Diary of a Financier

Top Newsstuffs (May 1-7)

In Bookshelf on Sun 7 May 2017 at 05:55

Top reads from across the past week…

Macro (BULLISH)

Personal income & outlays (March 2017)
by The Bureau of Labor Statistics (BLS)

Spending and income remained healthy; slight upward revisions to prior month data weren’t much of a factor…
Disposable personal income (Real DPI): +0.1pp @ +2.4% yoy, +0.5% mom
Personal consumption expenditures (Real PCE): +0.2 @ +2.8% yoy, +0.3% mom
Personal savings rate: +0.3pp @ +5.9%
Consumer spending accounts for ~70% of US GDP, as this report is a broader measure than the Retail Sales reported earlier this month.
[Previously: Retail sales remain extremely bullish]
#Bullish $XLY #Wages

Trade balance (March 2017)
by US Department of Commerce

Report beats expectations, further neutralizing the deficit’s impact on Q1 GDP; in broader context, gross trade volumes have been trending higher, and the deficit is cyclically repairing thanks to slower trade with China & declining petroleum imports; yoy data have one more month of easy comps due to 2016’s low base…
Net exports: -17% yoy, +12bps mom @ -$43.7B deficit (beat -$44.5B exp)
    Exports: +7% yoy, -87bps mom @ $191.0B
    Imports: +9% yoy, -73bps mom @ $234.7B
The net balance of trade accounts for ~3 – 5% of US GDP (seasonally adjusted).
#Neutral #EX #IM #NX #Globalization

Rail traffic monthly (April 2017)
by The Association of American Railroads (AAR)

Another expansionary month continues the acceleration after years of uninterrupted declines — although it’s still attributable to easy yoy comps; while petroleum shipments are still declining (-5.8% yoy), coal’s comeback is gaining steam (+26.8%)…
Monthly traffic: -0.2pp @ +5.2% yoy
Growth rate: +0.4pp @ +3.9% ytd
Carload groups: 10 of 20 posted gains for the month yoy; led by coal (+18.8% ytd), which rallied off a low yoy base
In particular, the secular decline of coal volumes (~40% of carloads makes it the largest category) has been negatively skewing the data.
#Bullish $IYT $XLB $XLE $DBC

Purchasing Managers Index (April 2017)
by Markit Economics

Global growth remains strong, with tailwinds ahead considering the recovery in emerging Asia and the inventory repair in US…
Global PMI (Composite): unch @ 53.7 (below 53.9 LT avg); remains near a 22-month high
Global PMI (Services): unch @ 53.6 (below 54.3 LT avg); remains near a 17-month high
Global PMI (Manufacturing): -0.2 @ 52.8 (above 51.3 LT avg); down from a 70-month high
US ISM (Composite): -0.4 @ 57.2 (above 54.6 post-recession avg); down from a 16-month high
– US ISM (Services): +2.3 @ 57.5 (beat 55.8e); nice unexpected rebound; although inventories remain a headwind, demand remains pretty robust; corresponds to +3.3% real GDP (annualized)
    New orders: +4.3 @ 63.2
    Inventory sentiment: -5.0 @ 60.0 (“too high”)
US ISM (Manufacturing): -2.4 @ 54.8 (miss 56.5e); despite missing expectations, velocity remains strong, with pretty good internals keeping the tailwind in tact; inflation is running way too hot; corresponds to +3.6% real GDP (annualized)
    New orders: -7.0 @ 57.5
    Backlog: -0.5 @ 57.0
    Prices: -2.0 @ 68.5
    Employment: -6.9 @ 52.0
Eurozone (Composite): +0.4 @ 56.8 (beat 56.7e); corresponds to +0.7% real GDP (annualized)
Eurozone (Services): +0.4 @ 56.4 (beat 56.2e)
Eurozone (Manufacturing): +0.5 @ 56.7 (miss 56.8e); a 6-year high
UK: +3.1 @ 57.3
Japan: -0.7 @ 52.2
China: official -0.6 @ 51.2 (miss 51.7e); unofficial -0.9 @ 50.3
Canada: +0.4 @ 55.9; highest since 5/2014
India: unch @ 52.5
South Korea: +1.0 @ 49.4
Taiwan: -1.8 @ 54.4
Brazil: +0.5 @ 50.1
; first time in expansion since 1/2015
#Bullish $ACWI

Valuations (NEUTRAL)

S&P 500 valuation update: Growth rates accelerating off low base (2017.04.29)
by Fundamentalis

Despite slightly elevated multiples, a recovery in Energy & Materials sector fundamentals will naturally compress PE ratio; Earnings Yields also show attractive relative valuations (+100bps spread over Baa corporates)…
EPS (ntm): -9c wow @ $135.03
PE ratio (fw): +0.7 wow @ 17.7x
PEG ratio: +5bps wow @ 2.15x; continues compression as forward growth rate accelerates
Earnings yield: -9bps wow @ 5.66%
EPS growth rate (ntm): -8bps wow @ 8.21%

[See also: Modern capital markets warrant higher valuation multiples]
#Neutral #Valuations $SPX $SPY

Sentiment (BULLISH)

Retail investor sentiment survey (2017.05.04)
by The American Association of Individual Investors (AAII)

Sentiment remains neutral after last week’s spike up from a post-Election low…
Bull/Bear ratio: +7bps wow @ 1.27 (below 1.30 historical average, but between 1.00 – 1.80 extremes)
Bullish: +0.1pp @ 38.1% (below both 39 avg, but between 30 – 45 extremes)
Bearish: -1.8pp @ 29.9% (below 30 avg, but between 25 – 40 extremes)
Neutral: +1.7pp @ 32.0% (above 31 avg)
Measures respondents’ expectation for equity performance over next 6 months (through 11/2017).
[Previously: Institutional allocations send bullish signal for US securities & Quantifying the “wall of worry”]
#Neutral #Contrarian

Asset allocation survey (April 2017)
by The American Association of Individual Investors (AAII)

Allocations remain neutral signals, moderating from last month’s brink of extremes (i.e. bearish signal)…
– Stocks: -2.3pp @ 65.3% (between 60% average & 70% extreme high); down from highest since 5/2015
Bonds: +1.0pp @ 18.0% (above 16% avg); highest since 7/2016
Cash: +1.3pp @ 16.8% (between 24% avg & 15% extreme low)
#Neutral #Contrarian $SPY $AGG

Technicals (NEUTRAL)

Update: Stock market seasonality (S&P 500, 2017q2)
by Bank of America Merrill Lynch (BAML) & MKM Partners

As we enter May, SPX is leaving behindSPX seasonality a stretch of seasonally strong performance and entering a period of drawdowns; the end of October is a more favorable entry point.
#Bearish $SPX $SPY #Sell in May and go away until Labor Day

NYSE margin debt & balances (December 2016)
by Doug Short (dshort’s Advisor Perspectives)

Still no alarms from debt levels to end 2016, which will be remembered as the year when the market not only deleveraged, but also decoupled from its underlying leverage — a sign of a healthy, organic rally…NYSE margin debt vs SPX (gross & net, 2016.12)
Nominal margin debt: -2.2% mom, +6.1% yoy @ $489.5B; -3.5% fm record high (4/2015)
Net margin balances (“buying power”): +9.5% mom, +1.4% yoy @ -$179.2B debit
[See also: Margin debt & SPX growth rates in lockstep, Margin debt/NYSE ratio constant since 2007 & Margin debt/SPX ratio constant since 2007]
#Bullish #Leverage #Lagging indicator

Credit (NEUTRAL)
Fundamentals (BULLISH)

–Romeo

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