Developed Countries
If Trump concludes a deal with China, the next question for investors is whether he will impose Section 232 tariffs on auto and auto imports on the EU and other partners. A rotation of Trump trade policy to focus on Europe is likely. We give 35% odds to…
The first vote, as we go to press on Tuesday, has resulted in a rejection of Prime Minister Theresa May’s exit plan by 149 votes – the second rejection after her colossal defeat in January by 230 votes. However, that was expected. On Wednesday, we…
This performance is due in large part to Boeing taking on the mantle of a global trade bellwether and also dominating our BCA aerospace index. Considering the global nature of the firm, this role seems appropriate. In the company’s order backlog, the…
Underweight The S&P hotels, resorts and cruise lines index has been trading sideways for the last several months. Weakness in the cruise lines half of the index has been offset by relative outperformance by hotels, specifically Hilton, who released better than expected Q4 results last month. The market cheered the results, despite the company trimming this year’s revenue per available room guidance. We think the lowered guidance bears scrutiny. Domestic capacity has been rapidly expanding for the past seven years and while pricing has been resilient for much of that time, it is likely only a matter of time before the pricing reacts to the dramatic supply increase, let alone the ongoing Airbnb threat (construction spending shown inverted and advanced, second panel); Hilton’s guidance appears to confirm this. Meanwhile, a tight labor market is driving a recovery in sector wages which will provide added pressure to margins if prices falter (third panel). All of this is captured by our earnings model which indicates earnings underperformance should persist (bottom panel). Bottom Line: Headwinds to hotel earnings should remove the remaining support for the S&P hotels, resorts and cruise lines index; stay underweight. The ticker symbols for the stocks in this index are: BLBG: S5HOTL - MAR, CCL, RCL, HLT, NCLH.
U.S. CPI surprised on the downside in February, with core inflation slowing to 2.1% year-on-year (down from 2.2% in January and a consensus forecast also of 2.2%). Month-on-month inflation was only 0.11% – compared to 0.24% in January – the weakest monthly…
Industry sales have pushed into double-digit growth territory, while margins are hitting record levels. Our U.S. Equity Strategy team thinks the reason why earnings are so elevated has much to do with the age of the order book. Following a meltdown in…
The yield curve has not inverted, and it is unlikely to do so while the Fed remains on hold. Growth has come off the boil, but the Leading Economic Indicator (LEI) is not close to contracting on a year-over-year basis. The Fed Funds Rate remains below our…
As implied by the overnight index swap (OIS) curves, the money market now expects that the Fed Funds Rate has peaked at 2.5%, and that a rate cut will likely bring it down to 2.25% by the end of 2020. Our U.S. Investment Strategy team begs to differ. With…
First, valuations and balance-of-payment dynamics favor the euro versus the CAD on a long-term basis. Second, we estimate there is more scope for long-term interest-rate expectations to rise in the euro area than in Canada. European rates are further below…
Neutral In this week’s Special Report, we moved to a neutral recommendation on the BCA aerospace index. The report highlights the two pillars supporting the aerospace index and its relative performance: global trade sentiment and execution-driven profit performance. With respect to the first, relief in trade wars represents a powerful catalyst. Nevertheless, that same trade sentiment pendulum swings both ways and we believe elevated trade tensions will increase volatility and decrease predictability, particularly considering the global nature of aerospace firms (second panel). Still, aerospace sales and earnings growth look assured for a reasonable forecast horizon, considering the upbeat commercial aerospace demand over the past five years as well as the current robust order environment. However, aerospace firms have been blowing out their balance sheets to retire debt and currently enjoy near-record valuations (third & bottom panels). Bottom Line: On balance, we think it no longer pays to be underweight the BCA aerospace index and we moved to a benchmark allocation. Please see Monday’s Special Report for more details.