US STRATEGY – Macro Headwinds

While volume was up 14% day-over-day, the absolute level remains very low as the stocks sold off on Tuesday.  Globally the MACRO environment continues to be challenging as the RECOVERY theme is losing traction.  The dollar was stronger yesterday after Germany's business climate index unexpectedly fell in February for the first time in 11 months and confidence and spending data out of Italy and France also suggest that a regional recovery is uncertain. 

 

Domestically, the market weakness was made worse as February consumer confidence plunged 10.5 points to 46. Following a disappointing University of Michigan confidence reading on February 12th, the Conference Board’s confidence index declined from a revised 56.5 in January to 46.0 in February, the lowest reading in 10 months.  According to the median of 68 estimates in a Bloomberg survey, Economists forecasted that the confidence index would decline to 55.0 from a previously reported 55.9 January number.  Expectations fell to a seven-month low, while the current conditions index hit its lowest level since early 1983.

 

Ironically, with consumer sentiment the primary impetus for yesterday’s 1.2% decline in the S&P 500, Consumer Staples and Discretionary were the two best performing sectors in the market yesterday.  With Utilities rounding out the top three, the SAFETY trade was in full force yesterday.  Not surprisingly, the VIX rallied 7% yesterday.  The Hedgeye Risk Management models have the following levels for VIX – buy Trade (18.57) and Sell Trade (22.64). 

 

Within Consumer Discretionary (XLY), Retail held up better than the S&P 500.  The outperformance was on the back of HD and M, which reported better than expected trends for 4Q09.  On the downside, TGT finished off its lows, but was still weaker on the day following its Q4 results and less than robust outlook.

 

After being the best performing sector on Monday, the Financials (XLF) was the worst performing on Tuesday.  The decline in the XLF is centered on the decline in the banking stock with the BKX down 2.3%; large-cap regional’s were among the worst performers in the group.

 

Along with the XLF breaking TRADE and TREND yesterday, Technology (XLK) broke TRADE yesterday.  Yesterday’s decline in technology was centered in the Semiconductors with the SOX down 2.8% on the day. 

 

Equity futures are trading modestly below fair value following Tuesday's nearly 1.2% decline sparked by disappointing consumer confidence data, and ahead of Fed chairman Bernanke's testimony to Congress at 10am ET.   Ahead of his testimony the Dollar index is slightly lower in early trading.  The Hedgeye Risk Management models have levels for DXY at – buy Trade (79.60) and sell Trade (81.05). 

 

As we look at today’s set up the range for the S&P 500 is 31 points or 1.7% (1,090) downside and 1.1% (1,121) upside. 

 

Copper is declining for a third day in London after imports of the metal into China, the world’s biggest consumer, dropped for the first time in three months.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (3.17) and Sell Trade (3.46).

 

In early trading gold is trading down for the third straight day.  The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,075) and Sell Trade (1,117).

 

Oil is trading down for the second day in a row.  The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (77.09) and Sell Trade (81.88).

 

Howard Penney

Managing Director

 

US STRATEGY – Macro Headwinds - sp1

 

US STRATEGY – Macro Headwinds - usd2

 

US STRATEGY – Macro Headwinds - vix3

 

US STRATEGY – Macro Headwinds - oil4

 

US STRATEGY – Macro Headwinds - gold5

 

US STRATEGY – Macro Headwinds - copper6

 


Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more