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    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

Client Talking Points

YEN

The epicenter of big bang risk resides in the #BeliefSystem breaking down – meaning that when central-market-planners tell you to short their FX and it goes up (and stocks go down). That is becoming Japan with the Yen +0.8% here testing new year-to-date highs vs. USD – this is becoming as important a live quote as U.S. High Yield Spreads.

OIL

Oil ripped to the top-end of our immediate-term risk range and failed (again). There is no immediate-term downside support in the risk range for WTIC to $25.77 as the upside in Oil’s Volatility (OVX) remains 81!

EPS

With consensus staring (hoping) at oil, don’t forget that the most important relationship right now is that between profits and credits. With 435 out of 500 S&P companies reporting total revenues are -4.2% and EPS -6.5%; forget the “ex-Energy” thing – look at the best Sector Short (Financials) who now has EPS -8.8% year-over-year.

 

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

Asset Allocation

CASH 63% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 4%
FIXED INCOME 25% INTL CURRENCIES 8%

Top Long Ideas

Company Ticker Sector Duration
XLU

Long-Term Treasuries (TLT) and Utilities (XLU) remain our two best fixed income and equity vehicles to play #Lower-For-Longer on growth and interest rates as the market gets more and more skeptical about the central bank dogma.

 

With market turmoil, the Junk Bond ETF (JNK) is down -4.5% vs. the defensive, growth slowing equity sector Utilities (XLU) which is up 6.7%, outperforming the S&P 500 by 12.9% on a relative basis. That’s yet more confirmation of our dour economic outlook economy (spreads widen in tumultuous market environments and Utilities are a defensive sector that outperforms when growth is slowing).

GIS

General Mills (GIS) is a large player in the Yogurt category with their Yoplait brand. Their competitors, Dannon, Chobani and Fage have been aggressive on merchandising and consumer spending, making it difficult to compete while maintaining internal margin objectives. GIS is turning on innovation with the growth of Annie’s yogurt and that should help the trajectory of the business. Yogurt being a roughly $1.4 billion business, turning it around is a top priority for management.

 

On the broader GIS long thesis, it's unlikely that the stock is going to go up 20% in the next year, but we do believe it will fare better than most in the consumer staples sector, especially as we head into an economic slowdown.

TLT

With the market losing faith in the central planning policy backstop, investors continue to yield to top-down market signals and the direction of the data. To be clear, the data continues to deteriorate and volatility continues to break-out.

 

The yield spread (10-year Treasury yield minus 2-year Treasury yield) has compressed 24 basis points this year, and TLT is up 8.6% vs. the S&P 500 which is down -5.2%. The December Federal Funds Futures contract has declined in a straight line since December’s rate hike.  

Three for the Road

TWEET OF THE DAY

WHO: You

WHAT: @HedgeyeCares Golf Challenge

WHEN: Tuesday, May 17

WHERE: Glenarbor Country Club in Bedford, NY

WHY: https://www.hedgeye.com/cares/golf

@HedgeyeDDale

QUOTE OF THE DAY

Don’t play for safety. It’s the most dangerous thing in the world.

Hugh Walpole                                                

STAT OF THE DAY

435 of 500 S&P 500 companies have reported their respective quarters and only 3 of 10 S&P Sectors have positive year-over-year EPS growth and energy (31 of 41 companies reported) has sales down -34% and EPS -74%.