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An Investor’s Guide to Trading European Stocks Right Now

 

There’s a simple playbook for how to trade the Eurozone. Before we get to that, let’s contextualize why using the most recent news out of Europe.

 

If you’re surprised to see Greek bailouts in the news again, don’t be. It’s been nearly eight years since worries first emerged about Greece. The problem isn’t fixed.

 

In meetings this past Monday, Eurozone finance ministers came to a new "common understanding" between Greece and its European creditors. This could unlock the next stage of IMF bailout dollars. Over the next few days, IMF officials will return to Greece to discuss labor market issues, along with pension and tax reforms.

 

Euro-area equity markets popped on the news Tuesday. That’s why European equities (specifically the German DAX) are overbought today, says Hedgeye CEO Keith McCullough in video above from The Macro Show earlier today.

 

So if you own some, sell some.

 

The rationale why is pretty simple. The euro is oversold. There’s a simple relationship that dictates what comes next…

 

Euro = European Equities

 

What’s next? The U.S. economy is growing once again. Meanwhile, the Euro-area economies are anemic and still drudging through Greek bailouts and nationalist election cycle risks. As such, we think the long-term trend is U.S. dollar strength and Euro weakness.

 

Oddly enough, that’s ultimately bullish for European equities. A weaker Euro equals European stocks up, as the central planning bailout machine backstops the economy and prints money.


Why Exact Sciences Is Up 16% Today (More Upside Coming?)

 

 

There were a lot of skeptics of medical diagnostics company Exact Sciences (EXAS) before today. The key phrase being “before today.” About 30% of the company’s shares outstanding were sold short.

 

We witnessed the bull-bear debate play out in real-time today. The bulls are winning. EXAS was up as much as +16% as the company put out strong earnings guidance for 2017 and beat analyst expectations for the quarter.

 

Why should investors own Exact Sciences here? In the video above, from last week’s institutional call on Exact Sciences, Hedgeye Healthcare analyst Tom Tobin lays out the bull case. He basically argues that the case was further upside is two-fold:

 

  1. The potential market share for company’s colon cancer screening test Cologuard is a lot larger than most investors realize
  2. Wall Street is too bearish and yet doesn’t appreciate the potential upside to sales

 

We said there’s 30% upside.

 

That was obviously a good call. We’re sticking with it. Exact Sciences remains a Healthcare top long idea here at Hedgeye.

 


McCullough: 3 Things Investors Should Worry About As U.S. Growth Accelerates

 

In case there was any lingering doubt about the improving health of the U.S. economy, both retail sales and inflation reports were near or above 5-year highs in data reported last week.

 

As U.S. growth accelerates, there are three things investors should be concerned about, according to Hedgeye CEO Keith McCullough in The Macro Show video excerpt above:

 

  1. “You’re on the wrong side of bond yields.” As U.S. growth accelerates, bonds yields will continue to go up. In the past 6 months, the 10-year Treasury bond yield has risen from 1.581% to today’s 2.417%.
  2. “You’re on the wrong side of high beta versus low beta.” In the last 6 months, high beta stocks (i.e. companies most tethered to which way the broader market is heading) are up 16.7% versus 0.5% for low beta stocks.
  3. “You’re on the wrong side of high growth versus low growth stocks.” In the past 6 months, the top 25% of S&P 500 companies by earnings per share growth are up 11.3% versus 0.5% for the bottom 25% of EPS growth companies.

 

“There is no magic market multiple and no point in time where the market stops going up because it should. That’s the point here,” McCullough says.

 

Simply put, if U.S. growth continues to accelerate then the stock market will continue to head higher. And we’re sticking with our growth accelerating call here.


Sector Spotlight | Replay with Gaming Analyst Todd Jordan

Missed the conversation? Catch the replay below

 

Our Gaming, Lodging & Leisure analysts Todd Jordan and Sean Jenkins were live in the studio today reviewing the bull and bear case for Macau gaming stocks.

 

Among the names discussed was MGM Resorts (MGM), Las Vegas Sands (LVS), Wynn Resorts (WYNN), Melco Crown Entertainment (MPEL), Galaxy Entertainment (0027.Hong Kong), SJM Holdings (0880.Hong Kong).

 

 

CLICK HERE to access the associated slides.


The Big Picture: Why Donald Trump’s Immigration Policies Matter

 

 

President Donald Trump reveled in campaign trail crowds chanting, “Build the Wall! build the wall!”

 

He clearly wants to more closely control the flow of immigrants coming into the U.S. Trump is now mulling over a new immigration policy to be released next week.

 

“The new order is going to be very much tailored to what I consider to be a very bad decision,” Trump said, referring to the Ninth Circuit Court of Appeals decision that blocked his travel ban. That executive order prevented travel to the U.S. from seven predominantly Muslim countries.

 

“The importance of immigration trends are an often underappreciated” aspect of U.S. economic growth, says Hedgeye U.S. Macro analyst Christian Drake in the video above.

 

“If you simply think about GDP, it’s a base level growth in the number of people times the number of stuff they can make, which is productivity.” As domestic birth trends and U.S. population growth decelerate, immigration will play an increasingly important role in bolstering population growth and hence GDP growth.

 

Here are some facts about U.S. immigration submitted without commentary:

 

  • 40% of Fortune 500 companies in the U.S. were founded by immigrants or their children.
  • Immigration has accounted for 30% of total population growth over the last three decades.
  • In 2016, the number of people immigrating to the U.S. was at the 1 million mark for the second year in a row.

 


ICYMI: This Economic Indicator Jumps to a 33-Year High

 

Still doubt that U.S. economic growth is accelerating?

 

Take a look at the Philly Fed survey. It provided some convincing evidence earlier this week. This regional manufacturing survey hit the highest level in 33 years—Ronald Reagan was still in the Oval Office. The index’s spike joined upticks in other regional Fed surveys from Dallas, to Richmond, to Kansas City.

 

One of the more positive aspects of the survey was the pop in company capital spending plans. That has been accelerating for three months now. Prior to that inflection point, inventory investment and core capital investment orders had been notable detractors from U.S. economic growth.

 

Add this to Retail Sales and Consumer Price Inflation data reported earlier this week:

 

  • Retail Sales – The year-over-year growth rate in retail sales hit 5.6%, a level not seen since March 2012.
  • Consumer Price Inflation (CPI) – Core inflation just hit the highest level in 5 years. CPI accelerated to +2.5% year-over-year in January versus +2.1% in December. Inflation has now accelerated for the 6th consecutive month.

WHAT TO BUY

As the U.S. economy continues to accelerate that will benefit the stock market. We say buy the S&P 500 (SPY).


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