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7 Reasons Market Risk 'Significantly Exceeds' Reward

Takeaway: We think the "risk-reward" of the U.S. stock market is tilted decidedly to the downside.

7 Reasons Market Risk 'Significantly Exceeds' Reward - S P 500 cartoon 06.08.2016

 

Hedgeye Financials analyst Josh Steiner listed the many reasons why we think the "risk-reward" of the U.S. stock market is tilted decidedly to the downside.

 

Here's a brief recap from a recent edition of The Macro Show

 

  1. You’ve got small business loans and credit quality deteriorating, an enormous part of the economy.
  2. You’ve got the rest of the lending complex beginning to tighten.
  3. You’ve got the Fed in a position in which it's not able to do much about it.
  4. You’ve got a broad swath of economic indicators getting worse.
  5. You’ve got market valuation up on a rope.
  6. You’ve got the duration of the labor cycle very extended.
  7. And then there's this curious case of significant decline in maternity rates taking hold across America.

 

As Steiner summarized:

 

"To me, it all paints a very fascinating picture of risk versus reward in the marketplace right now, where I think it's pretty plain that risk significantly exceeds what’s being priced into stocks and it's not that uncommon an occurence. In October 2007, it should have been pretty plain to many people that things were going to go from bad to worse when the market was at an all-time high. And so the fact that the market hit a very high level is not a defensible argument for why we shouldn’t be concerned about all of this deterioration. It's actually exactly the opposite."


6 of 13 Key Indicators Flashing Warning Signals

Editor’s Note: Below is a brief excerpt from an institutional research note written by Hedgeye Financials analyst Josh Steiner. To access our Financials team’s research ping sales@hedgeye.com.

 

6 of 13 Key Indicators Flashing Warning Signals - red light

 

The trend of tepid risk readings broke last week with 6 of 13 indicators flashing short-term warning signals.

 

Most notably, the TED spread, a measure of counterparty risk in the financial system, spiked by 6 bps to 57. That is the highest reading since January 2012. Separately, the Shifon Index (China's TED Spread equivalent) has been quietly, but steadily creeping higher for the past month. Meanwhile, CDS widened globally, the high yield YTM shot up by +13 bps to 6.43%, and the price of Chinese steel dropped -1.5%.

 

6 of 13 Key Indicators Flashing Warning Signals - ted spread 9 19


PREMIUM INSIGHT

Emerging Markets: 4 Countries To Buy & 3 To Sell

Emerging Markets: 4 Countries To Buy & 3 To Sell  - HETV macroshow thumb 9.19.2016

In this brief excerpt from The Macro Show earlier today, Hedgeye CEO Keith McCullough and Senior Macro analyst Darius Dale discuss the emerging market countries they like and don’t like.


Hedgeye Statistics

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

  • LONG SIGNALS 80.33%
  • SHORT SIGNALS 78.51%

Ahead Of The Fed: Why Investors Should Buy Gold

At -0.82, Gold has the highest short-term (2-week) inverse correlation to a Down Dollar Dovish Fed pivot this week (if you’re keeping score, this would be Yellen’s 6th hawkish/dovish pivot in 9 months); so I still like that long into the event.

 

Ahead Of The Fed: Why Investors Should Buy Gold - usd correlations

 

Editor's Note: The snippet above is from a note written by Hedgeye CEO Keith McCullough and sent to subscribers this morning. Click here to learn more.

 

Below is a video of McCullough on The Macro Show explaining why "Gold Is The Best Way to Protect Against Central Bank Risk."

 


Daily Market Data Dump: Monday

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: Monday - equity markets

 

Daily Market Data Dump: Monday - sector performance

 

Daily Market Data Dump: Monday - volume

 

Daily Market Data Dump: Monday - rates and spreads

 

Daily Market Data Dump: Monday - currencies

 

Daily Market Data Dump: Monday - commodities


CHART OF THE DAY | Since Fed Is S&P 500 Dependent, Here's A Buying Opportunity

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.

 

"... Oh, and my precious currency, Gold got sacked for a -1.8% loss, pairing its epic lead for 2016 back to +23.1% YTD. And now that looks like a great buying opportunity if you believe the Fed is both data and SP500 dependent."

 

CHART OF THE DAY | Since Fed Is S&P 500 Dependent, Here's A Buying Opportunity - 09.19.16 EL Chart


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