Diary of a Financier

Top Newsstuffs (June 18-24)

In Bookshelf on Sun 24 Jun 2018 at 05:53

Here are your top reads from across the past week…

Macro (BULLISH)

Housing permits, starts & completions (May 2018)
by US Government Census

Another solid report increases already high velocity growth; data should continue to face a headwind due to the end of multifamily’s cyclical boom, which peaked in 6/2015
Monthly housing starts: +9.8pp @ +20.3% yoy, +5.0% mom @ 1.350M saar (beat 1.309e); singlefamily back up near highest level since 2007; prior months revised down slightly
Growth rate: +3.0pp @ +11.0% ytd
Residential investment accounts for 3-5% of US GDP, part of housing’s 15-18% total contribution to growth.
[Previously: The future is still so bright; See also: National housing inventory should finally increase by 2018YE after multiyear declines ironically stunted home prices; Record high prices for framing lumber and labor should cap homebuilders’ upside]
#Bullish! $XHB $ITB

Credit (NEUTRAL)

Loans & leases in bank credit, all commercial banks (2018.06.06)
by St. Louis Federal Reserve (FRED)

Lending growth remains soft after a big 2017 deceleration down to multi-year lows, but it is starting to recover, as expected, now that we’re lapping difficult comps left in the wake of 2015/16’s industrial production slowdown
Weekly loan growth: +6bps mom @ +4.27% yoy (below 7.3% historical average)
This is a key indicator; although the Fed’s rising rates & Trump’s deregulation jawboning should increase NIMs and corporate debt is relatively bloated, I’d still expect continued, aggregate credit expansion, since household balance sheets are more deleveraged than at any point since the 1970s.
[Previously: Household credit fundamentals remain bullish; Households remain extremely deleveraged; See also: Senior loan officer survey expects bank credit supply & demand fundamentals to remain neutral]
#Bearish #Releveraging!? #Credit cycle $XLF $KBE $KRE

Fundamentals (BULLISH)

 

Valuations (BULLISH)

 S&P 500 valuation update: Growth rates continue to accelerate (2018.06.16)
by Fundamentalis

The unprecedented acceleration in forward earning expectations appears to be ending; this remarkable run had manifest the new tax plan’s tailwind, which was extended by solid Q1 earnings beats and raises; the 2018q1 market correction compressed valuation multiples, which have 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): -0.14 mom @ $163.97
PE ratio (fw): +0.5 mom @ 17.0x
PEG ratio: +2bps mom @ 0.78x
Earnings yield: -15bps mom @ 5.90%
EPS growth rate (ntm): +2bps mom @ 21.77%
[See also: Modern capital markets warrant higher valuation multiples]
#Bullish #Fundamentals $SPY $XLE $XLB

Sentiment (NEUTRAL)

Retail investor sentiment survey (2018.06.21)
by The American Association of Individual Investors (AAII)

All cohorts are within their normal ranges, returning composite sentiment to a neutral signal; 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” (i.e. until 10/2018 and 4/2019, respectively)…
Bull/Bear ratio: -58bps wow @ 1.48x (above 1.30 historical average, but within 1.00 – 1.80 extremes)
    Bullish: -6.1pp @ 38.7% (below 39 avg and within 30 – 45 extremes)
    Bearish: +4.5pp @ 26.2% (below 30 avg, but within 25 – 40 extremes)
    Neutral: +1.6pp @ 35.1% (above 31 avg and within 40 extreme)
Measures respondents’ expectation for equity performance over next 6 months (through 12/2018).
[Previously: Retail allocations send a bearish 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 (2018.06.22)
Commodity Futures Trading Commission (CFTC)

Equity specs remain 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: +7.3k wow @ +169.4k contracts long (above -150k and +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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