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Bounce? A Quick Review Of (Crashing) Global Markets

Takeaway: Markets across the world remain in crash mode.

Bounce? A Quick Review Of (Crashing) Global Markets - bounce cartoon 02.12.2016

 

Talk of global equity market bounces is laughable. Here's a scorecard of global stock market performance in the past year highlighting the drawdown in major equity indexes from their respective 2015 highs.

 

Not good.

 

  1. MSCI World Index: -18.3%

  2. China's Shanghai Comp: -45.1%

  3. Spain's IBEX: -31.3%

  4. Japan's Nikkei: -23.1%

  5. Germany's DAX: -26.5%

  6. France's CAC 40: -22.2%

  7. U.S. Russell 2000: -24.4%

  8. U.S. S&P 500: -11.9%

 

Last week's "bounce" in U.S. equities was far from a vote of confidence. It came on no-volume.

 

Bounce? A Quick Review Of (Crashing) Global Markets - volume us

 

 

Below is a quick smattering of crashing global financial markets and their "bounces" for context...

 

Japan...

 

 

India...

 

 

Germany...

 

 

"1-day bounce (yesterday) does not an arrest of the stock market crash make," Hedgeye CEO Keith McCullough wrote in a note to subscribers this morning. "Draghi’s Euro is actually up vs. USD this morning as Italian stocks continue to crash and the DAX falls back to -26% since the 2015 peak – should he jawbone daily?" 

 

Oil... 

 

 

"Context is critical here – after another -4.7% week for WTI, they bounced it +3-4% on the OPEC headline this morning and have since lost most of that. The risk range remains intact at $26.02-31.39 (don’t chase bounces, sell them!)," McCullough wrote.

 


Central Planners Try To "Soothe Markets." What Happens When No One Believes Them Anymore?

Takeaway: Try as they may, central planners can't stop economic gravity.

Central Planners Try To "Soothe Markets." What Happens When No One Believes Them Anymore? - central banker cartoon 02.02.2016

 

"In the last 48 hours, we’ve seen some of the biggest ideological rock-stars of the central-market-planning bubble come out singing," Hedgeye CEO Keith McCullough wrote in this morning's Early Look. In case you missed it, here's a quick wrap up of the soothing words uttered by global central planners over the weekend:

 

  • Japan is pushing greater cooperation from its G7 partners to soothe market jitters, government sources say.
  • Mario Draghi and the ECB stand “ready to do its part,” i.e. the central bank could unveil further stimulus measures next month.
  • Meanwhile, Saudi Arabia and Russia have agreed to freeze oil output in a meeting in Qatar.

thought experiment:

 

What happens when the market no longer believes them? What happens when the music stops?

 

 

It's getting crazy..

 

Central Planners Try To "Soothe Markets." What Happens When No One Believes Them Anymore? - abc news

 

As the expression goes ... "May you live in interesting times." Rest assured this monetary policy gong show is going to get more interesting as reality sets in.

 

Central Planners Try To "Soothe Markets." What Happens When No One Believes Them Anymore? - Yellen Yoda cartoon 12.01.2015 


HedgeyeRetail (2/16) | Retail Expectations Are Ignoring the Economy

Takeaway: Not enough to be 'pretty cheap' when estimates are too high. A stock has to be incredibly cheap, and offer exceptional LT growth (i.e. RH).

Here's the historical sales, margin and earnings forecast for the group of 45 retailers that will start to report earnings this week.  There's good news and there's bad news.

 

The good news is that the consensus is looking for a 90bp decline in margins, and -4.2% erosion in earnings in the fourth quarter. Definitely conservative at face value.

 

The bad news is that face value is worthless. We think we're likely to see an earnings decline for the group in the high single digits this quarter.

 

Moreover, the Street is looking for a very steady earnings rebound in 1Q and 2Q16. What this tells us is that the Street is largely assuming that the malaise we're seeing out there is largely weather-related, given the problems retailers had in Dec and Jan.

 

Is weather a problem? Yes. But there's more to it -- and anyone that says there's no weakness in the underlying economy is probably not being intellectually honest.

 

The punchline is that retailers will not simply be 'gifted' an up year in 2016. They're going to have to fight tooth and nail. We think more will be down for the year than will experience growth.

 

Multiples are not egregious, and in fact they look downright attractive. But it's not enough to be 'pretty cheap' when estimates are still too high. In order to ignore an earnings miss, a stock has to be incredibly cheap, very little likelihood of a miss, and offer exceptional long term growth (i.e. RH).

 

In the meantime, we're comfortable pushing the short side of our ledger -- FL, KSS, GPS, HIBB, TIF, and TGT to name a few.

 

HedgeyeRetail (2/16) | Retail Expectations Are Ignoring the Economy - 2 16 2016 chart1

HedgeyeRetail (2/16) | Retail Expectations Are Ignoring the Economy - 2 16 2016 chart2

 

KSS - Kohl's cuts chief digital officer, senior  VP of store environment and development, & senior VP of communications

(http://www.wsj.com/articles/kohls-eliminates-three-senior-leadership-positions-1455300121?mod=mktw)

 

JWN - Nordstrom rack announces plans to open first Canadian store, a 38,600 sq ft. store that will open in 2018

(http://press.nordstrom.com/phoenix.zhtml?c=211996&p=irol-newsArticle&ID=2139337)

 

TLRD - Tailored brands guides full-year EPS to low side of prior guidance after Jos. A. Bank struggles

(http://ir.tailoredbrands.com/press-releases/detail/1776/tailored-brands-inc-provides-preliminary-fourth-quarter)

 

JCP - JCPenney announces management changes -- Chief Merchant John Tighe to oversee product development and design, Supply Chain SVP Mike Robbins will oversee global sourcing

(http://ir.jcpenney.com/phoenix.zhtml?c=70528&p=irol-newsCompanyArticle&ID=2139263)

 

AdiBok, SKX - Adidas wins lawsuit preventing Skechers from selling 2 discontinued styles

(http://www.businesswire.com/news/home/20160215005716/en/SKECHERS-Announces-Preliminary-Ruling-adidas-Lawsuit)

 

WFM - Whole Foods centralizes management to cuts costs, improve relationship with suppliers

(http://www.wsj.com/articles/whole-foods-works-to-reduce-costs-and-boost-clout-with-suppliers-1455445803)

 

SIG - Signet Jewelers announces plans to delist from London Stock Exchange

(http://www.businesswire.com/news/home/20160216005435/en/)

 

JCP - JCPenney says Burberry lawsuit will have no financial impact

(http://ir.jcpenney.com/phoenix.zhtml?c=70528&p=irol-newsCompanyArticle&ID=2138116)


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

Young Guns | A Deep Dive Into Earnings

Young Guns is a new HedgeyeTV show showcasing our millennial-aged analysts’ insights into how they approach their research.

 

 

In this inaugural edition of Young Guns, Hedgeye analysts Andrew Freedman (Healthcare), Alec Richards (Retail), and Shayne Laidlaw (Restaurants/Consumer Staples) discuss earnings season – the metrics that matter in their sectors, disruptive macro trends and what has surprised them so far from company reports.

 

CLICK HERE to see some of Hedgeye’s takeaways from earnings season thus far.


Losing “Control”

Client Talking Points

FX

Both the BOJ and ECB are doing everything they can to not have their respective currencies appreciate, but in spite of 1-day bounces on newsy days (that they create), they appear to be in the initial phase of losing control of the transmission mechanism.

DAX

1-day bounce (yesterday) does not an arrest of the stock market crash make. Draghi’s Euro is actually up vs. USD this morning as Italian stocks continue to crash and the DAX falls back to -26% since the 2015 peak – should he jawbone daily?

OIL

Context is critical here – after another -4.7% week for WTI, they bounced it +3-4% on the OPEC headline this morning and have since lost most of that. The risk range remains intact at $26.02-31.39 (don’t chase bounces, sell them!).

 

*Tune into The Macro Show with Hedgeye CEO Keith McCullough live in the studio at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 64% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 2%
FIXED INCOME 23% INTL CURRENCIES 11%

Top Long Ideas

Company Ticker Sector Duration
XLU

Utilities worked against us for a -2% loss on the week, but remain an outperforming sector YTD. New scares in the form of increased risk from the financial sector emerged last week. Deutsche Bank made headlines over liquidity concerns that tied into CEO Keith McCullough's favorite S&P Sector short, the Financials. Financials are the most over-owned group relative to its rate risk – XLF is now -14% vs. Utilities (XLU) +5.3% YTD.

GIS

Walmart is still having an effect on General Mills, but it isn’t any more or less severe than previously guided by management. They will begin to lap some of the effects caused by the retailer at the beginning of their 4Q16 (starting in March). Five years ago they dealt with a similar clean store policy implemented by Walmart. Coming out of that they seemed to have gotten more than their fair share of upside, specifically in cereal and fruit snacks, now they are seeing a little more than their fair share on the downside.

TLT

Investors continue to be confronted with our signal of #GrowthSlowing in the U.S. and globally. Even the White House came out to reduce 2016 U.S. inflation assumption to 1.5% from prior expectations of 1.9%!  We’ve called for yield compression alongside our signal of growth slowing and our expectation that global investors will continue to pile into US Treasuries as a “safe haven” liquid play. Last week, the US 10 year fell 13bps to 1.736%.Continue with our go-to macro market calls of long TLT and short JNK, and things don’t have to be so doom and gloom.

Three for the Road

TWEET OF THE DAY

What @Hedgeye is watching in The Week Ahead https://app.hedgeye.com/insights/49110-the-week-ahead… cc @KeithMcCullough

@Hedgeye

QUOTE OF THE DAY

Honesty is a very expensive gift. Don’t expect if from cheap people.

Warren Buffett                                            

STAT OF THE DAY

An estimated 44 million people are unemployed in developed countries, about 12 million more than in 2007.


CHART OF THE DAY: A Look At Style Factors & What Isn't Working In 2016

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. 

 

"... Other than Oil deflating another -4.7% last week (-22.9% for the YTD alone) and Bond Yields continuing to crash (UST 10yr Yield down another -9 basis points on the week to 1.75%) what other US Equity Style Factor messages were in the market last week?

  1. LEVERAGE: High Debt (to EV) Stocks led losers down another -4.1% on the week to -9.4% YTD
  2. SIZE: Small Cap Stocks were down another -3.5% on the week to -13.4% YTD
  3. BETA: High Beta Stocks underperformed beta (SP500) again, -2.9% on the week to -17.5% YTD

*Mean performance of Top Quintile vs. Bottom Quintile (SP500 Companies)"

 

CHART OF THE DAY: A Look At Style Factors & What Isn't Working In 2016 - 02.16.16 chart


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