The risks looming over macro markets are getting downright depressing.
Takeaway: Shares tumbled as much as 11% today, after management offered unexpectedly light guidance.
Shake Shack shareholders are getting punished today. Shares of the burger chain fell as much as 11% after company guidance disappointed rosy expectations.
Hedgeye Restaurants analyst Howard Penney has been the bear on Shake Shack (SHAK). In May 2015, Penney told anchors on BloombergTV that SHAK shares were "egregiously overpriced" and had 60% to 70% downside.
Since then, SHAK shares have fallen -43%. Penney has been consistently bearish on the stock saying "Shake Shack Is One of the Most Overvalued Stocks Out There."
The bottom line ... from Penney's original short call on the company, is that "the SHAK growth story (business model) is predicated on the view that what works well in NYC will work well in the rest of the world." However, outside Manhattan, the average restaurant's margins are slimmer because brand awareness isn’t as strong. Penney concluded:
"The bottom line is that, for us, there is a very good probability that SHAK begins opening up some new units that fall short of the Street’s expectations.”
That's what happened today.
For an update on Penney's latest think on SHAK, see the excerpt from the institutional research note below.
To read Penney's entire Shake Shack research note ping email@example.com.
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.
There are 150 delegates at stake tonight -- MI, MS, ID, and HI. Donald Trump is leading in MI with 59 delegates at stake, but John Kasich and Ted Cruz are both on his heels. If Trump pulls off a double-digit win in MI and takes MS as well, then the weakness in his numbers from the past weekend's primaries, currently being touted by the establishment press, will feel like an aberration.
If the race is closer than expected, then the toll from two poor debate performances, millions of dollars in attack ads, and opposition from most of the Republican establishment may be taking root, and could make the winner-take-all primaries much closer than the pundits are predicting.
The Republican establishment has long detested Cruz, but his lead over Marco Rubio is persuading some that he is best-positioned to block Trump. We're hearing whispers that a number of Rubio supporters are quietly preparing to jump to Cruz's ship, while additional reports claim "multiple" senators will endorse Cruz later this week. Still, Rubio's camp insists that once they win Florida, the map favors them after March 15th... leaving Rubio no incentive to get out.
Since Super Tuesday a loose anti-Trump coalition has spent over $10 million on ads targeting the Republican frontrunner -- an effort to impede Trump's popularity in delegate-rich states like FL and IL. While these ads are ubiquitous in those states and others, they fail to guide voters towards another candidate, and Trump's core supporters will blindly follow him into November.
If Trump cleans up on March 15th then the anti-Trump movement may be short-lived. The real damage will take its toll in the general election -- with the Dems' gift that keeps on giving from the Dean of the Establishment Mitt Romney and other Republican leaders providing great substance to the anti-Trump storyline.
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In this brief excerpt from The Macro Show earlier today, Hedgeye Retail analyst Alec Richards discusses earnings in the sector and why "every single company, with the exception of three, have guided down" this quarter.
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Takeaway: Only 4 of 10 S&P 500 sectors are showing positive earnings growth. That's very bad for U.S. equities.
Below is a brief update on where we stand in S&P 500 earnings season. 494/500 companies have reported aggregate EPS decline of -7.4% y/y.
Why does this matter? Check out the chart below from our 1Q Macro Themes deck.
Bottom line? Two or more consecutive quarters of negative earnings growth always presages a crash in stocks.
Takeaway: ICI has provided more detail in its weekly survey which will assist investors in pinpointing trends in the asset management sector.
Editor's Note: This is a complimentary research note which was originally published March 3, 2016 by our Financials team. If you would like more info on how you can access our institutional research please email firstname.lastname@example.org.
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Investment Company Institute Mutual Fund Data and ETF Money Flow:
The weekly ICI survey has just become more robust with the Investment Company Institute now providing additional categories within domestic equities, world equities, and taxable bonds in its weekly fund flow information which canvasses 98% of all publlically traded mutual funds. Please let us know if you would like a copy of the underlying information. For example, a fairly general aggregation of international equity flows has now been broken out into Developed versus Emerging Market survey results which are very different in trajectory and magnitude.
In the 5-day period ending February 24th, domestic equity funds had their second week of positive inflows in the last 22 weeks; investors contributed a net +$2.1 billion to the asset class with Large Cap (new category) driving the contribution. In fixed income funds, investors resumed withdrawals from the taxable bond category with investment grade outflows (new category) being offset by new risk taking in high yield (new breakout) which had a solid inflow. Meanwhile, tax-free munis continue to be the story for 2016 thus far taking in another +$1.0 billion in contributions (their 21st week of consecutive inflows). Money funds took in a large +$15 billion contribution last week, which is likely due to tax refund receipts and on going risk aversion.
In the most recent 5-day period ending February 24th, total equity mutual funds put up net inflows of +$4.4 billion, outpacing the year-to-date weekly average outflow of -$346 million and the 2015 average outflow of -$1.6 billion.
Fixed income mutual funds put up net outflows of -$100 million, outpacing the year-to-date weekly average outflow of -$777 million and the 2015 average outflow of -$475 million.
Equity ETFs had net redemptions of -$5.0 billion, trailing the year-to-date weekly average outflow of -$4.5 billion and the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$2.3 billion, trailing the year-to-date weekly average inflow of +$2.4 billion but outpacing the 2015 average inflow of +$1.0 billion.
Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.
Most Recent 12 Week Flow in Millions by Mutual Fund Product: Chart data is the most recent 12 weeks from the ICI mutual fund survey and includes the weekly average for 2015 and the weekly year-to-date average for 2016:
Cumulative Annual Flow in Millions by Mutual Fund Product: Chart data is the cumulative fund flow from the ICI mutual fund survey for each year starting with 2008.
Most Recent 12 Week Flow within Equity and Fixed Income Exchange Traded Funds: Chart data is the most recent 12 weeks from Bloomberg's ETF database (matched to the Wednesday to Wednesday reporting format of the ICI), the weekly average for 2015, and the weekly year-to-date average for 2016. In the third table are the results of the weekly flows into and out of the major market and sector SPDRs:
Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors flocked to gold last week, contributing +$1.9 billion or +7% to the GLD ETF.
Cumulative Annual Flow in Millions within Equity and Fixed Income Exchange Traded Funds: Chart data is the cumulative fund flow from Bloomberg's ETF database for each year starting with 2013.
The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$775 million spread for the week (+$1.5 billion of total equity inflow net of the +$2.2 billion inflow to fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52-week moving average is +$438 million (more positive money flow to equities) with a 52-week high of +$20.5 billion (more positive money flow to equities) and a 52-week low of -$19.0 billion (negative numbers imply more positive money flow to bonds for the week.)
Exposures: The weekly data herein is important for the public asset managers with trends in mutual funds and ETFs impacting the companies with the following estimated revenue impact:
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