CLIENT TALKING POINTS
USD
It’s a good thing we’re not ex’ing out Dovish Dollar (Fed) expectations and its impact on “reflating” the S&P 500. But today is event day for Yellen and our main macro question is what happens if she can’t burn the USD to a lower-low (vs. the last year of USD holding 93-94 on the U.S. Dollar Index?) Stay tuned… should be riveting.
OIL
Oil is up big again, +1.9% and pushing the Pain Trade to almost its max on FOMC event day. For WTI our TAIL risk level of resistance is just north of $46 – for something like Oil & Gas Stocks (XOP) it’s in the $36-37 range; if you were a bear on Energy (we don’t have this on, yet), on whatever Yellen says you’d probably buy/cover USD and sell Energy (for now).
QQQ
Turns out that going bearish on the Nasdaq for the 1st time in this cycle (on March 31st, 2016) wasn’t such a bad idea after all… Ex-AAPL-GOOGL-NFLX-MSFT, all good though, right? This is precisely what happened during the Spring of the last 2 U.S. economic/profit cycle tops (in 2000 and 2008); SPX bulls should pray for a mecca of Yellen dovishness and $60 Oil.
*Tune into The Macro Show with Hedgeye CEO Keith McCullough live at 9:00AM ET - CLICK HERE.
TOP LONG IDEAS
MCD
McDonald's (MCD) released earnings Friday reporting strong numbers across every important metric. Consider, for example, Q1 EPS $1.23 versus FactSet's consensus estimate of $1.16. Same-store sales in the U.S. were +5.4% vs consensus +4.4%. Revenue in the U.S. was $2.02B vs consensus $1.98B. Company-operating margin was 15.4% vs consensus 14.9% and year-ago 14.3%. We are sticking with our $150 target and believe that $7.00 in EPS for 2017 is not out of the question.
CME
CME Group (CME) which reports on April 28th still has the opportunity for an earnings beat with the +13% year-over-year volume increase coinciding with a +2% increase in pricing power. We have a 1Q16 estimate at $1.18, +3% ahead of consensus. CME stock has positively reacted on earnings the past 5 announcements, rising between +1.5-3.7%.
TLT
The market is currently pricing in a rate hike but not until … late 2017. So if you’re looking for reasons to buy the market at all-time highs, don't expect a boost from incremental Fed policy. To be clear, the dovish Fed commentary of late is a direct result of U.S. growth slowing. Friday’s manufacturing PMI continued its downward trend (it peaked in rate of change terms in August 2014). Clearly, the market gets decelerating growth, which is why Utilities (XLU) are leading equity sector divergences YTD (+9.3%) and the U.S. Treasury 10-year yield down 0.35% over that same period. (That translates into TLT +6.5% and ZROZ +10.2% year-to-date.)
With that being said, the alpha on our long utilities and Long Bonds (TLT & ZROZ) vs. short Junk Bonds (JNK) position has gone against us in the last two months. Notably, we have no direct exposure to commodities or commodity-related sectors, but being short of JNK amidst a huge rally in commodities has not been a good position. Much of the beaten down resource-leveraged credit has rallied.
Asset Allocation
| CASH | 60% | US EQUITIES | 0% | |
| INTL EQUITIES | 0% | COMMODITIES | 3% | |
| FIXED INCOME | 31% | INTL CURRENCIES | 6% |
THREE FOR THE ROAD
TWEET OF THE DAY
VIDEO: Can Fed Stop Recessionary Selloff? https://app.hedgeye.com/insights/50528-can-fed-stop-recessionary-selloff
@KeithMcCullough
QUOTE OF THE DAY
The reality is: sometimes you lose. And you’re never too good to lose. You’re never too big to lose. You’re never too smart to lose. It happens.
Beyonce Knowles Carter
STAT OF THE DAY
Donald Trump has been personally sued in federal court 72 times since 2000. Since 2000, Bloomberg found that Trump and his companies have either sued or been sued at least 1,300 times.
