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The Unvarnished Truth: A Look At Year-To-Date Global Equity Performance

Takeaway: Here's the breakdown of S&P 500 sectors and global equity markets in 2016.

S&P 500 year-to-date SECTOR performance...

 

The Unvarnished Truth: A Look At Year-To-Date Global Equity Performance - sector performance 3 7 16

 

... And a look at global equity markets.

 

The Unvarnished Truth: A Look At Year-To-Date Global Equity Performance - world equity markets


Euro, Style Factors and Income

Client Talking Points

EURO

This Thursday the ECB meets and we expect it to announce additional simulative policy. According to our Big Bang Theory, after 600 rate cuts globally, there’s a new regime of investors that has given up on the belief that central bankers can artificially produce stimulus and weaken their currency for economic benefit.  This policy hasn’t worked in Japan, and it isn’t going to work in the Eurozone. We expect the EUR/USD to bounce on a simulative announcement:  to our TREND ($1.12) and TAIL ($1.13) resistance levels. We also expect associated selling of European equities.

STYLE FACTORS

Alongside another rate-of-change slowing in employment and income last week, High Beta (+8.4% on the week), Small Cap (+6.2%)  and High Debt (+7.2%) stocks led the counter-Trend move higher.  In other words, the leverage and illiquidity that got you crushed over the last 8-months reflated.  With growth slowing and the economic, profit and credit cycles past peak we don’t think the 3-week squeeze off of the mid-February 2016 Global Equity crash lows is sustainable.  

INCOME

In a Keynesian economy consumption is king and income growth drives the capacity for consumption growth.  With hourly earnings growth decelerating and average hours worked per week declining in Friday’s NFP data, aggregate income growth will decelerate both sequentially and year-over-year when the official data are released for February later this month.  Unless credit growth accelerates meaningful and/or the savings rates declines materially, consumption growth for February should show further deceleration and the labor, income, consumption peaks (4Q14/1Q15) will remain rearview.  

 

*Tune into The Macro Show with Hedgeye Healthcare Sector Head Tom Tobin live in the studio at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 62% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 3%
FIXED INCOME 29% INTL CURRENCIES 6%

Top Long Ideas

Company Ticker Sector Duration
XLU

If you were long energy over utilities last week, nice trade! We'd remind you that Utilities (XLU) are outperforming the S&P 500 by +10% year-to-date. And that’s with the bounce. By contrast, Energy (XLE) was up 6.5% on the week but is up only 1% year-to-date.

GIS

General Mills (GIS) faces some headwinds across their portfolio, and although the 1H of FY16 was a challenge, the company has robust merchandising and consumer plans in the 2H that should improve results.

 

GIS has embarked on a mission to drive their top 450 SKUs, which represent 75-85% of their volume. Calling it their ‘Power 450’, surprisingly these 450 SKUs aren’t even in all retail locations and formats, broadening the distribution footprint of these top SKUs is priority number one for GIS’s sales team. The organization is also looking at the bottom 450, representing 1-2% of volume and making critical decisions on what products can be discontinued.

 

We continue to believe GIS is one of the best positioned consumer packaged foods companies due to its strong brands and best-in-class people and organization.

TLT

We can’t emphasize enough the bigger picture from both a data and top-down market signaling perspective. To contextualize the relief rallies and short squeezes in asset classes and instruments that are counter to our more longer-term view. Here’s what how we think the macro environment plays out from here:

  1. The market is positioned for more rate hikes into 2016
  2. The data continues to deteriorate, and market volatility ensues
  3. The expectation that “all is good” comes off the table and the market increasingly pivots to the view that, throughout 2016, the Fed is going to hike rates in methodical fashion straight into an economic slowdown
  4. The market takes in the growth slowing pivot in real-time (Treasury rates and the dollar both move lower, and inflation-leveraged assets like gold catch a bid)

 

Once the policy catalysts are out of the way in the next few weeks, our expectation is a return to outperformance in growth slowing asset classes (TLT and XLU). If you’re in for the TAIL and the TREND call, focus on the data, not the desperate attempts of central planners to arrest economic gravity. A brief reminder: ECB chief Mario Draghi will attempt to walk on water Thursday.

Three for the Road

TWEET OF THE DAY

VIDEO (15 mins) The Last Commodity Bubble Still Standing https://app.hedgeye.com/insights/49558-the-last-commodity-bubble-still-standing

@KeithMcCullough

QUOTE OF THE DAY

There is only one way to avoid criticism: do nothing, say nothing, and be nothing.

Aristotle

STAT OF THE DAY

Alibaba affiliate Ant Financial is valued at nearly $50 billion, the internet-finance company plans to raise up to $3.1 billion in its current funding round.


The Macro Show Replay | March 7, 2016

CLICK HERE to access the associated slides. 

Click here for an audio replay.

 

 


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REPLAY: Interactive Healthcare Q&A with Tobin and Freedman

Takeaway: Must-see insights from Hedgeye's non-consensus Healthcare team.

IN CASE YOU MISSED IT. Our all-star Healthcare team was live and interactive in our HedgeyeTV studio earlier today presenting their latest update and answering viewer questions in real-time.

 

Sector Head Tom Tobin and analyst Andrew Freedman discuss key topics below:

  • Employment Call-outs for Healthcare Sectors - is it topping?
  • Tracker Updates - Maternity, Hologic (HOLX), AMN Healthcare Services (AHS)
  • HIMMS Review - athenahealth (ATHN), Allscripts (MDRX), Computer Programs and Systems (CPSI)
  • Key Takeaways - from meetings in San Francisco last week

 

CLICK HERE to access the associated slides.

 

 

 


CHART OF THE DAY: A Review Of The Recent 3-Week Squeeze

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.

 

"... Notwithstanding the newfound bull market narrative that rising gas prices are going to stimulate the consumer, here’s what you had to be long last week (in US Equity Style Factor terms) to have crushed my bearish view:

 

  1. High Beta Stocks were +8.4% on the week to -3.5% YTD
  2. High Debt (to Enterprise Value) Stocks were +7.2% on the week to +1.6% YTD
  3. Slow-Growth (EPS) Stocks were +6.7% on the week to +2.4% YTD
  4. High Short Interest Stocks were +6.7% on the week to +2.7% YTD
  5. Small Cap Stocks were +6.2% on the week to -0.9% YTD

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

 

CHART OF THE DAY: A Review Of The Recent 3-Week Squeeze - 03.07.16 Chart


Squeeze Me!

“Who was the first guy that looked at a cow and said, I think that I’ll drink whatever comes out of those things?”

-Calvin & Hobbes

 

Well, if you want to believe that this 3-week squeeze off of the mid-February 2016 Global Equity #crash low is sustainable, drink up! High Leverage and Low Liquidity (Small Cap) is back, baby.

 

Of all the bad weeks I’ve had since the US profit cycle peaked (when US and Japanese stocks peaked in July of 2015), last week ranked right at the top of them.

 

And, to be clear, since I was telling you to buy the Long Bond at 2.53% on the 10yr (in July), I’ve had some really bad weeks. But you’ve had to be able to endure those to have been right for the last 8 months.

 

Squeeze Me! - Stocks crash test dummies cartoon 02.18.2016

 

Back to the Global Macro Grind

 

Actually, there was one move that was more impressive than this most recent 3-week squeeze: October 2015. Imagine you got sucked into owning those highs (and kept averaging down from November to February)?

 

No one said getting this big macro phase transition right (as the economic, profit, and credit cycles are moving from bullish to bearish) was going to be easy. But if you’re just chasing moving monkey charts, it’s going to be super hard.

 

Notwithstanding the newfound bull market narrative that rising gas prices are going to stimulate the consumer, here’s what you had to be long last week (in US Equity Style Factor terms) to have crushed my bearish view:

 

  1. High Beta Stocks were +8.4% on the week to -3.5% YTD
  2. High Debt (to Enterprise Value) Stocks were +7.2% on the week to +1.6% YTD
  3. Slow-Growth (EPS) Stocks were +6.7% on the week to +2.4% YTD
  4. High Short Interest Stocks were +6.7% on the week to +2.7% YTD
  5. Small Cap Stocks were +6.2% on the week to -0.9% YTD

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

 

Yep. Non-pasteurized. Straight from the cow’s nipple. Since most American farmers are in #Recession right now, you should be able to get some cows “cheap” and squeeze yourself as much “value” out of these exposures as you need.

 

Since the SP500 and Nasdaq were only +2.7% and +2.8%, respectively, last week (to -2.2% and -5.8% YTD), you’d have underpeformed the weekly chart chasers if you bought those exposures or, God forbid, Healthcare stocks.

 

Here’s how the US Equity Sector Styles did last week:

 

  1. Healthcare Stocks (XLV) only +0.2% on the week to -6.4% YTD
  2. Financials (XLF) +4.5% on the week to -6.5% YTD
  3. Energy Stocks (XLE) +6.5% on the week to +1.1% YTD

 

I know. Isn’t it odd that the “economy feels like it improved” while Consumer Confidence, Pending Home Sales, and ISM Services all slowed to multi-month lows? Healthcare: no bid in a “recovering” economy too? Totally weird.

 

Reality is that unless you have a bullish view on Oil and its related (and crashing) equity and fixed income exposures, you probably sucked wind like I did last week.

 

The real “reflation” bulls (who have lost 20-60% of their capital chasing headfake rallies for the last 18 months) had an awesome week last week – check this out:

 

  1. Brazilian Stocks (Bovespa Index) +18.0% on the week! to +13.2% YTD
  2. Russia (RTSI Index) +8.0% on the week to +8.1% YTD
  3. Emerging Markets (MSCI Equity Index) +6.9% on the week to -0.4% YTD

 

Yeah, I know. Lula (Brazil) went to jail (sort of). So you would have had to know that was coming (and see a +9.6% weekly ramp in crude oil coming too) to have nailed all of that – but everything is doable. Mooo!

 

While we’re ignoring anything that actually went down last week (Natural Gas prices dropped another -7% on the week, crashing to -30.2% YTD) we should definitely give some rant time to European Equities.

 

On some of the worst European Economic data we’ve seen all year:

 

  1. EuroStoxx600 closed +3.1% on the week to -6.6% YTD
  2. Spanish Stocks (IBEX Index) rallied +5.5% on the week to -7.7% YTD
  3. Greek Stocks (Athex Index) “reflated” +9.0% on the week to -12.4% YTD

*Note: negative YTD returns

 

But you don’t have a complicit US-style Establishment Financial Media that cheerleads European market moves with cherry picked economic data, so we’ll just have to call Greece and Spain rallying something that feels bullish.

 

It’s all about how the economy “feels”…

 

And while I did not enjoy the squeeze part, I’m not feeling too good about sucking on whatever came out of those things last week.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.67-1.90%

SPX 1

NASDAQ 4

VIX 15.61-24.16
USD 96.48-98.72
Oil (WTI) 29.86-36.98

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Squeeze Me! - 03.07.16 Chart


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