All You Need To Know About The (Crashing) Russell 3000 In One Chart

Hedgeye Senior Macro analyst Darius Dale sent a note to institutional subscribers Friday outlining the bearish reality behind the Russell 3000's crash. It's not pretty. As you can see below, the average stock in the Russell 3000 has plummeted a monster -34% from its 52-week high.  


Click the image below to enlarge. 


All You Need To Know About The (Crashing) Russell 3000 In One Chart - russell 3000



This Chart Shows Why The Stock Market Selloff Isn't Over

Takeaway: Ignore this morning's stock market bounce.

This Chart Shows Why The Stock Market Selloff Isn't Over - bounce cartoon 01.12.2016


We know that consensus S&P 500 earnings estimates have come down markedly. However, what equity perma-bulls don't know is just how poorly this bodes for stocks.   


According to FactSet:


"For Q4 2015, the blended [estimated] earnings decline is -5.7%. If the index reports a decline in earnings for Q4, it will mark the first time the index has seen three consecutive quarters of year-over-year declines in earnings since Q1 2009 through Q3 2009."


so Why does this matter?


Check out the chart below. It shows what happens to U.S. equities when S&P earnings contract for more than two consecutive quarters. In short, the S&P 500 declines 20% or more.


This Chart Shows Why The Stock Market Selloff Isn't Over - EL profits large


in other words, watch out.

Early Look

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TIF | Staying Short

Takeaway: TIF miss blows up bull case that this is a great company at a defendable valuation. Hardly financial management befitting a 'Best-in-Breed'

TIF missed yet again, blowing up the bull case that this is a great company at a defendable valuation. The forecastability of this cash flow stream is the worst we've ever seen outside of the Great Recession. If you did not think we were headed for a recession yesterday, you've got to give it serious credence today. Unfortunately, in a recession TIF earnings could still go meaningfully lower (I.e. $3.00).


We acknowledge that TIF is a very good (once great) brand and company. But let's be honest...this company guided down more in the past year than it had it the preceding decade. That's hardly financial management befitting a Best-in-Breed company.


Barring a complete reset in Street numbers (down to the $3.50 range) we'll stay short.


If the stock holds in there (~$65), then it will still be worth shorting due to lack of valuation support.


Additional details...


Stating the obvious this was a really bad number out of TIF this morning, reporting -5% constant currency comps for the months of November and December vs. consensus at 2.7% for all of 4Q. All regions of the globe, except for Japan, reported negative comps over the Holiday selling period. Earnings expectations for the quarter now sit at the bottom end of the previously announced range.


The key questions we were asking as we headed into this sales release was why earnings NEED to grow next year.  TIF answered that in its preliminary guidance for 2016 calling for minimal growth in both sales and earnings. That translates to $3.90 vs. the Street at $4.30.


The reality is that there are no obvious margin levers to offset the declining growth profile in the business, especially amidst increased late cycle risks. The price has come off (down another 5% at the open), but so have earnings. It is trading near a peak multiple on our numbers (17x) on peakish margins (19%-20%) on an earnings number that is not likely to grow for 2-3 years absent financial engineering. 

RTA Live: January 19, 2016


Shellacked: A Recap of Last Week's Market Action

Takeaway: Once again, it pays to listen to Hedgeye.

Shellacked: A Recap of Last Week's Market Action  - stocks. bear in the woods 01.06.2016


In terms of both economic data and macro market read-throughs, last week was really ugly. The reality is that it was the worst start in history for U.S. stocks. Ever. 


Well, for equity investors at least, not Hedgeye subscribers.


Our subscribers were spared the August equity market drubbing and the most recent market rout as our contrarian Macro team has been way ahead of consensus warning about ongloing risks including #Deflation and #GrowthSlowing


In other words, we made the call.


Hedgeye CEO Keith McCullough dissected last week's data and the resulting financial market reverberations in a note sent to subscribers this morning:  


"Let’s not forget we had a trifecta of “misses” on Friday with Industrial Production and Producer Prices (PPI) in recessions at -1.8% and -1.0% year-over-year, respectively (and control group for Retail Sales only +1.5%). The U.S. 10YR Yield broke 2.0% intraday (and should have on that data) and GDP is a lot slower than consensus (our favorite Macro Long idea remains the Long Bond)."


Shellacked: A Recap of Last Week's Market Action  - 10yr yield


Meanwhile, equity markets ripped to the downside, in all but one sector, Utilities (XLU) (which just so happens to be the one sector that we like.) Here's additional analysis from McCullough: 


"U.S. Equity Sector Styles continue to reflect #Recessionary expectations accelerating, with Utilities (our favorite sector currently) +0.7% last week (+0.3% year-to-date) and Basic Materials -4.5% on the week (-11.9% year-to-date) and Financials -3.1% on the week (-10.1% year-to-date) underperforming what’s an already -8.0% year-to-date S&P 500."


Shellacked: A Recap of Last Week's Market Action  - sector performance


The fizzling in U.S. equities doesn't surprise us at all. Here's an inside peak at our proprietary asset allocation model which has been largely devoid of U.S. equities since last July.


Shellacked: A Recap of Last Week's Market Action  - asset allocation


Bottom line: We're going to ignore consensus and stick with our process. It's working.


Shellacked: A Recap of Last Week's Market Action  - z consensus


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