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Daily Market Data Dump: Friday

Takeaway: A closer look at global macro market developments.

Editor's Note: Below are complimentary charts highlighting global equity market developments, S&P 500 sector performance, volume on U.S. stock exchanges, and rates and bond spreads. It's on the house. For more information on how Hedgeye can help you better understand the markets and economy (and stay ahead of consensus) check out our array of investing products

 

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Daily Market Data Dump: Friday - equity markets 5 27

 

Daily Market Data Dump: Friday - sector performance 5 27

 

Daily Market Data Dump: Friday - volume 5 27

 

Daily Market Data Dump: Friday - rates and spreads 5 27

 

Daily Market Data Dump: Friday - currencies 5 27


Behind The No-Volume Month-End Markup & An Update On Volatility

Takeaway: US Equity Volume was -23% yesterday vs its 1 month average. Meanwhile, the VIX is poised to make yet another lower high in the coming week.

Behind The No-Volume Month-End Markup & An Update On Volatility - Volatility cartoon 09.02.2015

 

Isn't it funny that on up days market volume disappears?

 

Here's volume and volatility analysis via Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning: 

 

"Post another no-volume month-end markup in US Equity beta (Total US Equity Volume -23% yesterday vs. its 1 month avg!) to lower highs, my front-month volatility signal says we see another higher low in VIX in the coming week – VIX risk range = 13.16-16.90; buying stocks (chasing beta) at 12-13 VIX has not worked in 2016."

 


Fed-Induced Hyperventilation: A Buying Opportunity

Takeaway: Last week's hawkish Fed minutes provided a nice entry point for investors looking to get long the Long Bond.

Fed-Induced Hyperventilation: A Buying Opportunity - Yellen cartoon 04.06.2016 

 

The anxiety in macro markets is palpable.

 

Following last week's Fed minutes, Long Bonds backed up a bit as the hawkish commentary filtered into Treasuries. Meanwhile, the cabal of pro-rate hike regional Fed heads made the media rounds talking up two, even three, rate rises this year.

 

Filtering out the noise, the reaction actually presented investors with a unique opportunity, Hedgeye CEO Keith McCullough writes in a note sent to subscribers this morning.

 

"Last week’s hyperventilation about the Fed’s “minutes” (from April) turned out to be yet another buying opportunity in everything Long Bond, Utes, etc. – with the 10yr at 1.82% this morning, all tweets are on Yellen who speaks at 1:15 p.m. EST. Remember, she is a labor economist – that makes next week’s jobs report one of the most important of 2016."

 

 

While we're discussing those talkative Fed hawks, we'd also add a brief note. Here's an interesting chart via Deutsche Bank. Apparently, the more likely a Fed economist is to appear on CNBC, the more likely they are to have a delusional view of the U.S. economy.

 

Who'd have thought?

 


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CHART OF THE DAY: A Look At Yellen's Favorite Economic Indicator

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.

 

"... As you can see in today’s Chart of The Day, Janet’s favorite “indicator” is one she calls her “Change In Labor Market Conditions Index.” After being green for, drumroll, #TheCycle… it started to go red (like it always does)… as the US economic cycle had already peaked and rolled.

 

Since this data series goes back to the 1970s, you can see that the probable outcome (from here) is for the 3 red bars just reported to go really red sometime soon. Does Janet want to be the catalyst in expediting that? When it’s really red, she has to be dovish."

 

CHART OF THE DAY: A Look At Yellen's Favorite Economic Indicator - 05.27.16 chart


Will Yellen Cut?

“You know, and I know, that we do not live in a world of Econs.”

-Richard Thaler

 

I know, and you know, that isn’t true in our profession. We live in the world of an un-elected Federal Reserve’s inaccurate forecasts.

 

As for the other 99% of the world’s population, Thaler is quite right in emphasizing that “we live in a world of humans. And since most economists are also human, they also know that they do not live in a world of Econs.”

 

That’s how he introduces his new book, MisbehavingThe Making of Behavioral Economics. If you have friends who live in a world of linear-forecasting Econs, buy it for them. Humans need to learn that “the premises on which economic theory rests are flawed.” (pg 6)

 

Will Yellen Cut? - fed forecast crystal ball

 

Back to the Global Macro Grind

 

I spent all of this week speaking with Institutional Investors in California. From Santa Monica to San Francisco, there wasn’t one meeting that didn’t ultimately end up focusing on what the Federal Reserve is going to do next and why.

 

“I hear you on #TheCycle, but could they raise anyway?”

 

“What happens if they don’t raise? Do we rip?”

 

“If they raise, then when is the earliest they can start cutting again?”

 

Yep. Those are the three scenarios:

 

  1. Raise rates in June or July and September
  2. Do nothing
  3. Raise then cut in September

 

The last one might raise your eyebrows this morning as it’s the furthest away from your local hedgie hyperventilating about the “Fed’s Minutes” (Bond Yields have since pulled back and every Long Bond and Utilities Bull who bought that damn dip are getting paid).

 

But don’t forget that the only reason why the US stock market didn’t crash in FEB-MAR 2016 is because that’s precisely what the Fed did in going dovish and pulling “5 hikes” back to 2 (or now my boy Johnny Williams in CA says 2-3!).

 

Janet Yellen went dovish (i.e. cut rhetorically) AFTER she raised, making her the only American Econ of this decade to have RAISED RATES into a US Economic slow-down AND then immediately CUT them.

 

#Sweet. Now what?

 

Should she raise them into another slowing Q2 slowing GDP report, corporate profit recession, and a few more NFP #EmploymentSlowing reports? If she does, the proceeding cuts are going to be super sweet, no?

 

As you can see in today’s Chart of The Day, Janet’s favorite “indicator” is one she calls her “Change In Labor Market Conditions Index.” After being green for, drumroll, #TheCycle… it started to go red (like it always does)… as the US economic cycle had already peaked and rolled.

 

Since this data series goes back to the 1970s, you can see that the probable outcome (from here) is for the 3 red bars just reported to go really red sometime soon. Does Janet want to be the catalyst in expediting that? When it’s really red, she has to be dovish.

 

In other words, this summarizes my high probability forecast:

 

  1. In a dead-heat with being SP500 dependent, Yellen is labor data dependent
  2. If she hikes for the sake of hiking, she’ll be cutting faster than she hiked
  3. Because there is a 0% chance she stays tight during #LateCycle Employment slowing

 

So, instead of staring at an Atlanta Fed GDP Now forecast (that is subject to an intra-quarter downward revision of 200-250 basis points), gaze deeply again at Janet’s preferred indicator.

 

The last 3 months have registered the lowest readings since this time (June) of 2009. Can you imagine if Bernanke was clueless enough on #TheCycle to start raising rates in the summer of 2009?

 

I can. And so can the world of Econs. He’d have blown our reflated asset price world to smithereens.

 

Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND research views in brackets) are now:

 

UST 10yr Yield 1.71-1.91% (bearish)

SPX 2038-2097 (bearish)
RUT 1081-1149 (bearish)

NASDAQ 4 (bearish)

Nikkei 166 (bearish)

DAX 99 (bearish)

VIX 13.16-16.98 (bullish)
USD 94.56-95.97 (bullish)
EUR/USD 1.11-1.13 (bearish)
YEN 108.42-110.74 (bullish)
Oil (WTI) 46.29-49.97 (bullish)

Nat Gas 1.97-2.20 (bearish)

Gold 1 (bullish)
Copper 2.03-2.12 (bearish)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Will Yellen Cut? - 05.27.16 chart


UST 10YR, VIX, Italy

Client Talking Points

UST 10 YR

Last week’s hyperventilation about the Fed’s “minutes” (from April) turned out to be yet another buying opportunity in everything Long Bond, Utes, etc. – with the UST 10yr at 1.82% this morning, all tweets are on Yellen who speaks at 1:15 EST. Remember, she is a labor economist – that makes next week’s jobs report one of the most important of 2016.

VIX

Post another no-volume month-end markup in US Equity beta (Total US Equity Volume -23% yesterday vs. its 1 month avg!) to lower highs, my front-month volatility signal says we see another higher low in VIX in the coming week – VIX risk range = 13.16-16.90; buying stocks (chasing beta) at 12-13 VIX has not worked in 2016.

Italy

Yep, Italy. One topic that I wasn’t getting asked enough about on the road (I was in California all week) is the rising probability for Europe to enter a recession in the back half of 2016. We have a Street low GDP forecast of 0.2% for Q416 for the Eurozone and we’re at negative GDP for Italy whose stock market is -0.3% this am, -3.2% m/m, and -24.1% y/y.

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
5/26/16 58% 2% 0% 10% 28% 2%
5/27/16 58% 2% 0% 10% 26% 4%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
5/26/16 58% 6% 0% 30% 85% 6%
5/27/16 58% 6% 0% 30% 79% 12%
The maximum preferred exposure for cash is 100%. The maximum preferred exposure for each of the other assets classes is 33%.

Top Long Ideas

Company Ticker Sector Duration
GLD

When Janet does have to acknowledge the deterioration in U.S. growth, we expect the policy shift to be dollar bearish on the margin. And, to the contrary, if the Fed RAISES RATES (June) into this slow-down, they’ll be the catalyst for DEFLATION (down yields) again anyway. And there’s nothing Gold (GLD) likes more than a falling dollar and falling interest rates which is why we added it to the long-side of Investing Ideas this week. Remember, this is the same week various Fed members were in public calling for a rate hike with the worst jobless claims print since 2012. #GoodLuck.

MCD

McDonald's (MCD) continues to evolve. The company's latest step is testing never frozen burgers at 14 units in the Dallas, TX area. This initiative could give them the ability to compete with better burger concepts such as Shake Shack, In-N-Out and Five Guys.

 

Meanwhile, there has been chatter about the lack of identity for their value platform in 2Q16. MCD is truly still in the testing phase as to what their national value message will be. We can appreciate the fact that they are testing multiple formats before fully committing.

 

In the meantime, the tailwind from all-day breakfast will continue to propel growth going forward, until lapping this initiative in 4Q16. We continue to favor MCD as one of the best LONGs in the market right now, due to actual growth and style factors that are friendly in volatile markets.

TLT

If you haven’t yet, you got another chance to buy long-term Treasuries at lower highs this week. If you’re already long of Long Bonds (TLT, ZROZ), stick with it. None of the relevant data released this past week suggests that growth could inflect and trend positive:

  • Thursday’s Jobless Claims Report was the worst print, in Y/Y rate of change terms, since 2012, and it was the fourth consecutive week of increasing jobless claims
  • Industrial Production declined -1.1% Y/Y for April, marking the 8th consecutive month of Y/Y contraction: #IndustrialRecession

Tying together a continued deceleration in growth with policy expectations, the most important callout is that our expectation for growth in Q2 is well below consensus and Fed expectations (which have been horribly inaccurate). 

Three for the Road

TWEET OF THE DAY

A Closer Look At Yesterday's Durable Goods Data app.hedgeye.com/insights/51222… via @Hedgeye

@KeithMcCullough

QUOTE OF THE DAY

"My fellow Americans, ask not what your country can do for you, ask what you can do for your country."

-John F. Kennedy

STAT OF THE DAY

Julio Urias, age 19, will make his first MLB start tonight against the New York Mets.   


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