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FYI: Using Fed's Inflation Measure GDP Would Be Negative

Takeaway: Today's update on 1Q16 GDP was revised up to 0.8% vs the prior estimate of 0.5% but while using a misleading measure of inflation.

FYI: Using Fed's Inflation Measure GDP Would Be Negative - GDP cartoon 02.29.2016 

 

With a "0" in front of GDP and S&P earnings growth -8.5% y/y, should the Federal Reserve raise rates in June?

 

There's no debating the earnings recession anymore but, with Macro consensus predicting 2Q16 GDP growth of +2.3%  and the Atlanta Fed’s GDPNowcast at 2.9%, so it's worth reviewing our #GrowthSlowing call.

 

Today's 1Q16 GDP estimate was revised up to 0.8% versus the first estimate of 0.5%.

 

That's misleading.

 

In calculating economic growth, the government used the sub-1% GDP Deflator, which stands at 0.6%. Meanwhile, if the US Government used the Federal Reserve's prefered measure of inflation, core PCE which now reads 2.1%, US GDP would have been NEGATIVE in Q1.

 

Look at the difference between the two inflation measures in the table below:

 

 

In related news, this marks the 5th straight quarter where Hedgeye's Predictive Tracking Algorithm has been within 20-30bps of nailing GDP. That's more than we can say for the Fed and Old Wall Consensus which have an average quarterly intra-quarter tracking error of between 152 to 246 basis points.

 

#AccuracyWins


Just Awful: An Update On S&P 500 Earnings

Takeaway: A total of 491/498 S&P 500 companies have reported aggregate sales and earnings growth down -2.3% and -8.5% respectively.

Just Awful: An Update On S&P 500 Earnings - empty pockets

 

A total of 491/498 S&P 500 companies have reported aggregate sales and earnings growth down -2.3% and -8.5% respectively.

 

HERE'S THE BREAKDOWN BY SECTOR:

 

  • So far, 6 of 10 sectors have reported negative sales and earnings growth;
  • Our favorite sector short, Financials (XLF), reported sales and earnings growth down -1.7% and -14.2%;
  • Energy (XLE) sales and earnings growth down -30.1% and -109.1% respectively;

 

Just Awful: An Update On S&P 500 Earnings - s p earnings 5 27


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

 

CLICK TO ENLARGE

 

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


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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?

 


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


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