U.S. Stocks Make Lower Closing Low

Client Talking Points

YEN

What happens when they move to infinity-bailout (BOJ) and the market no longer trusts them? Abe was forced to say “I trust Governor Kuroda” overnight as neither the FX nor Nikkei does (the Yen hit new year-to-date high = Nikkei down another -2.3%).

SECTORS

If you get the macro call on growth right, you will get rates and sector styles right. Financials (XLF) are down -14.4% year-to-date vs. Utes (XLU) up (again) on the day yesterday +7.6% year-to-date. Overbought? Yes – but we’re staying with this TREND long/short call.

EPS

If you get corporate profits (slowing to negative year-over-year) and credit spreads right, you’ve gotten a lot of other things right. With 335/500 companies reporting S&P 500 Revenues are down -4.4% year-over-year and EPS is down -6.2% year-over-year (only 3 of 10 sectors have positive EPS growth year-over-year).

 

*Tune into The Macro Show with Hedgeye Financials analyst Jonathan Casteleyn and Macro analyst Ben Ryan live in the studio at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 66% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 21% INTL CURRENCIES 13%

Top Long Ideas

Company Ticker Sector Duration
XLU

The bond market understands #GrowthSlowing. So do Utilities (XLU), which is why XLU is leading S&P sub-sector performance in 2016. XLU is up +7.6% versus down -8.0% for the S&P 500. Stick with it on the long side.  

GIS

GIS remains one of analyst Howard Penney's top Long ideas in the Consumer Staples space. As we have continued to say, it boasts style factors ideal in turbulent times; high market cap, low beta and liquidity. While GIS is down year-to-date, it's held up very well against the broader stock market. GIS is down -4% versus down -8% for the S&P 500 in 2016.

 

GIS has been picking up steam, as the company is working to improve merchandising and advertising on core business. One of the initiatives is making a distinct effort to delve deeper into the natural and organic category. That will certainly help them a lot in the long run. More to come.

TLT

Down go growth expectations and down goes the yield curve. That's the latest from Macro markets last week and it plays right into our long Long-Term Treasuries (TLT) and short Junk Bonds (JNK) Investing Ideas.

 

The UST 10YR Yield declined another -9 basis points last week which helped boost TLT +1.1% on the week. In a healthy environment, bonds as an asset class go up in tandem, but JNK lost -0.9% on the week despite a falling yield curve. That’s because we’re NOT in an “all is good” environment. Credit spreads widen in turbulent times. This widening is the alpha-generating opportunity in long TLT, short JNK.

Three for the Road

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QUOTE OF THE DAY

You shall know the truth and the truth shall make you mad.

Aldous Huxley

STAT OF THE DAY

Hourly rates at large corporate law firms have increased 3-4% per year since the recession.