US STRATEGTY - EARNINGS TRUMPS CHINA

After its largest one-day pullbacks since February 4th, the S&P 500 rallied yesterday (up 0.65%), while the NASDAQ and the Russell 2000 were basically flat on the day.  The continued upbeat takeaways from Q1 earnings season are helping to underpin market sentiment.   According to the latest Investors Intelligence reading (April 27), 54.0% of advisors are bulls (up from 34.1% in February) and 18.0% are bearish (down from 27.8% in February).

 

The RISK AVERSION trade was on the back burner with the VIX down 7% after a 31.7% moon shot on Wednesday.  The Hedgeye Risk Management models have levels for the VIX at: buy TRADE (19.46) and sell TRADE (22.53).

 

The biggest MACRO driver continues to be the European sovereign credit concerns and what the total EU/IMF support package for Greece will look like. Treasuries gave back some of yesterday's flight-to-quality rally, while the dollar index was up 0.29% (up for the past three days).  The Hedgeye Risk Management models have levels for the Dollar Index (DXY) at:  buy TRADE (81.21) and sell TRADE (82.34). 

 

The market also benefited from the some good news on the liquidity front as the FOMC maintained its outlook for an extended period of low interest rates.  The Fed left the federal funds rate at 0-0.25% and noted that it continues to expect that economic conditions and stable inflation expectations are likely to warrant exceptionally low levels of the funds rate for an extended period.  In addition, the FOMC sentiment offered a slightly more upbeat assessment of the economic recovery. 

 

The two best performing sectors were leveraged to the RECOVERY/REFLATION trade - the XLF and the XLB.  Despite the uncertainty surrounding the financial regulation, the XLF was up 1.4%, although it has been the worst performing sector over the past week.  The upside leadership was driven by the BKX up 1.4%. Goldman Sachs finished higher for a second straight day, up 2.6%. 

 

The Materials (XLB) was underpinned by 1Q10 earnings season, with Dow Chemical up 5.9% following its EPS beat on rebounding demand in the US and Europe.  The steel group was another bright spot with the S&P Steel Index closing up 1.2%.  Metals and mining names stocks were among the best performers, as Gold was up 0.9% yesterday.  The Hedgeye Risk Management models have the following levels for GOLD – Buy TRADE (1,149) and Sell TRADE (1,172).

 

Copper traded slightly higher yesterday, but continues to trade near a one-month low on recovery concerns in China.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy TRADE (3.36) and Sell TRADE (3.52).

 

The outperformance in the REFLATION trade is coming despite the Chinese market (Hang Seng) breaking the Hedgeye Risk Management intermediate term TREND line of 21,129 and declining 8 of the last 9 days.     

 

Yesterday, the worst performing sector was the Consumer Discretionary (XLY) sector.  The restaurant group, which has seen a big run-up year-to-date, weighed on the sector following disappointing earnings results from BWLD.  BWLD traded down 17.1% on the day.  Weakness in PNRA and PFCB also contributed to weakness in the sector.  After falling more than 3% on Tuesday, retail remained fairly sluggish today with the S&P Retail Index down 0.6% yesterday.  Homebuilders were among the better performing names with the S&P homebuilding index up 1.8% on the day. 

 

In early trading, equity futures are trading above fair value in the wake of yesterday's FOMC meeting where the Fed maintained the fed funds target rate.  In addition to another round earnings, Initial Jobless claims will be a key data point today.  As we look at today’s set up the range for the S&P 500 is 21 points or 1.0% (1,180) downside and 0.8% (1,201) upside. 

 

Today’s MACRO events: 

  • March Chicago Fed Nat Activity Index
  • Initial Jobless Claims
  • Natural Gas Inventories  

Howard Penney

Managing Director

 

US STRATEGTY - EARNINGS TRUMPS CHINA   - S P

 

US STRATEGTY - EARNINGS TRUMPS CHINA   - DOLLAR

 

US STRATEGTY - EARNINGS TRUMPS CHINA   - VIX

 

US STRATEGTY - EARNINGS TRUMPS CHINA   - OIL

 

US STRATEGTY - EARNINGS TRUMPS CHINA   - GOLD

 

US STRATEGTY - EARNINGS TRUMPS CHINA   - COPPER


Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more

REPLAY: Review of $EXAS Earnings Call (A Hedgeye Best Idea Long)

Our Healthcare Team made a monster call to be long EXAS - hear their updated thoughts.

read more

Capital Brief: 5 Things to Watch Right Now In Washington

Here's a quick look at some key issues investors should keep an eye on from Hedgeye's JT Taylor and our team of Washington Policy analysts in D.C.

read more

Premium insight

[UNLOCKED] Today's Daily Trading Ranges

“If I could only have one thing of the many things we have it would be my daily ranges." Hedgeye CEO Keith McCullough said recently.

read more

We'll Say It Again: Leave Your Politics Out of Your Portfolio

If your politics dictates your portfolio positioning, the Democrats and #NeverTrump crowd out there have had a hell of a week.

read more

Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more