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?
The breakdown is as follows:
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.
Estimates too high? You decide.
Emblematic of the ongoing earnings recession, here's how Q2 2016 earnings are shaking out so far. Still bullish?
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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."
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.
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