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$25 or $50 Oil? Here’s What McMonigle Says

 

In this brief excerpt from The Macro Show this morning, Hedgeye Energy Policy Analyst Joe McMonigle explains why he believes oil prices are going lower in the short term, and where he sees it heading in the months to come. 


An Earnings Season Scorecard Update

Takeaway: When corporate profits decline for two consecutive quarters or more the S&P 500 declines by at least 20%.

An Earnings Season Scorecard Update - corp profits cartoon 03.28.2016

 

Its that time of year again.

 

Earnings season is upon us and, by just about every estimation, companies are due to report lackluster results on the top and bottom line.

 

Here's what you need to know via our Macro team in a note sent to subscribers earlier this morning:

 

"With 39 S&P 500 companies having reported Q1 earnings to date, sales growth is down -1.1% year-over-year and earnings growth has slowed to -11.8% year-over-year -- which would be the worst annual growth rate of the cycle if it holds through the rest of reporting season. Declines are being led by Materials (-34%), Tech (-20%) and Financials (-17%).

 

Compounding matters is the 25-30% spread between pro forma and GAAP, which continues to be reflected in a rising economy-wide debt-to-free-cash-flow ratio. Specifically, that ratio just reached 4x in 4Q15, which is the threshold it breached in 3Q07 on its way to peaking at 4.6x in mid-2008. We reiterate our view that neither the corporate profit nor credit cycles have seen their respective depths."

 

REMINDER

If the current earnings data holds, this would be the third quarter of contracting corporate profits.

 

WHY IT MATTERS

Our Macro team continues to highlight that when corporate profits decline for two consecutive quarters or more the S&P 500 declines by at least 20%. 

 

Click chart below to enlarge

An Earnings Season Scorecard Update - EL profits large

 

Performance? Where We're at...

 

In spite of truly ugly S&P 500 earnings in the last couple quarters, equities have rallied significantly off the February lows. However, this doesn't change our market views. We remain steadfastly bearish. Even with the recent pop, our favorite sector longs (Utilities, XLU) & shorts (Financials, XLF) continue to outperform. Here's the year-to-date scorecard:

 

An Earnings Season Scorecard Update - sector performance ytd

 


CHART OF THE DAY: A Look At U.S. Oil Production Since 1861

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

 

"... In the Chart of the Day today, we look at U.S. oil production going back to 1861. As the chart shows, 1970 has been, so far, the peak in domestic oil production at ~9.6 million barrels per day. Interestingly, 2015 was a close second with a production rate of some ~9.4 million barrels per day. Clearly, if prices had not started to decline in 2015, drilling and investment would have stayed at high levels and production grown beyond Hubbert’s peak in 2016."

 

CHART OF THE DAY: A Look At U.S. Oil Production Since 1861 - 04.18.16 chart


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REPLAY! This Week On HedgeyeTV

Our deep bench of analysts take to HedgeyeTV every weekday to update subscribers on Hedgeye's high conviction stock ideas and evolving macro trends. Whether it's on The Macro ShowReal-Time Alerts Live or other exclusive live events, HedgeyeTV is always chock full of insight.

 

Below is a taste of the most recent week in HedgeyeTV. (Like what you see? Click here to subscribe for free to our YouTube channel.)

 

Enjoy!   

 

1. Dale: ‘What Are You Buying’ (4/15/2016)

 

 

In this excerpt from The Macro Show, Hedgeye Senior Macro analyst Darius Dale discusses the recent reflation rally and provides critical context about why we remain bearish. 

 

2. LinkedIn: ‘Proceed With Caution’ | $LNKD (4/13/2016)

 

 

Hedgeye Internet & Media analyst Hesham Shaaban removed LinkedIn from his Best Ideas Long list heading into fourth quarter earnings. Good call. The stock is down 50% year-to-date. In this brief excerpt from The Macro Show earlier today, Shaaban responds to a subscriber’s question about whether LinkedIn is now “too cheap to ignore” and gives a deep dive explanation as to why he’s cautious on the stock.

 

3. About Everything | When Less Is More (4/13/2016)

 

 

In this complimentary edition of About Everything, Hedgeye Demography Sector Head Neil Howe discusses why "we’re entering a new era in which simplicity — not choice — is the hallmark of a cutting-edge brand."

 

4. McCullough: ‘We Are Vigilantly Bearish On Corporate Earnings & Junk Bonds’ (4/12/2016)

 

 

In a recent excerpt from The Macro Show, Hedgeye CEO Keith McCullough responds to a subscriber’s question about the latest permabull narrative that a weaker dollar will lead to “widespread earnings beats.”

 

5. Gen-X Weighs on Housing Market (4/11/2016)

 

 

In this brief excerpt from The Macro Show earlier today, Hedgeye Housing analyst Christian Drake discusses the demographic and structural headwinds facing U.S. housing.


This Week In Hedgeye Cartoons

Our cartoonist Bob Rich captures the tenor on Wall Street every weekday in Hedgeye's widely-acclaimed Cartoon of the Day. Below are his five latest cartoons. We hope you enjoy his humor and wit as filtered through Hedgeye's market insights. (Click here to receive our daily cartoon for free.)

 

Enjoy!

 

1. Past Peak (4/15/2016)

This Week In Hedgeye Cartoons - the cycle

 

Recent data continues to confirm our bearish thesis on the U.S. economy, like Friday's terrible US Industrial Production report which slowed to -2% year-over-year in March.  

 

2. Look Out Below! (4/14/2016)

This Week In Hedgeye Cartoons - recession cartoon 04.14.2016

 

"Unlike many strategists (who missed calling the cycle top in US Consumption, Employment, and Profits last year), we have stayed with The Cycle call we’ve had all along here in Q2," Hedgeye CEO Keith McCullough wrote recently.

 

3. The Central Bank Of Neverland (4/13/2016)

This Week In Hedgeye Cartoons - Draghi Peter Pan cartoon 04.13.2016

 

Central planners are increasingly pushing on a string as macro markets continue to move in direct opposition to the best efforts of policymakers at the ECB and BOJ.

 

4. Earnings: Dead In The Water (4/12/2016)

This Week In Hedgeye Cartoons - earnings cartoon 04.12.2016

 

In what is already expected to be an ugly quarter for corporate earnings, Alcoa kicked off 1Q earnings season with a bang last night. The aluminum producer missed revenue estimates, earnings fell by 92% and reduced guidance for the year. 

 

5. The Cycle (4/11/2016)

This Week In Hedgeye Cartoons - GDP cartoon 04.11.2016

 

The U.S. growth outlook is getting pretty grim. The Atlanta Fed's GDPNow tracker for U.S. economic growth in Q1 2016 just hit 0.1% after a spate of new negative data.

 

We've been making this bearish call for a while now and highlighted in our Q2 Macro themes that "the U.S. economy faces its toughest GDP comp of the cycle in 2Q16."


The Week Ahead

The Economic Data calendar for the week of the 18th of April through the 22nd of April is full of critical releases and events. Here is a snapshot of some of the headline numbers that we will be focused on.

 

CLICK IMAGE TO ENLARGE.

The Week Ahead - 04.15.16 Week Ahead


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