“Hoo-hoo! Big summer blowout!”
That’s right Frozen fans – gettem while you can. Buy “expensive” Low Beta #GrowthSlowing exposures before everyone else bids them away from you! If you want the “cheap” stuff… it’s A) getting cheaper and B) in ample supply when earnings miss.
For those of you who don’t have 4 girls at home, you may not be familiar with my boy Oaken price gouging Anna when she went shopping for the bare winter/mountain necessities. Of my 4 girls, one is my wife, and that scene completely cracks her up, every time.
If your bro-ker or hedgie levered you up long in stocks in July of 2015 (all-time #bubble high was a beauty), this is no laughing matter. You could have bought all the “cheap” Apple (AAPL) and “expensive” Disney (DIS) you wanted at $132 and $121/share, respectively.
Back to the Global Macro Grind…
You know, that’s the thing about #TheCycle – it can suck you right into doing things that just look silly, in hindsight.
Now that you know that we’re on the back side of both the US economic and profit cycle, should it surprise you that Disney (DIS) “missed” for the 1st time in 5 years? The time to buy Disney, Apple, and Starbucks was on the last US cycle’s lows (2009).
I’m going to pick on DIS this morning just because it’s a great company that Wall Street has had great issues explaining ever since the US cycle peaked in July of 2015 (don’t worry, I’ll keep reminding you of that date):
- From #TheCycle peak of 2007 to #TheCycle trough of 2009 the stock went from $27 to $12 (-56%)
- From #TheCycle trough of 2009 to 2015 the stock went from $12 to $132 (#crusher long idea)
- From #TheCycle peak of 2015 to the FEB 2016 low the stock went from $132 to $88 (-33%)
Oh, and that FEB 2016 low must have been the trough, right? Generational buying opportunity, for sure, eh?
Let’s stop talking to one another like children and get real here. Like Olaf, when #TheCycle (sun rising in the East) starts slowing, profits and multiples start melting. So, unless you have a central-market-plan to ban that, I’m sticking with our forecast.
Unless we’re going to go all-in #bubble multiple speak (Bernstein slapped a $1000 price target on AMZN yesterday), as you can see here in our Chart of The Day, forward SP500 P/E multiples already peaked (right on time) last year too.
In other words, while the March bear market bounce in cyclicals was nailed by everyone on Twitter, forward earnings estimates are still near their YTD lows … so a mini-multiple expansion drove part of that bounce… but to lower-cycle-highs.
With non-GAAP SP500 Earnings -8.9% year-over-year in Q1, what gets the stock market’s multiple back to peak? How do we get big Dow Bro components like AAPL and DIS back to the all-time highs?
Qs: Is it melting earnings (math: melt the E and the P/E goes up)? And/or helicopter money?
A: As I’ll tell Institutional Clients all day long (again) today in NYC, anything can happen!
Perma Bull marketing firms have a whole Disneyworld of ‘it’s different this time’ ideas that I’m happy to entertain:
- The Fed can go to Qe4
- With negative rates everyone can buy everyone (ex-SPLS/ODP this am)
- GDP “feels” like 2.5%
While I’m pretty sure everyone understands this, it’s worth stating plainly. For the Fed to move to ideas 1 and/or 2, Hedgeye has to be really right on our US #Recession Risk call. Entertaining those measures comes from 1 on the SP500, not 2084.
Option #3 though is probably what people who bought APPL, DIS, MSFT, GOOGL, etc. at #TheCycle highs of 2015 (don’t forget July!) were thinking though. Heck they may have been thinking GDP was feeling like 3-4%, in perpetuity, AFTER 78 months of GDP expansion.
This is what I expect to have to debate on the road today: “Keith, the Atlanta Fed just went to 2.2% GDP and Nancy is at 2.5%.” To be clear, Darius Dale and I cannot wait to respond (again) with our Street low GDP forecast and call that #TheCycle continues to slow.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 1.71-1.82%
Oil (WTI) 42.55-46.19
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer