CHART OF THE DAY: The Final Tally Is In! Earnings Season Sucked

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.


"... Shifting gears, not that profit or credit cycles matter when the Janet waives her “dovish” day-trader wand, but Earnings Season officially ended yesterday and here’s the summary:

  1. SP500 (500 of 500 companies have reported) aggregate SALES down -4.0%
  2. SP500 aggregate EPS down -6.9%
  3. SP500 Sectors saw 6 of 10 report NEGATIVE earnings growth
  4. “Ex-Energy” (i.e. 40 of the 500 companies), there are still 460 companies!
  5. Industrials (65 companies) and Financials (90) companies had EPS of -5.9% and -5.4%, respectively"


CHART OF THE DAY: The Final Tally Is In! Earnings Season Sucked - 03.30.16 chart

Janet, We're Up!

“These ideas are entirely imaginary, but if everyone shares them, we can all play the game.”

-Yuval Noah Harari


Imagine US GDP wasn’t tracking towards 1% with most of the cyclical/industrial sectors of the economy in #recession and corporate profits running down -11% year-over-year? Wow. Mind blowing. How would we play the “she’s dovish” game then?


Janet, with 2 trading days left until we send out our quarterly performance reports, we’re up, baby! Oh yeah – you go girl! Forget SP500 +0.5%, if we’re long the Long Bond (TLT +9% YTD), Utilities (XLU +14.3% YTD), and Gold (GLD +16.9% YTD), we’re really up!


Fascinating and brilliant, this complex market system is, isn’t it? As Harari astutely points out in Sapiens, “in order to establish such complex organizations it is necessary to convince many strangers to cooperate with one another…” (pg 118)


Back to the Global Macro Grind


It’s almost like 1987 out there right now. Heck, if you asked a perma bull what the US stock market did that year – “it was flat.” After the worst 6-week start to the SP500 ever (which is still, in the non-imagined-world, a very long time), it’s back to “flat”, baby!


Janet, We're Up! - Bull market 03.24.2016


If only every portfolio manager’s performance was flat.


As one of the best performing long-only PM’s we work with pinged me yesterday, “bad is good and good is good, but it all sucks.” And since he’s not heartless about how a +1% US “growth” (heading toward 0% in Q2) economy ends for a lot of Americans, he’s right about the sucking part. Once we get through the last of this no-volume-month-end markup, I think bad is going to be bad again.


If you’re long something that is in line with both the Fed and Consensus Macro’s forecast of +3% US GDP growth (some of them used to be at 4%) like say, The Financials, yesterday really sucked too (XLF was only +0.18% on the day to -5.92% YTD).


But, if you were long the real Slower (GDP) and Lower (rates) for Longer stuff, like:


  1. Utilities (XLU) +1.5% on the day
  2. Gold (GLD) +3.0% on the day


Wow, did you have an awesome day. Those returns were 2-4 baggers versus the SPY, bros!


Shifting gears, not that profit or credit cycles matter when the Janet waives her “dovish” day-trader wand, but Earnings Season officially ended yesterday and here’s the summary:


  1. SP500 (500 of 500 companies have reported) aggregate SALES down -4.0%
  2. SP500 aggregate EPS down -6.9%
  3. SP500 Sectors saw 6 of 10 report NEGATIVE earnings growth
  4. “Ex-Energy” (i.e. 40 of the 500 companies), there are still 460 companies!
  5. Industrials (65 companies) and Financials (90) companies had EPS of -5.9% and -5.4%, respectively


To give Janet her “fair share” of air time, some of this weakness in the Financials (XLF) “reflected Financial developments since December”, like:


  1. The Fed hiking into a slow-down = December Policy Mistake
  2. The BOJ going for “negative yields” and ECB “buying corporate bonds”
  3. Then the Fed un-hiking the hikes, in their latest attempt to “ease” their SP500 dependent view


You know what all of this did for the credit cycle?


High Yield Spreads (up for 5 of the last 6 days btw) simply made another higher-low within a nasty cyclical breakout (well above the AUG-SEP level). And the rates move all but ensured that bank earnings are going to get hammered in the next Earnings Season.


Yep. Roll out the Old Wall’s “Ex-Financials, Buy Stocks On Rising Gas Prices” bull case for the US Economy in Q2!


Admittedly, we’re all trying hard to play this imaginary game of trying to find the next chart to chase (before the machines do). But it is getting harder to keep track of how the rules of the game go.


Following the Fed’s “transparent communication process” can really trip up a Fed follower:


  1. Two weeks ago, Yellen cuts via taking out the rate hikes = #Dovish
  2. Then, for all of last week, her Regional Talking Fed Heads talked up “April and June” rate hikes = #Hawkish
  3. Then she pivots incrementally dovish vs. her teammates’ hawkishness yesterday?


To be fair, I guess A) the SP500 was down last week (on their hawkishness!) and B) the Atlanta Fed GDP forecast dropped to 0.6% for Q1, so I guess she just had to start moving the goal posts a little faster.


Imagined or not, we all have to keep trying to play this game until the #BeliefSystem breaks down. Since it’s already breaking down in Japan and Europe, I think we’re closer to the beginning of the end of the game than we’ve ever been.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.79-1.91%

RUT 1066-1115

VIX 13.24-19.95
USD 94.54-96.50
YEN 111.02-113.88

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Janet, We're Up! - 03.30.16 chart

get free cartoon of the day!

Start receiving Hedgeye's Cartoon of the Day, an exclusive and humourous take on the market and the economy, delivered every morning to your inbox

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.

Reflation Rallies!

Client Talking Points


Isn’t this getting fun? We’re pretty sure Janet Yellen never played team sports, so maybe we shouldn’t be surprised that her Fed forecasting team is all over the place at this point in talking to markets about rate hikes and USD. Massive inverse Correlation Risk continues to drive daily market moves with USD to CRB and SPY running -0.81-0.96 in March.


As opposed to v-bottoms on the SPY short-side, the long side has been easy year-to-date – as #GrowthSlows, Fed Easing has pounded the UST 10YR down to 1.81% (2YR just went from 0.90% to 0.77% in less than a week on Fed Head confusion) and Utilities (XLU) continued to lead the way on yesterday’s Yellen Ramp, closing up another +1.5% = +14.3% year-to-date XLU.


Heck, why buy Utes on Yellen turn-tailing dovish when you can go right to the vein and buy Gold? It was +3% yesterday (vs. Financials barely up at +0.18% XLF #terrible) to +17% year-to-date leading most things in absolute return space which we highly doubt will be trumpeted more than “the S&P is up” (+0.5% year-to-date) all day today (into month-end markups).


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

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

CME Group (CME) put up a decent fourth quarter earnings print with a slight revenue and earnings beat. Not that we put much weight on what happened last quarter but trends into the new operating period are looking even better. The exchange guided to just a +1% operating expense increase for 2016, guided to slightly lower annual taxes for '16 (with more activity coming from abroad), and again announced that open interest was setting a new record, at over 111 million contracts.


Even assuming some mean reversion to just over 16.5 million contracts (depending on product group), 1Q is running at ~$1.20 per share in earnings, which means the Street will need to perk up its current $1.06 estimate. Simply put, this is one of the few growth stories in the current macro environment within Financials.


We continue to like General Mills (GIS) as one of the best large cap names in the packaged food space. With that being said, the third quarter was not without its noise surrounding the numbers; Green Giant divestiture, Walmart clean store policies, foreign currency exchange, and grain merchandising just to name a few, muddied the waters. But digging through the noise, this is a business that is truly turning a corner. When they set sail on fiscal year 2016 back in June of 2015, we knew this was not going to be an easy ship to turn towards success. Now, with many key product platforms turning (through strong product innovation and renovation) in the right direction and operational improvements implemented through cost savings initiatives, GIS is on the cusp of success. We will be measuring this success by realization of sustained top line growth in the low single digit range.


In our model the second quarter is the toughest compare on both GDP and U.S. corporate profits so we want to be very careful going into that and be positioned defensively. Stay long Long-Term Treasuries (TLT).


While small/mid cap U.S. Equities reverted to their bear market mean last week (Russell 2000 down -2.0% on the week and -16.7% since US Corporate Profits peaked in Q2 of 2015), so did a few other US Equity Market Style Factors that had had a big 1-month bounce:

  1. High Beta stocks were -2.0% on the week
  2. High Leverage (Debt/EBITDA) stocks were -1.9% on the week
  3. High Short Interest stocks were -1.7% on the week

Three for the Road



The #Airbnb Impact On #Hotels & Timeshare… via @HedgeyeSnakeye @KeithMcCullough



Courage is grace under pressure.                               

Ernest Hemingway


A recent study drawing on 16 billion e-mails sent by more than 2 million people found that more than 90% of replies are sent within a day.

T. Rowe Price (TROW) | Best Idea Short Call Invite

Takeaway: We will be updating our Short thesis on shares of T. Rowe Price tomorrow Thursday, March 31st at 11 a.m. EST.

Watch the the replay below.


The Asteroid Is Speeding Up: 1. The passive ETF asteroid is accelerating, but TROW remains committed to active only strategies. The firm's core (non-target date) mutual fund business is battling the biggest drawdown in history, just as several other passive drivers are poised to unfold. 2. TROW has the biggest stable of Large Cap strategies in the group, and it's precisely the Large Cap category that is losing the most share to passive. 3. The Department of Labor's Fiduciary rule is set to take effect and will make mutual funds less desirable to distribute because passive products (ETFs and index funds) help to avoid liability and complex reporting standards.


Target Date Is Slowing Down: TROW's main growth driver has been target date funds, but the once stalwart growth channel is now slowing substantially. Why? The target date (TD) fund arena has also been penetrated by passives. What was once a bastion for active management (90% TD market share), active TD funds are today increasingly being supplanted by passive with active TD market share now moving toward 60%. The TROW target date franchise also allocates "through" retirement, which means its TD funds have higher than average equity allocations. This results in increased volatility and a greater risk of underperformance during market declines.


Phase Transition. TROW shares continue to trade at a premium valuation to the asset management group despite substantially slowing growth. The stock is an early cycle beneficiary, but lags the market and the group in flat to down markets. Risks to a short position include the firm's dividend and buyback, but historically TROW buybacks have peaked at ~5%, which is what they're already doing.



CALL DETAILS - Thursday, March 31st at 11 am EST

  • Toll Free Number:
  • Toll Number:
  • UK: 0.
  • Conference Code: 13633240
  • To Automatically add to your Outlook Calendar Click HERE
  • For Associated Materials Click HERE

Please let us know of any questions.

Jonathan Casteleyn, CFA, CMT 


Joshua Steiner, CFA



Cartoon of the Day: Whack!

Cartoon of the Day: Whack! - oil cartoon 03.29.2016


Oil is getting knocked around again today, down another -2.4%, despite Fed head Janet Yellen reiterating that declining crude prices are "transitory."