Diary of a Financier

Top Newsstuffs (January 9-15)

In Bookshelf on Sun 15 Jan 2017 at 05:53

Top reads from across the past week…

Macro

Retail sales (December 2016)
by US Government Census

Another great report that only missed expectations due to prior months’ upward revisions; yoy growth remains above trend GDP; headline is entering easy yoy comps due to energy’s low base, which is offsetting the weakness in brick & mortar retailers…Retail sales- Core & Headline (% yoy, 2016.12)
Core (ex-autos): -0.5pp @ +3.4% yoy, +0.2% mom (miss +0.5e); prior months revised higher
Headline: +0.3pp @ +4.1% yoy, +0.6% mom (miss +0.7e); prior months revised higher
Retail sales account for ~31% of US GDP (~45% of the Consumption component).
[Previously: Consumer confidence remains extremely bullish signal, Income & consumption remain bullish signals & Consumption boom or depression babies?]
#Bullish $XLY $XRT #tailwind

Credit

Loans & leases in bank credit, all commercial banks (2016.12.28)
by St. Louis Federal Reserve (FRED)

Lending growth remained at a neutral velocity, but down near ytd lows after a big deceleration post-Election; the deceleration is probably attributable to rising rates & Fed tightening…
Weekly loan growth: +0.1 @ +6.2% yoy (below 7.3% historical average)Loans & leases in bank credit, all commercial banks (weekly, %yoy, 2016.12.28)
This is a key indicator, as I’d expect continued expansion due to household & corporate balance sheets being most deleveraged as any point since the 1970s, signalling whether or not the private sector is suffering from post-traumatic stress — a hangover from the crisis.
[Previously: Consumer indebtedness remains a bullish signal, Banks’ future credit supply & demand fundamentals expected to remain neutral & Households remain extremely deleveraged]
#Neutral #Releveraging #Credit cycle #Fed Funds Rate $XLF $KBE $KRE

Fundamentals

S&P 500 valuation update: Another acceleration (2017.01.08)
by Fundamentalis

Forward estimates accelerate significantly, with biggest change being front-end loaded; as the calendar turns into 2017, SPX enters a couple seasons of easy yoy comps due to China’s collapse & the energy crash last year
EPS (ntm): +3.2% wow @ $132.73
PE ratio (ntm): 17.0x
PEG ratio (ntm): 3.50x
Earnings yield: +9bp wow @ 5.83%
EPS growth rate (ntm): -18bps wow @ 4.81%
#Bullish #Valuations $SPX $SPY

Sentiment

Retail investor sentiment survey (2017.01.12)
by The American Association of Individual Investors (AAII)

Sentiment floats higher into extreme territory, a bearish indicator of exuberance…
Bull/Bear ratio: -22bps wow @ 1.61 (above 1.30 historical average, but between 1.00 – 1.80 extremes)
Bullish: -2.6pp @ 43.6% (over 39 avg, but between 30 – 45 extremes)Retail investor sentiment- bulls & bears 2017.01.12
Bearish: +1.7pp @ 27.0% (below 30 avg, but between 25 – 40 extremes)
Neutral: -0.8pp @ 29.4% (below 31 avg)
Measures respondents’ expectation for equity performance over next 6 months (through 6/2017).
[Previously: Retail allocations remain neutral & Institutional allocations remain neutral]
#Bearish #Contrarian

Study: SPX return after extended periods of suppressed retail sentiment
by Schaeffer’s Investment Research

AAII’s Retail investor sentiment survey (above) has seen Bulls remain below 50% for a full 2-years now, the second longest streak in history.SPX return after Bullish sentiment < 50% for 6-mos
Study analyzes SPX average returns after Bulls < 50% for 6 consecutive months (16 prior occurrences)…
i/ 1-month: +0.67% median (-40bps underperformance vs control); 56% winners
ii/ 3-months: +3.60% median (+97bps outperformance); 81% winners
iii/ 6-months: +5.96% median (+91bps outperformance); 75% winners
iv/ 12-months: +12.79% median (+262bps outperformance); 81% winners
#Bullish! #Quantitative

Technicals

Technical study: S&P 500 long term regression & standard deviation (December 2016) | Doug Short (dshort)
The inflation-adjusted SPX spiked further above the 2 sigma threshold (relative to its LT trend) — a level that has historically marked a market top…
Historical variances:
    Currently: +7pp mom @ +94%; a new cycle high
    Panic of 1907: +85%SPX long term regression & standard deviation (2016.12)
    Great Depression: +81%
    Tech Bubble: +149%
    Great Recession: +88%
– Mean: +1.8% average annual real return
Standard deviation (σ): ±40.6%
Uses $SPX real (inflation-adjusted) prices with exponential regression starting in 1871.
#Bearish! #Mean reversion #Secular

–Romeo

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