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Are Old Wall Consenseless Earnings Expectations Out To Lunch?

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.

 

Are Old Wall Consenseless Earnings Expectations Out To Lunch? - earnings expec

 

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.

 

Estimates too high? You decide.

 

Emblematic of the ongoing earnings recession, here's how Q2 2016 earnings are shaking out so far. Still bullish?

 

Are Old Wall Consenseless Earnings Expectations Out To Lunch? - earnings q2 7 22


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, 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: Friday - equity markets 7 22

 

Daily Market Data Dump: Friday - sector performance 7 22

 

Daily Market Data Dump: Friday - volume 7 22

 

Daily Market Data Dump: Friday - rates and spreads 7 22

 

Daily Market Data Dump: Friday - currencies 7 22

 

Daily Market Data Dump: Friday - commodities 7 22


CHART OF THE DAY: What Happens To S&P 500 When VIX Is Below 13

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.

 

"... 1 Factor Model:  In the Chart of the Day below we simply show VIX vs S&P500 (S&P500 is inverted on right axis). 

 

What you’ll simply notice is how simply effective it is to take down gross exposure and tighten net exposure when VIX goes <13.   

 

Global risks haven’t “greatly moderated” so building exposure into VIX 10/11/12 embeds the assumption that those risks cumulate latently with no impact on risk premiums or prices.  That seems like a pretty heroic assumption."

 

CHART OF THE DAY: What Happens To S&P 500 When VIX Is Below 13 - 7 22 16 CoD2


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20 Proprietary Risk Ranges

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About Everything: The Decline of the Film Industry & Its Investing Implications

 

 

In this complimentary edition of About Everything, Hedgeye Demography Sector Head Neil Howe discusses why the movie industry is in decline and breaks down the broader implications for investors.

 

Click here to read the associated About Everything writeup.


Cartoon of the Day: A Bear Tale

Cartoon of the Day: A Bear Tale - Europe three bears cartoon 07.21.2016

 

Drawdowns from respective 2015 highs:

 

  • Germany, DAX: -13.7%
  • Italy, FTSE MIB: -30.3%
  • France, CAC: -16.1%
  • Spain, IBEX: -25.8%

The BS Filter: China's Ever-Inflating Debt Balloon ... & Helicopters Grounded?

Takeaway: Here's our take on some of today's top financial stories.

The BS Filter: China's Ever-Inflating Debt Balloon ... & Helicopters Grounded? - balloon

China's Ever-Inflating debt balloon

A report from S&P Global published Thursday says that Chinese companies will account for nearly two-thirds of new credit raised globally by 2020. S&P forecasts that outstanding debt will expand by half to $75 trillion by then. 

 

"Indeed, investors are buying speculative-grade corporate debt, including those from emerging markets, and extending maturities to generate positive yields ... the reward is becoming increasingly unsustainable."

 

OUR TAKE: Another risk to monitor closely.

International Credit Outlook | Prognosis: Not good

According to Fitch, sovereign credit ratings are on track for a record number of downgrades this year (the worst since 2011). "At 30 June, there were 22 sovereigns on Negative Outlook and only six on Positive Outlook. The former include major economies such as the UK, Japan, Brazil and Russia as well as Saudi Arabia." 

 

OUR TAKE: Our subscribers have long had "0%" exposure to International Equities precisely because the global growth continues to slow.

 

Helicopters Grounded

"No need and no possibility for helicopter money," BOJ head Haruhiko Kuroda said in a BBC Radio 4 program that was broadcast Thursday. “At this moment, the Bank of Japan has three options with quantitative and qualitative easing with negative interest rates." The Yen popped 1% on the news, even though a Wall Street Journal article this morning reported that the conversation was recorded in June before helicopter money speculation began.


OUR TAKE: Helicopter money or not, the slow growth slog will continue to plague 
Japan's economy

Draghi: "Whatever it takes" 2.0?

European Central Bank head Mario Draghi argued, on Thursday, that a "public backstop" would be "very useful" in helping Italy's problem-plagued banks sell down bad loans. Italian bank UniCredit finished up 2% on the statement. 

 

OUR TAKE: Much like helicopter money speculation in Japan, Draghi's comments don't change economic reality. #EuropeImploding

IMF: "five [OBVIOUS] ways to spark growth"

After cutting global growth expectations again (see chart below), the IMF is out with proposals on how best to "spark" economic growth. Here they are:

 

  • Reducing uncertainty around “Brexit” and its repercussions, through a smooth transition to a new relationship between the United Kingdom and the European Union that as much as possible preserves gains from trade.
  • Implementing a stronger and more balanced set of economic policies that exploits policy synergies of well-sequenced structural reforms with growth friendly fiscal policy and continued monetary support.
  • Addressing the post-crisis debt overhang that saddles advanced economies and the rising corporate debt that burdens many emerging economies.
  • Lifting long-term growth and making it more inclusive, through structural reforms by making workers and business processes more productive.
  • Reinvigorating trade, making sure that the gains from trade are widely shared, and reviving the spirit of multilateralism, including to address geopolitical spillovers that could threaten the global recovery.


OUR TAKE: Thanks for coming out.

 

The BS Filter: China's Ever-Inflating Debt Balloon ... & Helicopters Grounded? - imf growth 


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