Diary of a Financier

Top Newsstuffs (June 5-11)

In Bookshelf on Sun 11 Jun 2017 at 05:30

Top reads from across the past week…

Macro (BULLISH)

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

Another expansionary month maintains a solid velocity chipping away at a multi-year decline — although it’s still attributable to easy yoy comps
Monthly traffic: +1.2pp @ +6.4% yoy
Growth rate: -1.6pp @ +2.3% ytd
Carload groups: 11 of 20 posted gains for the month yoy; led by Coal’s recovery (+19% ytd), albeit tempered by Energy’s continued collapse (-14% ytd)
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

Credit (NEUTRAL)

 

Fundamentals (BULLISH)

 

Valuations (NEUTRAL)

S&P 500 valuation update: Growth rates accelerating off low base (2017.06.04)
by Fundamentalis

Despite slightly elevated multiples, a recovery in Energy (EPS +707% yoy Q2e) and acceleration in Financials (+9.3%) will naturally compress PE ratio; Earnings Yields also show attractive relative valuations (+100bps spread over Baa corporates)…
EPS (ntm): +4c wow @ $134.83
PE ratio (fw): +0.3 wow @ 18.0x
PEG ratio: +3bps wow @ 1.93x; remains in trend compression as forward growth rate accelerates
Earnings yield: -7bps wow @ 5.53%
EPS growth rate (ntm): -9bps wow @ 9.36%

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

Sentiment (BULLISH)

Retail investor sentiment survey (2017.06.08)
by The American Association of Individual Investors (AAII)

Sentiment remains right back up in neutral territoy…
Bull/Bear ratio: +10bps wow @ 1.20 (below 1.30 historical average & between 1.00 – 1.80 extremes)
Bullish: +8.5pp @ 35.4% (below 39 avg & between 30 – 45 extremes)
Bearish: -2.0pp @ 29.5% (below 30 avg & between 25 – 40 extremes)
Neutral: -6.5pp @ 35.0% (above 31 avg); down from a post-Election high
Measures respondents’ expectation for equity performance over next 6 months (through 12/2017).
[Previously: Retail allocations are still neutral, Institutional allocations remain a bullish signal for US assets & Quantifying the “wall of worry”]
#Neutral #Contrarian

Technicals (NEUTRAL)

NYSE margin debt & balances (April 2017)
by Doug Short (dshort’s Advisor Perspectives)

Despite new record highs, margin debt levels aren’t sounding alarm bells, since they’re increasing in lockstep with the market; yoy data is misrepresentative due to a low base comp…
Nominal margin debt: +2.3% mom, +20.5% yoy @ $549.2B; another record high
Net credit (“buying power”): -7.3% mom, -62.6% yoy @ -$248.1B debit
[See also: Margin debt & SPX growth rates in lockstep, Margin debt/NYSE ratio constant since 2007 & Margin debt/SPX ratio constant since 2007]
#Neutral #Leverage #Lagging indicator

Technical study: S&P 500 long term regression & standard deviation (May 2017)
by Doug Short (dshort)

The inflation-adjusted SPX is still resting right above the 2 sigma threshold (relative to its LT trend) — a level that has historically marked a market top…
Historical variances:
    Currently: +1pp mom @ +99%; a new cycle high
    Panic of 1907: +85%
    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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