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What Is The Probability Of ’87-Style Stock Market Crash?

In this brief excerpt of The Macro Show this morning, Hedgeye Financials analyst Jonathan Casteleyn discusses three likely scenarios for the stock market this year.  

 

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A Quick Update On (Ugly) S&P Earnings & (Nasty) YTD Sector Performance

Takeaway: Financials are getting shellacked this year. Utilities are up. Meanwhile, all but 3 of 10 S&P sectors reported negative earnings growth.

A Quick Update On (Ugly) S&P Earnings & (Nasty) YTD Sector Performance - Earnings cartoon 11.03.2015

 

Below are charts and analysis from Hedgeye CEO Keith McCullough on sector performance and quarterly earnings. It's not pretty.

 

Year-to-date sector performance...

 A Quick Update On (Ugly) S&P Earnings & (Nasty) YTD Sector Performance - sector performance 1

 

"Get the macro call on growth right, you get rates and sector styles right – Financials (XLF) down to -14.4% YTD vs. Utes (XLU) up (again) on the day yesterday to +7.6% YTD – overbought, yes – but we’re staying w/ this TREND long/short call."

 

S&P 500 Quarterly Earnings... 

 A Quick Update On (Ugly) S&P Earnings & (Nasty) YTD Sector Performance - S P Rev   Earnings Comps

 

"Get corporate profits (slowing to negative y/y) and credit spreads right, you’ve gotten a lot of other things right - with 335/500 companies reporting SP500 Revs -4.4% y/y and EPS -6.2% y/y (only 3 of 10 sectors have + EPS growth y/y)"

 

Keep your head up and stick with us. Macro markets are getting ugly.


HedgeyeRetail (2/10) | KATE - No Pre-Announcement, NKE

Takeaway: KATE announced earnings date of 3/1, meaning no pre-announcement, like set-up here. NKE adds to DTC roster, names head of Digital.

KATE - Announced Earnings Date (3/1). No Preannouncement.

 

Conclusion: Sentiment in ‘space’ finally improved, and KATE should earn more $ this quarter than it has cumulatively in seven years. Then people should start to look at $0.70-$1.00 in EPS power for the year. Then it’s finally got valuation support – especially with the stock at $15.

 

KATE put out a press release last night announcing its 4Q release and earnings call. That ends the speculation on a pre-announcement. If we look back at the reasons for the pre-announcement last year in late January it was centered around two things.

1) The discontinuation of Kate Spade Saturday and the closing of Jack Spade retail stores.

2) Concerns over the space. KATE was down 17% vs. the XRT -1% over the first 9 trading sessions in 2014 as KORS and COH continued to weaken on the margin. Then KATE came out and kicked down the door with a 28% comp.

 

We're not expecting that level of blowout in this year's 4Q print. But, here's what we do know…

a) Same store sale expectations look to be in check at 11% as the company laps its Flash sale reduction in 4Q14 and gets the couple hundred basis point lift from the addition of the Juicy remodel outlet locations.

b) Gross margin guidance is beatable. The street is looking for just a 90bps improvement on last years -390bps decrease. The liquidation of Jack/Saturday inventory cost the company 215bps, and current expectations only assume the company gets a fraction of that back.

c) The top line is primed for 2016 as the company laps the noise around its JV/Distro agreements in Asia and South America, laps the quality of sales initiatives in both company owned and wholesale channels in North America, and starts to see the benefit of a two-handfuls of new licensing agreements. Macro is a concern, but for a company like KATE with ~4% market share and relatively low international presence/share of wallet, we think there are asymmetric drivers for the top line.

 

NKE - Nike adds to DTC roster. Names head of Digital

(http://news.nike.com/news/names-adam-sussman-as-chief-digital-officer)

 

Nike is bringing in Adam Sussman to lead the new digital platform that on the company's numbers will account for 30% of the incremental $20bn in dollar growth from FY15-FY20. We think the number is closer to 50% of incremental growth.

HedgeyeRetail (2/10)  |  KATE - No Pre-Announcement, NKE - 2 10 2016 chart1

   (Nike Investor Day 2015)

 

AMZN - ChannelAdvisor comps show acceleration in January sales for Amazon

HedgeyeRetail (2/10)  |  KATE - No Pre-Announcement, NKE - 2 10 2016 chart2

 

AMZN - Amazon Project Dragon Boat looking to build global delivery business

(http://www.bloomberg.com/news/articles/2016-02-09/amazon-is-building-global-delivery-business-to-take-on-alibaba-ikfhpyes)

 

Saks announces that Gilt will open first ever in-store shop in new Saks off 5th NYC location

(http://www.retailingtoday.com/article/saks-th-adds-little-gilt-its-first-nyc-store)

HedgeyeRetail (2/10)  |  KATE - No Pre-Announcement, NKE - 2 10 2016 chart3

 

SHLD - Sears Holdings to accelerate store closures after weak preannounce

(http://www.retailingtoday.com/article/sears-holdings-accelerate-closure-unprofitable-stores)

 

SPLS - Staples receives approval from EU for ODP acquisition

(http://www.businesswire.com/news/home/20160210005652/en/)

 

CAB - Cabela's former Executive VP Scott K. Williams named President

(http://www.businesswire.com/news/home/20160209006816/en/)

 

CONN - Conn's sees January furniture comps increase 12.3% in the furniture and mattress category

(http://www.retailingtoday.com/article/conns-takes-comfort-furniture-business)

 

TLF - Tandy Leather Factory CEO Jon Thompson resigns

(http://ir.tandyleather.com/profiles/investor/ResLibraryView.asp?ResLibraryID=80422&GoTopage=1&Category=1161&BzID=1625&G=835)

 

ARO - Sycamore Partners' Aeropostale board designee Kent Kleeberger resigns

(https://www.sec.gov/Archives/edgar/data/1168213/000110465916095058/a16-3885_1sc13da.htm)

 

Hermès lowers 2016 sales expectations due to economic, geopolitical and monetary uncertainties -- says luxury is not immune to economic cycle

(http://www.wsj.com/articles/hermes-boosted-by-weak-euro-and-strong-asian-demand-1455091285)

 

Alec Richards

 


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The Macro Show Replay | February 10, 2016

 


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

TWEET OF THE DAY

Need insight on #NewHampshirePrimary?

Another Test For #DonaldTrump.. Don't Rule Out #Rubio https://app.hedgeye.com/insights/49049-jt-taylor-another-test-for-donald-trump-don-t-rule-out-rubio

@Hedgeye

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.


CHART OF THE DAY: Dear Janet, Is Deflation Still Transitory?

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to learn more. 

 

"... So, we’ll do that for the next few days as Sheep Herder In Chief, Janet Yellen, descends from upon high to explain to both the House and Senate committees how she didn’t mean to skin the stock market.

 

While it will be fascinating to watch Yellen pivot from where she was last time she testified (forecasting economic acceleration, “transitory” #Deflation, and rate hikes), I’d hate to see another Democrat resort to peddling another round of “economic fiction.”

 

CHART OF THE DAY: Dear Janet, Is Deflation Still Transitory? - 02.10.16 chart


Early Look

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