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




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


Client Talking Points


Changes on the margin matter. The long-term fundamental crowd is squarely behind a long-energy position with U.S. crude production down nearly -3% Y/Y. Despite the fact that crude inventories are pinned near an all-time high adjusting for a seasonal summer draw, and gasoline consumption is at a high not seen since 2007 yet gasoline inventories are still up 10% Y/Y, the market is still slapping a cycle peak forward multiple with earnings expected to increase by triple digits over the next year. Hope consensus is right.


The current forward multiple is at a new cycle peak on earnings expectations that assume positive S&P 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. So we’re looking at a market that has been taken to an all-time high on cycle-high buyback activity with a new cycle high forward multiple with optimistic earnings expectations in the denominator as seen in the chart immediately below.


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.  

Asset Allocation

7/21/16 60% 0% 3% 14% 17% 6%
7/22/16 60% 0% 3% 14% 17% 6%

Asset Allocation as a % of Max Preferred Exposure

7/21/16 60% 0% 9% 42% 52% 18%
7/22/16 60% 0% 9% 42% 52% 18%
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

Gold (GLD) = Protection from global currency devaluation and inflation/down USD – You can travel anywhere on earth and get a quote in local currency.


Long Bonds (TLT) = #GrowthSlowing, yield curve compression.


Treasury Inflation-Protected Securities (TIP) = Combination of the above exposures.

Three for the Road


GOLD: consolidating in its current $1311-1365 immediate-term risk range at +25% YTD = bullish TREND @Hedgeye



“Run from being good. Chase being great.”  

–Chip Kelly        


The Washington Nationals have the best ERA in baseball at 3.23.  

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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Like A Glove

“How in the world can earnings go up if nominal GDP is rising by less than wages?”

-Jeffrey Gundlach


A few years ago @Hedgeye we took the Briggs-Myers Personality test (BMTI). 


I scored as a  “Thinking Introvert” which probably explains why I'm comparatively better at generating  written analysis than delivering extemporaneous verbal content on Hedgeye TV. 


I’m okay with that.  It’s also why we have a team … and a psychologically diverse one according to the intra company dispersion in test results. 


The BMTI is cool but there’s a simpler and arguably better Street version.  #Broscience, conceived by the bro’s, for the bro’s.  


Here it is:  Watch how someone parks their car. 


Style and manner of parking offers a fairly clean insight into a person’s personality.  Think about it.


Like A Glove - like a glove


Back to the Global Macro Grind


You can get a fairly clean insight into how a person’s positioned by the nature of the questions they ask. 


We ask and receive a lot of questions daily.  


Because our business model carries no conflicts of interest, we’ve gradually become a kind of cogitation hub and a nexus for feedback, interaction and idea generation.   


That was an objective, not a byproduct of the Hedgeye operational vision.  We’ll always get things wrong, but “failing fast” and the cultivation of passionate players in perpetual pursuit of collective and personal evolution is our cultural hedge against staying wrong. 


Anyway, I chose the Gundlach quote for a few reasons.


  1. It relates directly to our 3Q16 #ProfitCycle Macro theme.
  2. We have the same suspect opinion of consensus expectations for high-teens S&P500 earning growth in 2017. 
  3. It’s great when name guys make pithy, off the cuff comments like the underlying basis for the assertion is obvious even to non-institution/non-macro investors.  
  4. It captures the collective angst and questioning that currently pervades our inbox. 


On point #4 – while the phraseology varies, most of the more recent questions and discussion distill down to “now what?”


Multiple Expansion – with forward earnings multiples making new highs - has driven most of the post-Brexit retrace in prices. 


And with Utilities PE’s at their highest ever, performance spreads between cyclical and noncyclicals at peak, small caps trading at a discount to large caps and yields near all-time lows, late-cycle, slow growth positioning has (rightly) become as crowded as it’s ever been. 


And because growth is not accelerating, the chief market purveyors of Panglossianism and serial thesis drift have coalesced around the hope for a further collapse in equity risk premiums as the justification and catalyst to drive further price appreciation.  


Recall, the equity risk premium (ERP) represents the extra return required for holding equities over “risk-free” government bonds.  Thus, most risk premium based models are relative valuation models that value stocks relative to bonds. 


So, conceptually, what’s embedded in the call for a falling ERP?


Equity risk premiums have already come in a bit so any further decline will be the result of a move toward historic lows.  A move to all-time low spreads for equity risk premiums relative to bonds that are, themselves, already in unchartered valuation water basically equates to an expectation for peak & sustained complacency.


In other words, the hope that NIRP drives ERP towards NERP in some kind of clean, linear fashion is a flimsy conceptual framework on which to anchor an investment strategy and stocks need a tangible fundamental development to help them grow into those multiples and drive prices higher.


Which brings us back to earnings expectations.


Let’s break Gundlach’s comment down into discrete parts to get a better feel for the intuition and implications:


First, why do we care about nominal GDP?


Nominal GDP, by definition = aggregate national income. 


Subtract out personal income, depreciation, business taxes and add back government transfers/subsidies and net factor income from abroad and you have corporate profits.


The easier way to think about it is this:  National income can either go to labor or capital (i.e. businesses) and while accounting measures of profits and GDP can vary from quarter to quarter the larger trend in Profits is invariably tethered to Income – and particularly so when productivity growth is weak like it is now and unable support margin improvements.   


Indeed, since the interest rate cycle turned in 1980, Nominal GDP growth has averaged 5.5% while Corporate Profit growth has averaged 6.6%.


The trend in profitability is also cyclical and that’s important. 


  1. Profits rise faster than costs in the early-to-mid part of the cycle as businesses continue to economize on labor and growth in sales/output rises faster than payroll growth.   
  2. Historically, labor’s share of national income rises at the tail end of an expansion when the labor market tightens and after growth and profits have been strong for a protracted period.

As the chart below illustrates, Corporate Profits rarely grow above 15% on an annual basis and even more rarely at this point in the cycle. 


Like A Glove - 7 22 16 CoD1


This cycle is not proving different, which takes us to the 2nd part of Gundlach’s comment about nominal GDP rising less than wages.


  1. With productivity declining and employment growing at a premium to output, unit labor costs are rising as is labor’s share of nation income.
  2. Input costs are rising faster than output prices - a point we’ve made before but one that’s worth re-highlighting.   If the price to produce something (unit labor costs) is growing faster than the price at which that something can be sold (implied by the GDP deflator) then margin pressure will remain ongoing….
  3. …. This is Gundlach’s point – if aggregate wages are rising faster than aggregate income (i.e. Nominal GDP), any earnings growth becomes a challenge, let alone an expectation of earnings growth to sustainably run 5X nominal GDP.  Sure, record repo activity and an overindexing to the goods/industrial economy could provide relative support to S&P500 earnings but that doesn’t negate the underlying fundamental reality.  
  4. Further, in a situation of slack demand and waning productivity, employment gains become bittersweet.  A rising employment-to-population ratio is paid for via corporate margin compression.


If you’re finding this discussion too tedious for a sunny, summer (Friday) morning, I’ll leave you with this:


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. 


Yes, the current expansion still has some runway but the cycle will continue its interminable negative 2nd derivative march and it won’t waive curfew just because you want to stroll home late from the pro-cyclical party. 


Risk manage as best you can by understanding the prevailing, underlying macro reality within the context of consensus’s expectations for it.   


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.38-1.65%

SPX 2129-2180

VIX 11.55-16.93 
USD 95.87-97.52

Gold 1311-1365


Have a great weekend,


Christian B. Drake

U.S. Macro analyst


Like A Glove - 7 22 16 CoD2

July 22, 2016

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  • Bullish Trend
  • Bearish Trend
  • Neutral

10-Year U.S. Treasury Yield
1.65 1.38 1.57
S&P 500
2,129 2,180 2,165
Russell 2000
1,175 1,214 1,203
NASDAQ Composite
4,938 5,098 5,073
Nikkei 225 Index
15,110 16,911 16,810
German DAX Composite
9,806 10,220 10,156
Volatility Index
11.55 16.93 12.74
U.S. Dollar Index
95.87 97.52 97.05
1.09 1.11 1.10
Japanese Yen
101.95 107.72 105.77
Light Crude Oil Spot Price
43.96 46.73 44.75
Natural Gas Spot Price
2.44 2.83 2.66
Gold Spot Price
1,311 1,365 1,331
Copper Spot Price
2.13 2.28 2.25
Apple Inc.
95.98 101.01 99.43
727 759 744
Netflix Inc.
83.24 93.12 85.99
Starbucks Corp.
56.07 57.98 57.60
J.P. Morgan Chase & Co.
60.78 64.96 63.69
Kinder Morgan Inc.
18.53 22.07 20.95

Hedgeye's Daily Trading Ranges are twenty immediate-term (TRADE) buy and sell levels, along with our intermediate-term (TREND) view.  Click HERE for a video from Hedgeye CEO Keith McCullough on how to use these risk ranges.

P | Call Option? (2Q16)

Takeaway: 2Q16 exposed limitations of P's core model. But rebased stock/expectations + potential deal flow + favorable timing = potential call option


  1. 2Q16 = LOCAL PRESSURE: The 2Q print was worse than we expected.  P missed 2Q revenues, issued 3Q guidance with the top end below consensus, and cut 2016 vs. our expectation of a 2Q beat, 3Q guide below the mid-point, FY raised inline with the 2Q beat.  The weakness was largely concentrated in Advertising Revenue across both National and Local; the latter decelerated 16 percentage-points to 26% y/y growth in 1Q16 from 42% in 4Q15.  While we did see a healthy inflection in local salesforce productivity, it wasn’t enough to compensate for mgmt curbing its major local growth driver, which is headcount.  P didn't hire any Local reps in 2Q16, which suggests that Local growth may continue to wane from here.  The positive is that growth of its national salesforce reaccelerated to 21% y/y (from 17% in 1Q16).  Btw, ignore mgmt’s q/q leverage comments; they're illogical comps given P's ad revenue seasonality (see RPM chart below).
  2. INTERACTIVE = PRIORITY: P reiterated its expected interactive launch timing multiple times during the call.  But once again, we doubt the labels are in any rush to finalize a deal unless it is decidedly in their best interest.  Mgmt offered an interesting perspective during the call, suggesting some interactive players are not monetizing at their $10 ASP given various promotions.  Between that and the industry's gripe with Spotify’s free tier, we suspect that the labels will not offer P current market terms when the benefit of granting P interactive licenses is debatable at best, if not potentially dillutive.  That said, we’re not sure P will have all the necessary deals in place to go live by 1Q17, at least on its preferred terms.  But we do believe mgmt knows it needs to get at least some of these deals done before year end to appease the street, especially given softness within its core business and growing pressure to sell the company.      
  3. P = CALL OPTION? The next time P reports will be in late October.  Between now and then, it’s essentially headline season regarding the interactive launch, especially in the absence of any real fundamental catalysts.  If P strikes a deal with any of the major labels, it will likely come with a press release, which should naturally drive the stock higher.  P really only needs to announce one deal with any of the majors to fuel sentiment since the street would likely assume that the rest of the labels will follow suit.  Between now and its next earnings release, P is effectively either a free warrant or a call option (depending on whether the stock trends up or down, respectively).  On the other hand, if there isn’t any deal-related news flow heading into the release, we could always bail ahead of the print and sidestep the risk that P pushes out the timing of its interactive launch.  P remains on our Long Bench for now, but we’re going to mull this one over during the weekend.


Let us know if you have any questions, or would like to discuss further.


Hesham Shaaban, CFA
Managing Director



P | Call Option? (2Q16) - P   Local Sales Prod 2Q16

P | Call Option? (2Q16) - P   National Sales Prod 2Q16

P | Call Option? (2Q16) - P   Ad RPM seasonality

Early Look

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