Diary of a Financier

Top Newsstuffs (October 9-15)

In Bookshelf on Sun 15 Oct 2017 at 05:42

Top reads from across the past week…

Macro (BULLISH)

Retail sales (September 2017)
by US Government Census

Another big acceleration further above trend, although “the biggest increase in 2-1/2 years [was due to] reconstruction and clean-up efforts in areas devastated by Hurricanes Harvey and Irma [boosting] demand for building materials (+9.2% mom), gas (+7.2%), and motor vehicles (+3.9pp @ +1.8%)”; still expect the deceleration to resume as easy yoy comps taper into YE…Retail sales (core, %yoy, 2017.09)
Core (ex-autos): +1.0pp @ +4.6% yoy, +1.0% mom (beat +0.3e)
Headline: +2.2pp @ +4.4% yoy, +1.6% mom (miss +1.7e); prior month revised slightly higher
Retail sales account for ~31% of US GDP (~45% of the Consumption component).
[Previously: Consumer confidence remains an extremely bullish signal & Income and consumption remain mixed/neutral signals]
#Bullish $XLY $XRT

Inflation: Consumer Price Index (September 2017)
by Bureau of Labor Statistics (BLS)

Inflation accelerates, with headline peeking above the Fed’s 2% target; energy (+10.1% mom) is still leading headline gains, although its gains were redoubled by transitory Hurricane effects and easy yoy comps wane into YE; essentials like shelter (+3.2% yoy) and transportation (+3.9% yoy) are still running hot, offset by used cars (-3.7%)…
Core CPI (ex food & energy): unch @ +1.7% ttm, +0.1% mom (miss +0.2e); remains at a 19-month lowCPI inflation- core & headline 2017.09
Headline CPI: +0.3pp @ +2.2% ttm, +0.5% mom (miss +0.6e)
Yellen has said she’d even tolerate higher run-rates, so don’t expect too hawkish of a tightening cycle from the Fed.
[Previously: Yellen’s “Optimal Control Policy” could have Fed target 2.5% inflation]
#Neutral #Dovish $TIP

 

Credit (BEARISH)

 

Fundamentals (BULLISH)

 

Valuations (NEUTRAL)

 

Sentiment (BULLISH)

Retail investor sentiment survey (2017.10.12)
by The American Association of Individual Investors (AAII)

Sentiment spikes, albeit right in the middle of neutral territory in aggregate; the neutral cohort has returned to average — a sign of both broader-based participation and the wall-of-worry’s dismantling…
Bull/Bear ratio: +39bps wow @ 1.48 (above 1.30 historical average, within 1.00 – 1.80 extremes)
Bullish: +4.2pp @ 39.8% (above 39 avg, within 30 – 45 extremes)
Bearish: -5.9pp @ 26.9% (below 30 avg, within 25 – 40 extremes)
Neutral: +1.7pp @ 33.3% (above 31 avg, below 40 extreme)
Measures respondents’ expectation for equity performance over next 6 months (through 3/2018).
[Previously: Retail allocations remain neutral, Institutional allocations maintain bullish signal for US risk, Strategist sentiment remains neutral & Quantifying the “wall of worry”]
#Neutral #Contrarian

 

Technicals (NEUTRAL)

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

The inflation-adjusted SPX ended the month resting right above the 2 sigma threshold (relative to its LT trend) — a level that has historically marked a market top…
Historical variances:
    Currently: +5pp mom @ +104%; a new postcrisis high
    Panic of 1907: +87%
    Great Depression: +80%
    Tech Bubble: +137%
    Great Recession: +78%
– Mean: +1.8% average annual real return
Standard deviation (σ): ±40.8%
Uses $SPX real (inflation-adjusted) prices with exponential regression starting in 1871.
[Previously: Seasonality remains bearish until the end of October, Margin debt remains a neutral signal & 2s10s reach postcrisis lows but yield curve flatness is a contrarian bullish signal]
#Bearish #Mean reversion #Secular

 

–Romeo

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