Hedgeye Retail analyst Brian McGough highlights three key points from Wayfair's latest earnings report.
Takeaway: What to watch on the election 2016 campaign trail.
Below is a brief excerpt from Potomac Research Group Chief Political Strategist JT Taylor's Morning Bullets sent to institutional clients each morning.
TOE TO TOE IN TEXAS:
Tonight's debate in Houston is the final, critical chance for Ted Cruz and Marco Rubio to redefine the narrative over the next five days before the Super Tuesday contests. Some Rubio donors and establishment types have been reluctant to take on Donald Trump, fearing that he may suffer a similar fate to Jeb -- but if he wants to win, Rubio can't sit by and let Trump dictate the terms and tenor of the debate.
Look for him and Trump to tag-team against Cruz, capitalizing on his newly-exposed and unexpected crisis of character. Cruz and his campaign are clearly on the ropes, and we hear a sense of panic is starting to set in among his team -- we wouldn't be surprised if he comes out jabbing, but is limited to counter-punching the whole night.
Majority Leader McConnell's decision to deny President Obama a chance to fill the late Justice Scalia's seat raised just a few eyebrows in the Republican caucus, but he has strung together a nearly-united front and the Republican base appears appeased -- for now. McConnell now owns the narrative, and Democrats -- at some point -- will label their opposition with the obstructionist tag, and tie it into their other theme that Republicans can't govern effectively.
We see this as a clear and looming danger for vulnerable candidates up for re-election in swing states, but McConnell and the Judiciary Committee are unlikely to budge. We wonder if their calculus changes now that the White House is floating Republican Gov Brian Sandoval's name, or in the event Hillary Clinton is sitting on a big lead in the months closer to the general election.
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In this brief excerpt of The Macro Show earlier today, Hedgeye Senior Macro analyst Darius Dale and Commodity analyst Ben Ryan discuss our Macro themes and why we told clients to be underweight Financials heading into 2016.
Our Macro team continues to highlight the increasing likelihood that the U.S. slips into recession sometime in the next three quarters. The Fed, Wall Street economists and most investors are missing the mark on this risk.
Below are four cartoons from our cartoonist Bob Rich compiled since we started warning subscribers about this risk late last year, accompanied by analysis from Hedgeye CEO Keith McCullough .
Click here to receive our daily cartoon for free.
1. Ebenezer Screwed (12/24/2015)
"Given that they called neither the cycle peaking nor #GrowthSlowing to begin with, Consensus Macro seems to be unbelievably precise in telling you what the “probability of a US recession” is."
2. Recessionary Rumblings (12/22/2015)
"Those growth bulls were delivered a big blow this week with US Consumer Confidence making a lower-low at 92.2."
3. Recession Risk Rising (2/4/2016)
"Calculating a precise percentage “chance of a recession” is poppycock. What matters to markets and your returns are expectations and rates of change."
4. Recession Knocking? (2/22/2016)
"As critical rates of change continue to slow (see Consumer Confidence, Corporate profits, Jobless Claims), the probability of a US #Recession continues to rise."
Takeaway: Weakening labor data coupled with compressing yield spreads is a poison pill for lenders.
Below is the breakdown of this morning's labor data from Joshua Steiner and the Hedgeye Financials team. If you would like to setup a call with Josh or Jonathan or trial their research, please contact
Buried like an Easter egg at the end of each of our weekly claims notes are a few charts showing the 2-10 yield spread quarterly back to 2008. For anyone not paying attention, the spread has been compressing steadily since its 4Q13 peak of 2.41%. As of today, the spread stands at 99 basis points (the 1Q16TD average is 113 bps).
This is a problem for banks. First, this is far and away the tightest spread environment seen in the post-crisis period so it simply hurts in absolute terms. Second, in RoC terms, if we hold the current 99 bps flat through quarter-end, the 1Q16 average spread will be down ~28 bps vs the 4Q15 average, which will be the second fastest rate of compression since 2011. Banks obviously feel the pain, even if it flows through on a lag. The point is that with global macro pressures growing, expect spreads and the read through to US and Global banking businesses to continue compressing/darkening.
The Labor Market
The Labor Data is again less good this week. Seasonally adjusted claims rose 10k week over week to 272k, while claims continue to grow year-over-year in energy states, as the following three charts show.
Initial jobless claims rose 10k to 272k from 262k WoW. The prior week's number was not revised. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -1.25k WoW to 272k.
The 4-week rolling average of NSA claims, another way of evaluating the data, was -6.7% lower YoY, which is a sequential improvement versus the previous week's YoY change of -2.8%.
Joshua Steiner, CFA
Jonathan Casteleyn, CFA, CMT
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