US STRATEGY – EARNINGS CONTINUE TO BUOY MARKET

The market’s retracement following the GS selloff is centered on the upbeat sentiment surrounding Q1 earnings season, which continues to beat analysts' expectations. 

 

According to Bloomberg, 82% of the S&P 500 companies that have reported first-quarter results beat the average analyst earnings estimate, up from 79.5% in the fourth quarter of 2009.  So far in 1Q, operating profit for the S&P 500 is up 35% year-over-year.  Volume declined 10% day-over-day and the VIX declined 9.2%, bringing its two day slide to 14.8%.  The Hedgeye Risk Management models have levels for the VIX at: buy TRADE (14.62) and sell TRADE (16.95). 

 

On the MACRO front Greek sovereign issues, China’s measures to curb real estate speculation and hawkish comments from India and the Bank of Canada are having little lasting impact on the risk/recovery trade.  Earlier today, Bundesbank President Weber's comments that Greece may need up to €80B of bail-out money is putting pressure on Greek sovereign spreads again today, rising to all time highs.

 

Yesterday, Energy (XLE) was the best performing sector.  The oil services group fared particularly well, with the OSX posting its biggest one-day gain since August 3rd, +4%.  The drillers and the E&P group outperformed the broader market with the EPX rising 2.1%.  In early trading, Crude is trading higher on speculation that supplies are shrinking.  The Hedgeye Risk Management model’s levels for the OIL are: buy TRADE (83.54) and sell TRADE (84.99). 

 

On the back of a busy day for bank earnings, the banking group provided some upside leadership for the Financials (XLF), with the BKX up 2.7% and up 11% over the past month.  The upside was largely driven by better-than-expected credit quality.  There was some disappointment surrounding results in investment banking and asset management, though the pullback was attributed to the fact that a beat was widely expected, while regulatory concerns also remained on the front-burner.

 

While Technology (XLK) was higher yesterday, the sector lagged the S&P 500. The big headwind came from IBM (1.9%), even though the company beat on both the top- and bottom-line and raised full-year guidance above the consensus.  On the positive side, the Semis snapped a two-day losing streak today with the SOX +1.6%.

 

Parts of the SAFETY trade continue to lag the market.  Healthcare and Consumer Staples were the two worst performing sectors yesterday.  The packaged food and soft-drink names were among the worst performers in the staples sector yesterday following the top-line miss from KO.  In addition, SVU was another big decliner  after becoming the latest grocer to offer disappointing guidance.

 

Additionally, a stronger dollar is putting some pressure on the REFLATION trade and the commodity related sectors.  The Hedgeye Risk Management models have levels for the Dollar Index (DXY) at:  buy TRADE (80.86) and sell TRADE (81.52). 

 

In early trading, gold is trading higher for the second day in a row on the back of its safe haven status.  The Hedgeye Risk Management models have the following levels for GOLD – Buy TRADE (1,126) and Sell TRADE (1,168).

 

In early trading, copper is trading slightly lower despite bullish news from China.  Copper imports by China for the month of March rose 53% over February and 14% year-over-year.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy TRADE (3.50) and Sell TRADE (3.64).

 

In early trading, equity futures are trading above fair value and look continue the earnings season upside momentum.  On the MACRO front it’s a light day, but a heavy day for earnings with 35 S&P 500 companies reporting, including Morgan Stanley and Wells Fargo before the bell.  As we look at today’s set up, the range for the S&P 500 is 15 points or 0.7% (1,199) downside and 0.6% (1,214) upside. 

 

On the MACRO calendar today, Mortgage applications in the U.S. rose by the most in seven weeks.  The Mortgage Bankers Association’s index increased 13.6% in the week ended April 16th. Last night after the close, the ABC consumer confidence index declined to -50 from -47 the week before. 

 

Howard Penney

Managing Director

 

US STRATEGY – EARNINGS CONTINUE TO BUOY MARKET - S P

 

US STRATEGY – EARNINGS CONTINUE TO BUOY MARKET - DOLLAR

 

US STRATEGY – EARNINGS CONTINUE TO BUOY MARKET - VIX

 

US STRATEGY – EARNINGS CONTINUE TO BUOY MARKET - OIL

 

US STRATEGY – EARNINGS CONTINUE TO BUOY MARKET - GOLD

 

US STRATEGY – EARNINGS CONTINUE TO BUOY MARKET - COPPER


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