The Economic Data calendar for the week of the 25th of July through the 29th of July is full of critical releases and events. Here is a snapshot of some of the headline numbers that we will be focused on.
Takeaway: Let's Get Ready To Ruuuumble; Boos Cruz; Trump-Nato;
Editor's Note: Below is a brief excerpt from Hedgeye Potomac Chief Political Strategist JT Taylor's Capital Brief sent to institutional clients each morning. For more information on how you can access our institutional research please email firstname.lastname@example.org.
"With me it is exceptionally true that the Presidency is no bed of roses."
-James Knox Polk
Even for a master showman like Donald Trump, last night’s primetime acceptance speech was the biggest test of his life and his campaign, and he did what Donald needed to do. After three days of convention chaos, a very poised and polished Ivanka Trump introduced the softer side of her father and made the strongest appeal of the week to women while portraying her father as a fighter.
The pleasantries stopped there as Trump launched into an hour-long dialogue doubling-down on ideals he’s pushed for over a year, and presented himself as the leader who will bring law and order to a country victimized by corruption, illegal immigrants and terrorism. The night was Trump’s and he closed the convention the way he wanted to close it, leaving no prisoners and highlighting what he’ll do to put America first again.
His rockstar performance brought the Quicken crowd to their feet - and solidified his most fervent supporters viewing from their living rooms - but will it be enough to appeal to undecideds, independents and estranged Democrats?
Trump’s campaign tried to focus the Republican convention on party unity, but it’s apparent that Senator Ted Cruz didn’t get the memo. Most Republicans eyeing future runs for 1600 Pennsylvania Ave have already made peace with Trump, or at least ignored him altogether, and worry a failure to fall in line could backfire if the outspoken and mercurial candidate ends up placing the blame of his defeat - at their feet.
But for over a year now, Cruz and like-minded conservatives have made the case that Republicans will lose again if they nominate an insufficiently conservative candidate, and they’re betting that a Trump loss would prove their point. Cruz is only 45 years old and could have a long political career ahead of him – that is, if his arrogance doesn’t come back to haunt him.
It’s been said that foreign policy is not Trump’s strong suit, and his previous quip that he “watches the shows” to gather geopolitical information further cements that view. So we weren’t surprised when Trump stepped into it again by stating that the US would not necessarily defend new NATO members in the Baltics in the event of Russian attack.
Hmmm...that contradicts everything his newly-minted veep has said, not to mention that it rattles the very foundation of NATO itself, further digging himself into a deeper hole. His lack of foreign policy cred and unorthodox declarations will be on full display throughout the election, especially as his counterpart continually references her experience and steady hand.
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In this excerpt from The Macro Show, Hedgeye Retail analyst Alec Richards and Macro analyst Ben Ryan discuss the companies most vulnerable to the ongoing retail slowdown.
Takeaway: Growth in Existing Home Sales slowed to +3.0% YoY but the main callout was that the share of sales to 1st-time buyers rose to 33%. Headfake?
Another rate of change slow-down in US Existing Home Sales?
Decent print but no real surprises. Growth in Existing Home Sales slowed to +3.0% YoY in June but the main callout was that the share of sales to 1st-time buyers rose to 33%, marking the highest percentage since July 2012 as unit sales increased to the highest level of the cycle at 1.84M.
The trend here is important because any next leg higher in transaction volumes will require resurgent 1st-time and entry level buyer demand. The past 3 years have been littered with single-month breakout headfakes and false optimism so we’re interested to see if the strength can confirm next month.
The more important housing release will be next week’s Pending Home Sales data for June – which will give us the lead read on sales in the existing market for July.
Bottom Line: You'll be reading about the Housing slowdown in newspapers, in 3 months.
Takeaway: The S&P 500 hit all-time highs on cycle-high buyback activity and a new cycle high (overly-optimistic) forward multiple.
The current S&P 500 forward multiple is at a new cycle peak on earnings expectations that assume positive earnings growth by Q3 2016, +9% in Q4 2016, and +16% and +14% by Q1 and Q2 2017 respectively. Starting in Q4 of this year, positive earnings growth expectations are baked in for every sector for three quarters through Q2 of 2017.
In other words, the S&P 500 hit all-time highs on cycle-high buyback activity and a new cycle high forward multiple. Note the optimism embedded in those earnings expectations as seen in the chart above.
Emblematic of the ongoing earnings recession, here's how Q2 2016 earnings are shaking out so far. Still bullish?
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