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Quick Take: 2Q GDP ↑ = Fed Hawkish

Takeaway: We think Q2 economic growth will accelerate and the Fed will turn hawkish.

Quick Take: 2Q GDP ↑ = Fed Hawkish - Hawk dove cartoon 06.06.2016

 

Q2 GDP ↑ (vs. Q1) = U.S. Dollar ↑ = Rates ↑ = Reflation (i.e. commodities) ↓ = Fed hawkish

 

That's our latest thinking on the current macro setup. Here's analysis from Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning:

 

"The #StrongDollar move continues as consensus remains A) bearish on USD (see net positioning in CFTC futures & options data) and B) finally too dovish on what the Fed might do in SEP – what slows this down if we’re right on the Q2 sequential GDP acceleration as European and Japanese economic data continues to slow? Still bearish on Euros."

 

Quick Take: 2Q GDP ↑ = Fed Hawkish - dxy 7 20

 

Note Fed Funds futures' current rate Hike Probabilities:

 

  1. JUL meeting = 8%
  2. SEP meeting = 21%
  3. DEC meeting = 43% 

 

Quick Take: 2Q GDP ↑ = Fed Hawkish - 07.20.16 image

 

On #StrongDollar induced #Deflation...

 

McCullough writes:

 

"Oil continues to break-down as the USD continues to threaten a breakout – WTI down -1.4% yesterday takes it -7.1% in the last month as the inverse USD correlation there remains as real as it is for the CRB Index (down -1.1% yesterday to 186 and signaling bearish TREND @Hedgeye); WTI immediate-term risk range now = $43.91-46.65."

 

 

... Cue the Fed hawks:

 

  • Atlanta Fed President Dennis Lockhart: “I wouldn’t rule out as many as two” rate hikes.
  • “We should be looking toward removing accommodation,” said Robert Kaplan, president of the Federal Reserve Bank of Dallas. "We just should do it in a patient, gradual way.”

 

That's just in the past week.

 

Quick Take: 2Q GDP ↑ = Fed Hawkish - Fed grasping cartoon 01.14.2015

 

What does this mean for investors going forward?

 

In the past few days, Hedgye CEO Keith McCullough has been trimming exposure to our favorite Macro idea, Long Bonds (TLT). We'll be happy to buy them back on selloffs (especially given our bearish outlook for Q3 GDP).

More to come...


A Closer Look At How Big Banks Really "Beat" Earnings Estimates

Takeaway: Reality check. Over the past year, Wall Street earnings estimates for big banks typically fell over -20%.

A Closer Look At How Big Banks Really "Beat" Earnings Estimates - Earnings cartoon.spare

in a wall street (and america for that matter) of lowered expectations ... Everybody Beats.

 

That's the long and short of it. The news this morning is Morgan Stanley (MS) beat consensus earnings estimates, sending its shares higher. Setting aside for a second that MS revenue and earnings were down -9% and -12% respectively year-over-year, let's look at the parlor game being played by Old Wall analysts belying those "beats."

 

The first thing to note? In order to manufacture these earnings beats, Wall Street's downward revisions are sometimes massive. Over the past year, big bank consensus earnings estimates dropped anywhere between -9% and -29%. Check out the charts below showing consensus earnings estimates (the red line depicting the steady decline in those estimates.)

Morgan Stanley

  • EPS 2Q16: $0.75
  • Consensus EPS Estimate: $0.59
  • Consensus EPS Revision: -29% in past year

A Closer Look At How Big Banks Really "Beat" Earnings Estimates - ms ee

Citigroup

  • EPS 2Q16: $1.24
  • Consensus EPS Estimate: $1.10
  • Consensus EPS Revision: -25% in past year

A Closer Look At How Big Banks Really "Beat" Earnings Estimates - c ee

Bank of America

  • EPS 2Q16: $0.36
  • Consensus EPS Estimate: $0.33
  • Consensus EPS Revision: -23% in past year

A Closer Look At How Big Banks Really "Beat" Earnings Estimates - bac ee

JPMorgan

  • EPS 2Q16: $1.55
  • Consensus EPS Estimate: $1.43
  • Consensus EPS Revision: -13% in past year

A Closer Look At How Big Banks Really "Beat" Earnings Estimates - jpm ee

Wells Fargo

  • EPS 2Q16: $1.01
  • Consensus EPS Estimate: $1.01
  • Consensus EPS Revision: -9.9% in past year

A Closer Look At How Big Banks Really "Beat" Earnings Estimates - wfc ee

 

None of this suggests big bank impropriety. However, these five stocks are up between +2% and +9% in the past month on significantly downgraded earnings beats.

 

Sad...

 

Stock performance of the banks above over past month

A Closer Look At How Big Banks Really "Beat" Earnings Estimates - bank stock

The game goes on and on. 

 

Don't expect it to stop. Another way to beat on earnings is to reduce the share count via stock buybacks. (Note: Executive bonuses are often tied to EPS growth, so therein lies another motivation to reduce the share count and goose earnings.)

 

  • JPM said it was increasing its planned buyback to $10.6 billion from $6.4B announced last year
  • Citigroup plans a huge $8.6 billion buyback
  • BofA lifted its expected payout in the next year to about $8.1 billion, including a $5B buyback
  • Morgan Stanley's buyback is now $3.5 billion, up from $2.5B previously announced

 


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, rates and bond spreads, key currency crosses, and commodities. 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: Wednesday - equity markets 7 20

 

Daily Market Data Dump: Wednesday - sector performance 7 20

 

Daily Market Data Dump: Wednesday - volume 7 20

 

Daily Market Data Dump: Wednesday - rates and spreads 7 20

 

Daily Market Data Dump: Wednesday - currencies 7 20

 

Daily Market Data Dump: Wednesday - commodities 7 20


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CHART OF THE DAY: Fed September Rate Hike Expectations Too Low

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.

 

"... Looking at the implied market probability of another hike, across durations:

  1. JUL meeting = 8%
  2. SEP meeting = 21%
  3. DEC meeting = 43%

For now, I think those SEP expectations are too low. If I’m right on that, rates will keep making a series of higher-lows and Fed funds futures will continue higher until we get another jobs report bomb (PS. don’t rule that out)."

 

CHART OF THE DAY: Fed September Rate Hike Expectations Too Low - 07.20.16 image


Technology Equity Research Veteran Ami Joseph Joins Hedgeye

Takeaway: Veteran analyst will provide best ideas on both the long and short side of Technology stocks.

FOR IMMEDIATE RELEASE

 

STAMFORD, Conn., July 20, 2016 -- Hedgeye Risk Management, a leading independent provider of investment research and online financial media firm, announced today that industry veteran Ami Joseph has joined the company as a Managing Director to lead its Technology equity research platform. He joins Hedgeye from Joseph Capital Partners, a Boston-based research boutique that he founded which provided long and short ideas to institutional investors.

 

In his new role at Hedgeye, he will continue to provide his best ideas on both the long and short side of Technology stocks.

 

Technology Equity Research Veteran Ami Joseph Joins Hedgeye - Ami 7.19.16   Output 1 .mov.13 54 44 02.Still001

 

"Our rapidly growing team here is very excited to welcome Ami aboard during this important phase of our firm’s growth," said CEO Keith McCullough. “His insight and experience in the tech sector will be a key component of our strategy and success in this evolving space in the years to come."

 

Joseph comes to Hedgeye with almost two decades of buy-side and sell-side experience covering the technology sector. Before founding and managing Joseph Capital Partners, he was an equity research analyst at Putnam Investments where he led international equity research for technology stocks. Prior to that, he was a technology analyst at Fidelity Management & Research.

 

“Hedgeye is a truly unique research firm heading in a very positive direction,” said Joseph. “I’m thrilled to join such a talented team of analysts. In addition, having the advantage of being part of a growing media platform with greater resources will enable me to serve my clients that much more effectively going forward.”

 

Joseph graduated Magna Cum Laude from the University of Pennsylvania where he was a Benjamin Franklin Scholar and member of the Phi Alpha Theta Honors Society.

 

ABOUT HEDGEYE RISK MANAGEMENT

 

Hedgeye Risk Management is an independent investment research and online financial media firm. Focused exclusively on generating and delivering investment ideas in a proven buy-side process, the firm combines quantitative, bottom-up and macro analysis with an emphasis on timing.

 

The Hedgeye team features some of the world's most regarded research analysts, all with buy-side experience, covering Macro, Financials, Energy, Healthcare, Retail, Gaming, Lodging & Leisure (GLL), Restaurants, Industrials, Consumer Staples, Internet & Media, Housing, Materials, Technology and Washington policy analysis.

 

Contact

Dan Holland

dholland@hedgeye.com

203.562.6500


Cartoon of the Day: Going Nowhere

Cartoon of the Day: Going Nowhere - helicopter money cartoon 07.19.2016

 

Rumors about helicopter money aside, Japan's Nikkei is still down 19.8%, inclusive of last week's 10% pop.


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The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
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