Diary of a Financier

Top Newsstuffs (June 19 – July 2)

In Bookshelf on Sun 2 Jul 2017 at 05:54

Top reads from across the past week…


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

Spending and income finally reaccelerate back up above the trend GDP growth rate, despite a healthy bump up in the savings rate; yoy comps get progressively easier for DPI and harder for PCE through year end…
Disposable personal income (Real DPI): +0.3pp @ +2.2% yoy, +0.6% mom
Personal consumption expenditures (Real PCE): +0.1pp @ +2.7% yoy, +0.1% mom
Personal savings rate: +0.2pp @ +5.5%
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 bullish]
#Bullish $XLY #Wages

Consumer confidence survey (June 2017)
by Conference Board

Sentiment remains strong, in rarefied air…
Consumer confidence index: +1.3 mom @ 118.9 (beat 116.0e); 89th percentile of historical data
[Previously: Retail sales remain bullish]
#Bullish $XLY

Manufacturers’ durable & capital goods (May 2017)
by US Department of Commerce

Despite missing expectations, data remain at high velocity far above trend GDP; the pent-up-demand from last year’s inventory drawdowns is being digested…
– Core durable goods, new orders (ex-transportation): +0.6pp @ +5.5% yoy, +0.1% mom (miss +0.5e)
– Core capex, new orders (capital goods, ex-defense & aircraft): +2.1pp @ +5.0% yoy, -0.2% mom
– Core inventory (ex-transportation): +0.5pp @ +3.3% ytd, +0.2% mom
#Bullish $XLI

Gross Domestic Product (Third estimate, 2017q1)
by Bureau of Economic Analysis (BEA)

Another huge upward revision beats expectations again, eliminating what started as another underwhelming Q1; consumption was still disappointing (and all yoy comps will get tougher henceforth); good to see both a big spike in investment and more inventory drawdowns…
Real GDP (Q3): revised +0.2pp @ +1.4% qoq saar (beat +1.2e)
    Inflation: Core +2.3%; Headline +1.9%
    Consumption (PCE): +0.5pp @ +1.1%
    Investment: -1.1pp @ 3.7%; Residential +13.0%; Nonresidential +11.0%
    Government spending: +0.2pp @ -0.9%; Federal -2.0%; State & local -0.2%
    Exports: +1.2pp @ +7.0%
    Imports: +0.2pp @ +4.0%
    Inventories: -1.11pp detraction from GDP growth rate
Real GDP per capita (Q2): +0.81% yoy; 9.9% below LT regression trend
Real GDP (2016FY): +1.6% yoy
Real GDP (2015FY): +2.6% yoy
Real GDP (2014FY): +2.4% yoy
Real GDP (2013FY): +1.7% yoy

Credit (NEUTRAL)


Fundamentals (BULLISH)

S&P 500 valuation update: Growth rates accelerating off low base (2017.06.25)
by Fundamentalis

Despite slightly elevated multiples, a recovery in Energy (EPS +707% yoy Q2e) and acceleration in Financials (+9.3%) will naturally compress the market’s PE ratio, although Energy has stumbled amidst renewed oil price declines; Earnings Yields also show attractive relative valuations (+100bps spread over Baa corporates)…
EPS (ntm): +6c wow @ $134.72
PE ratio (fw): unch wow @ 18.0x
PEG ratio: -5bps wow @ 1.90x; remains in trend compression as forward growth rate accelerates
Earnings yield: unch wow @ 5.53%
EPS growth rate (ntm): +29bps wow @ 9.56%

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

Valuations (NEUTRAL)


Sentiment (BULLISH)

Retail investor sentiment survey (2017.06.29)
by The American Association of Individual Investors (AAII)

Sentiment remains in neutral territoy…
Bull/Bear ratio: +3bps wow @ 1.10 (below 1.30 historical average, between 1.00 – 1.80 extremes)
Bullish: -3.0pp @ 29.7% (below both 39 avg + 30 – 45 extremes)
Bearish: -2.0 @ 26.9% (below 30 avg, between 25 – 40 extremes); near a ytd low
Neutral: +5.0pp @ 43.4% (above 31 avg); a new 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 & Quantifying the “wall of worry”]
#Neutral #Contrarian

Technicals (NEUTRAL)

The history of the yield curve
by Oppenheimer

Treasury 2s10s spread @ ~75bps are back at postcrisis lows, matching levels that preceded prior bull markets’ strongest gains (e.g. 1988, 1995, 2005). No cause for concern until the curve inverts (historically, the spread dropping below zero is a recession indicator).
#Bullish $TLT $SHY $IEI $IEF #Flatteners #Steepeners




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