This Is Getting Fun

Client Talking Points


Yet another intraday ramp in U.S. stocks yesterday on “Fed Dovish” (Fed Minutes) – wow is this getting fun. But what does dovish do when the #BeliefSystem on central-market-planning is breaking down? Draghi + Constancio were both out this morning trying “whatever is needed.” Draghi says he “will not surrender.” The Euro is only moving -0.1% on that; Spanish and Italian stocks barely up and remain in crash mode.


Yellen for Yen President! The Yen is at $108 now vs. USD and is finally signaling immediate-term TRADE overbought within a bullish TREND and the Nikkei stopped going down (post 7 straight down days), albeit only +0.2%. We thought Janet was focused on “stabilizing the global economy”, not imploding Japanese and European stock markets.


No follow through to the +5.1% WTI day as the pop in this inverse correlation trade runs into resistance; immediate-term risk range for WTI is now $35.04-40.25 (top end of the range used to be closer to $42-43). We’ll be hosting our Q2 Macro Themes Call at 11:00AM ET.


*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

McDonald's (MCD) hit an all-time highs last week. "They can't chase Energy Charts today, so they're just dog-piling into our long calls on GIS and MCD," wrote Hedgeye CEO Keith McCullough on Friday.


We've said it before, McDonald's has all the style factors that we like during these turbulent macro market times; high market cap, low beta and liquidity. The stock is up 7.5% this year beating the S&P 500 by more than 600 bps. In August 2015, Restaurants analyst Howard Penney wrote that "2015 will be the last time this stock is below $100."


CME Group (CME) stock is among the small cohort of financial companies that benefit from volatile markets. With the exchange's open interest continuing to expand, which will drag trading volume higher, CME Group is one of the few lower beta longs that will hold up relatively better in the current environment.


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.


Non-Farm payroll additions came in over +200 again (+215K to be exact) and private sector wage growth was also “good,” increasing +4.2% year-over-year on Friday. We’re most concerned with "better" or "worse" from a rate of change perspective. The non-farm payroll number is "less good" (i.e. "worse") from a year-over-year rate-of-change perspective. Growth in non-farm payrolls peaked in February 2015 at +2.3% year-over-year and the trend since then has been one of decline (+2.0% Y/Y for March 2016). And private sector salary and wage growth peaked on a year-over-year percent change basis in December of 2014.


We remain bullish on Long Bonds (TLT and ZROZ), Utilities (XLU) and short Junk Bonds (JNK). We expect more alpha after what was a great Q1, as the back-end of the Treasury curve continues to get flatter regardless of Fed rate hikes. We were alone in that camp, in December, when we first told you that a rate hike was in fact good for long-duration Treasury bonds. Stick with what's worked.


Here's the Q1 2016 Scorecard (data through 3/31):

  • TLT +8.3%
  • XLU +14.7%
  • JNK +1.0%
  • versus S&P 500 +0.7%

Three for the Road


Live Healthcare Q&A with Tom Tobin Thursday at 2:15PM ET | $ZBH $AHS $MD $HCA $HOLX




When you win, say nothing. When you lose, say less.

Paul Brown


Volkswagon’s VW XL1 uses barely 0.004 gallons of fuel every mile (261 mpg).

Replay: Healthcare Q&A with Tom Tobin | $ZBH $AHS $MD $HCA $HOLX

CLICK HERE to access the associated slides.


Healthcare analysts Tom Tobin an Andrew Freedman hosted a live Q&A today to review their latest research and answer your questions.


Cartoon of the Day: Listen Up!

Cartoon of the Day: Listen Up! - Yellen cartoon 04.06.2016


All eyes on the Fed today, ahead of the release of the FOMC minutes.

Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

A Brief Warning On Q1 Earnings

Takeaway: Be very careful out there.

A Brief Warning On Q1 Earnings - earnings cartoon 01.27.2015


Think first quarter earnings are growing gangbusters? Think again.


Here's the latest from our Macro team in a note sent to subscribers this morning:


"Q1 earnings season kicks-off next week with the bulge bracket banks leading the way (JPM next Wednesday). If you think we’ll follow-up an awful Q4 2015 reporting season (S&P revs -4.0% Earnings -6.9%) with a rebound, think again. We won’t be lapping bad comps until at least Q3 of this year (reported in Q4). In Q1 of 2015, 8/10 sectors saw Y/Y earnings growth, and the one sector with awful earnings was energy, where WTI averaged $48.57 vs. $33.63 in Q1 0f this year. Don’t get excited about Q1 earnings season. It will be more of the same. #thecycle."


Here's the chart highlighting why all of this is so significant.


A Brief Warning On Q1 Earnings - z 77



ISM Services: The Cycle Peaked In July 2015

ISM Services: The Cycle Peaked In July 2015 - sine of the times cartoon 03.03.2016


It's all about the Rate of Change...


While many on Wall Street cheered an expectations-beating sequential uptick in the ISM Services index, one data point does not make a trend. More importantly, the Services index and its individual components continue to trend lower year-over-year.


Here's some brief analysis from our Macro team in a note sent to subscribers earlier this morning:


"While industrial activity has stabilized against 13 months of negative comps, domestic service sector activity continues to slow off its mid-2015 highs. Headline ISM Services along with the Employment and New Orders components improved sequentially in March but the 9-month trend remains one of lower highs and lower lows.  On the Labor Front, the trend has been similar as yesterday’s JOLTS data for February showed Job Openings decline by -159K, continuing the 8-month retreat off the mid-2015 peak."


Here's the key chart on ISM Services

(Notice the peak in July 2015 and the year-over-year slowing in the data)


Stick with the process. Don't get sucked into Wall Street's storytelling. 


ISM Services: The Cycle Peaked In July 2015 - Math   Myth cartoon 03.30.2016

CHART OF THE DAY: Post-NIRP, European & Japanese Stocks Still Crashing

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye Director Darius Dale. Click here to learn more.


"... In light of all the above, it’s easy to see why European and Japanese capital markets are imploding. The EuroStoxx 600 Index and TOPIX Index have crashed -20.7% and -25% from their respective 52-week closing price highs. Bank stocks are feeling the brunt of the pain amid NIRP-fueled scrutiny of their business models. Specifically, the EuroStoxx Banks Index has crashed -24.6% YTD, while the TOPIX Banks Index has crashed -22.6% from the BoJ’s 1/29 announcement of NIRP."


CHART OF THE DAY: Post-NIRP, European & Japanese Stocks Still Crashing - 4 6 Chart of the Day

Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.