time. At the bare minimum, it implies investors would do well to reduce their gross exposure and/or tighten up their net exposure to global asset markets."
It was another big call Wall Street missed. The S&P fell off a cliff, dropping 12% before it bottomed in late August.
Where do we go from here?
If you're sticking with the one Wall Street firm that nailed 2015, then watch next year. Our Macro team has been sounding the alarm on a coming recession that we think may take hold around the end of the first half of 2016. (Click here for our latest recap of the recessionary data stream.)
You'd think that after such a bad year, Wall Street would shape up and ratchet back their rosy forecasts.
Anything to justify buying stocks yet again...
Time will tell whether we're right about a coming U.S. recession. We're sure, however, that you won't hear anything nearly as bold out of Wall Street.