Diary of a Financier

Top Newsstuffs (May 21-27)

In Bookshelf on Sun 27 May 2018 at 05:32

Here are your top reads from across the past week…

Macro (BULLISH)

Manufacturers’ durable & capital goods (April 2018)
by US Department of Commerce

While headline beat expectations, core data missed and decelerated — albeit still at high velocity; inventory growth is still running a bit hot, although it’s subject to an easy comp that won’t get lapped until 3/2018’s report (released in April); these above-trend growth rates should continue to decelerate as 2018H1 progresses, since easy yoy comps will taper…
– Core durable goods, new orders (ex-transportation): -1.4
pp @ +6.7% yoy, unch mom (miss +0.5e)
– Core capex, new orders (capital goods, ex-defense & aircraft): -1.0pp @ +7.0% yoy, -0.1% mom
– Core inventory (ex-transportation): unch @ +5.7% ytd, +0.4% mom
Durable goods account for ~8% of US GDP.
#Bullish! $XLI

Credit (NEUTRAL)

 

Fundamentals (BULLISH)

 

Valuations (BULLISH)

S&P 500 valuation update: Growth rates continue to accelerate (2018.05.22)
by Fundamentalis

The unprecedented acceleration in forward earning expectations continues; this partially manifests the new tax plan’s tailwind, but also comes on top of solid Q1 beats and raises; the market correction also compressed valuation multiples, which have returned to long term averages and will continue to be aided by a recovery in Energy (EPS +70% yoy 2018FYe) and an acceleration in Financials (+28.5%)…
EPS (ntm): +1.97 mom @ $164.11
PE ratio (fw): unch mom @ 16.5x
PEG ratio: -6bps mom @ 0.76x; still cheapening due to both multiple compression and growth rate acceleration
Earnings yield: -2bps mom @ 6.05%
EPS growth rate (ntm): +175bps mom @ 21.75%
[See also: Modern capital markets warrant higher valuation multiples]
#Bullish! #Valuations #Fundamentals $SPY $XLE $XLB

Sentiment (NEUTRAL)

Retail investor sentiment survey (2018.05.24)
by The American Association of Individual Investors (AAII)

Sentiment returns to the middle of neutral territory; we can still expect outperformance since the depths reached at the beginning of April, after which “[such] unusually low levels of optimism [and] unusually high levels of pessimism have historically been followed by above-average 6- and 12-month returns for the S&P 500″…
Bull/Bear ratio: -25bps wow @ 1.53x (above 1.30 historical average, but within 1.00 – 1.80 extremes)
    Bullish: +1.9pp @ 38.6% (below 39 avg, but within 30 – 45 extremes)
    Bearish: +4.6pp @ 25.2% (below 30 avg, but within 25 – 40 extremes); up from near ytd lows
    Neutral: -6.5pp @ 36.3% (above 31 avg, but within 40 extreme)
Measures respondents’ expectation for equity performance over next 6 months (through 11/2018).
[Previously: Retail allocations revert back to a neutral signal; Institutional allocations fall back to a neutral signal; Strategist sentiment remains neutral; Quantifying the “wall of worry”; See also: Household equity allocations at postcrisis lows sends a bullish signal]
#Neutral #Contrarian

Technicals (BEARISH)

Commitment of Traders (COT): S&P 500 net speculative positioning (2018.05.18)
Commodity Futures Trading Commission (CFTC)

After an unprecedented spike to start the month, equity specs remain elevated up at extremes indicative of a bearish signal; this indicator was one of the major imbalances that dislocated the market in Q1 — which disequilibrium produced an SPX correction…
Net speculative positioning: +36.48k wow @ +198.8k contracts long (above -150k & +100k extremes)
Measures difference between non-commercial longs & shorts in SPX futures (# contracts) as of Tuesday’s trade date.
[Previously: EUR net speculative longs remain a bearish signal for US risk assets]
#Bearish $ES_F $SP_F $SPY

–Romeo

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