Daily Market Data Dump: Wednesday

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




Daily Market Data Dump: Wednesday - equity markets 6 29


Daily Market Data Dump: Wednesday - sector performance 6 29


Daily Market Data Dump: Wednesday - volume 6 29


Daily Market Data Dump: Wednesday - rates and spreads 6 29


Daily Market Data Dump: Wednesday - currencies 6 29

Bear markets bounce on decelerating volume

Client Talking Points


One down day and right back up we go, +0.4% to +24.2% YTD for the Gold Bulls as both US and Global Bond Yields crash to all-time lows; don’t chase it into the month-end markup; buy more at low-end of the $1290-1339 immediate-term risk range; rinse & repeat.


Watching the Old Wall (and it’s media) shift to “Fed on Hold, buy stocks” is funny – but a friendly reminder that this is not funny if you are a bank; 1.44% 10yr Yield minus 0.62% 2yr = fresh YTD low (and low for #TheCycle) as trending US employment growth continues to slow ex-Brexit.


While we covered some shorts 2 days ago on the SPX oversold signal, I kept the SPY signal itself on as I think this one might look good for more than a little while; with buy-backs blacked out and the worst EPS season of #TheCycle pending (Financials report 1st), shorting more US Equity Beta in the 2058-2085 range would be a nice Canada Day gift.

Asset Allocation

6/28/16 61% 0% 0% 12% 24% 3%
6/29/16 58% 0% 0% 14% 25% 3%

Asset Allocation as a % of Max Preferred Exposure

6/28/16 61% 0% 0% 36% 73% 9%
6/29/16 58% 0% 0% 42% 76% 9%
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

In Great Britain, the people voted for freedom and not for the broken promises that central planners can bend and smooth economic gravity. The #BeliefSystem is breaking down and despite the fact that every central banker around the world was out Friday talking about “stepping in.”

As we’ve mentioned, the bond market has gotten the #GrowthSlowing call right all along.


Looking at other markets (yes there are other markets), maybe being long the Long Bond (TLT) for almost two years and sitting long of Gold (GLD) was too boring for some people, you have to ask yourself what you’re buying in broader equity indices with an ongoing earnings and cyclical slowdown. The second quarter of 2016 is setting up as the 5th consecutive quarter of Y/Y earnings declines for the S&P 500, the longest streak since the quarter ending in Q3 2009.


There have been rumblings in the news that McDonald's (MCD) 2Q comps have slowed due to the temporary replacement of the 2 for $5 value platform for Monopoly. This has clearly been reflected in the stock as of late, as MCD has underperformed the S&P 500 over the last month.


Despite this near term headwind, we still strongly believe in the long-term story for MCD and remain confident that once they get their value platform right nationally, they will be just fine. In the short to intermediate term, as we wait for a solidified value platform, this recent underperformance represents a great buying opportunity. We remain LONG MCD.

Three for the Road


“The most difficult thing is the decision to act. The rest is merely tenacity.”  -Amelia Earhart


Jeff Blauser had a career batting average of .262.

The Macro Show Replay with Darius Dale | June 29, 2016

CLICK HERE to access the associted slides.


 An audio-only replay of today's show is available here.

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

CHART OF THE DAY: A Closer Look At Housing Cost Burdens

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye U.S. Macro analyst Christian Drake. Click here to learn more.


"... As can be seen in the Chart of the Day below, almost half of all renter households make less than $75K so the incidence of moderate and severe cost burdens is the prevailing reality for over 20 million households.


And as housing’s share of wallet grows, capacity for other discretionary consumption declines proportionally.  Indeed, severely cost burdened households spend more on transportation costs and significantly less on Food, Healthcare and retirement savings."


CHART OF THE DAY: A Closer Look At Housing Cost Burdens - 06.29.16 Cost Burden CoD


“Look man. I lay it out for y'all to play it out”

-Huggy Bear, Starsky & Hutch


For the last six weeks or so I've been a reluctant participant in a kind of bizarro Seinfeld'ian reality.


Perhaps the stars have aligned in the elusive Kumbaya formation or the universe is seeking to balance European dissonance with humanistic harmony in my backyard.


Whatever the reason, I’ve been unwittingly ensnared in the great Hug-nado of 2016.


It’s not that I’m against hugging. 


It’s just that as I’ve been introduced to new families in town the last couple months, the hugging – sometimes with the same people multiple times per day – has somehow spiraled in reflexive, self-reinforcing fashion to the upside.  I’ve actually had to increase my advil consumption to guard against rotator cuff inflammation from repetitive high frequency hugging.  


Anyway,  I’m pretty sure central CT is experiencing a localized embracing bubble.  Since I plan on living here for a long time, I hope the inevitable de-hug-eraging  is well managed to a soft landing.


Hugnado  - huyggy bear


Back to the Global Macro Grind


If you feel like you've been a reluctant participant in a bizarro parallel macro dimension where policy maker forecasts are wrong every time, attempted front-running of policy initiatives born of those errant forecasts = “investing”, and where consensus & futures go from pricing in  3-5 rate hikes to a rate cut  in a matter of weeks as price/risk discovery and free market clearing devolve into farcical versions of themselves, fear not …..


Yesterday we received the final estimate of 1Q16 GDP. 


Positive revisions to the Trade balance and Nonresidential Investment drove the upside in net exports and Investment expenditure and the bulk of the positive revision to the headline. 


On the flip side Consumption growth was revised down by -40bps with growth across each of Services/Durables/NonDurables seeing negative revisions of similar magnitude. 


Notably, the GDP deflator was also revised lower by -0.2%, providing a sizeable support to the positive revision.  In total, since the advance estimate of 1Q16 GDP on 4/28, the deflator has been revised lower by -0.3% while headline GDP has been revised higher by +0.6%.


It could be argued whether this is a completely clean way to contextualize it, but it could be fairly contended that suspect inflation inputs have been responsible for a full 50% of the positive revision we’ve seen to growth in the 1st quarter. 


Quickly, for those unfamiliar with the GDP deflator.


101:  First recall that nominal values are values priced in units of currency (a function of volume and price/price changes) while real values are values priced in units of goods & services.  We care about real values because, as consumers, we’re concerned less about total spending than about with how many goods and services we can consume.  Real values are arrived at by subtracting price changes (i.e. “The GDP Deflator”) from nominal spending: 


The GDP price deflator is considered “implicit” in the sense that it’s calculated simply as the ratio of Nominal GDP/Real GDP.  In words,  


  • GDP Price Deflator = Nominal GDP/Real GDP *100 => this give the index value
  • QoQ Deflator = Index Value in Current Qtr/Index Value in Prior Qtr -1  * 4 => This is QoQ price change, annualized and the figure used in deflating reported Nominal GDP. 


Also remember that, by convention, all data are typically reported quarter-over-quarter, seasonally adjusted and annualized (SAAR = seasonally adjusted annual rate). 


If you’re ever unsure how to understand a reported GDP metric, remember the BEA mantra, “If in Doubt, SAAR It Out”.


To be clear, I don’t think the inflation understatement is conspiratorial, I just don’t think it accurately reflects the underlying reality for most households.   


For example, consider the Fed’s preferred inflation measure – Core PCE inflation.   In contrast to the GDP price deflator which was down -0.5% QoQ in 1Q (0.9% in 4Q15 vs. 0.4% in 1Q16), Core PCE inflation was +0.7% higher in 1Q16 (2.0% in 1Q16 vs 1.3% in 4Q15 ). 


If nominal growth were deflated using this “preferred measure” real growth would be measurably negative and real GDP per capita even more negative.


Is this a better reflection of reality where progress towards the Fed’s inflation target is a product not of demand-pull inflation as the economy pushes towards productive capacity but of excess cost growth in key consumer cost centers like housing and healthcare? 


I don’t know, but evidence suggests widespread household margin pressures remain acute. 


On the housing side specifically, the affordability crisis is building.  For the ~43M renter households in particular the percent with moderate and severe cost burdens continues to make all-time highs.   


Per the latest JCHS housing report:

  • 71.5% of Households making <$45K pay more than 30% of income to housing with 42.1% paying more than 50%
  • 59.1% of Households making <$75K pay more than 30% of income to housing with 32.3% paying more than 50%


As can be seen in the Chart of the Day below, almost half of all renter households make less than $75K so the incidence of moderate and severe cost burdens is the prevailing reality for over 20 million households.


And as housing’s share of wallet grows, capacity for other discretionary consumption declines proportionally.  Indeed, severely cost burdened households spend more on transportation costs and significantly less on Food, Healthcare and retirement savings.


Further, with shelter inflation making a new cycle high in May and continuing to grow at a premium to both income and broader inflation growth, the share of cost burdened renters will only get worse when the 2015 & 2016 data are officially reported. 


Now, having fulfilled my bearish humpday research quota, some marginally bullish data to balance and close ….


May PCE:  We’ll get the household income and spending figures for May this morning.  The sum of aggregate hours and earnings growth from the NFP report point to a modest deceleration in aggregate salary and wage income growth (and flattish consumption growth by extension).   


Consensus is looking for consumption to grow +0.4% sequentially.  With retail sales +0.5% MoM in May that’s not an unreasonable estimate.  Further, the lack of a negative revision to the April Retail Sales data reduces the likelihood that the notable rise observed in the April Spending data gets revised lower.


If the April spending data remains unrevised, the +0.6% gain equates to a +2.9% gain in 2Q (remember, you have to annualize the QoQ change) even if total spending growth is flat month-over-month in May and June. In other words, consumption would be a material support to reported growth on the quarter.


While consumption in 2Q is likely to be “good”, that goodness deserves some context. 


A sequential improvement in consumption growth would be in the context of a larger trend towards deceleration.  It’s also worth noting that the deceleration in consumption growth off the 1Q15 rate-of-change peak has occurred despite accelerating credit growth as consumer re-leveraging has proven unable to fully offset the deceleration in employment and income growth.


Further, implicit in extrapolating a ongoing acceleration in consumption growth is an assumption for further acceleration in credit growth, a complete re-inflection in the employment and income cycles (which isn’t how those cycle work), significant wage inflation and a dismissal of decelerating global growth, tighter financial conditions,  and renewed prospects for strong dollar deflation and EU spillover effects.  


To channel Peter Thiel to close: It’s 2016, we were promised flying cars.  We got high frequency hugging, Brexit and peak rent inflation.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.41-1.61%


VIX 16.84-25.68
EUR/USD 1.09-1.12

Gold 1


To growth,


Christian B. Drake

U.S. Macro Analyst


Hugnado  - 06.29.16 Cost Burden CoD

Eviscerated ... $12,000,000,000,000+ Erased Since Global Equity Top

Takeaway: Global equities have lost $12 trillion in market cap since peaking last June. That's a 19.9% decline!

Eviscerated ... $12,000,000,000,000+ Erased Since Global Equity Top - Stocks crash test dummies cartoon 02.18.2016


Don't believe that the global economy is slowing?


Since peaking last June, global equities have lost $12 trillion in market cap as of this morning. Take a look below at the Bloomberg World Exchange Market Capitalization index.


Yep. That's a 19.9% hair away from full-blown crash mode.


Eviscerated ... $12,000,000,000,000+ Erased Since Global Equity Top - bloomberg world market cap


Here's a look at select equity markets around the globe and their drawdowns since then:


Eviscerated ... $12,000,000,000,000+ Erased Since Global Equity Top - global equities 6 29


What's the big message here?


For starters, global demand hasn't bottomed ... and the outlook remains unequivocally bearish.

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