Estados Unidos
The recent rally in risk assets is walking a very fine line. If the Fed turns more hawkish, or U.S. growth slows, it could fall over.
The S&P restaurants index continues to deflate in relative performance terms and downside risks remain intact. The top panel of the chart shows that the Restaurant Performance Index (RPI, courtesy of the National Restaurant Association) has taken a turn for the worse. Historically, momentum in the RPI has been an excellent leading indicator of relative share prices. The RPI is picking up the downtrend in top-line performance, as measured by restaurant retail sales. The latter warn that relative forward earnings momentum is headed lower. To make matters worse, slow traffic is limiting pricing power gains, which are lagging badly behind a soaring wage bill (fourth panel). Bottom Line: While we have recently boosted the S&P consumer discretionary index to overweight, stick with a below benchmark allocation in the S&P restaurants sub-index. The ticker symbols for the stocks in this index are: BLBG: S5REST - MCD, SBUX, YUM, CMG, DRI.
We are delighted to announce the launch of our newest sector publication, Energy Sector Strategy (NRG). The new Energy Sector Strategy will be complementary to BCA's Commodity & Energy Strategy (CES) and U.S. Equity Strategy (USES) services. NRG will expand our energy-related research into more granular investment themes that are beyond the scope of CES/USES and extend these conclusions to specific equity investment recommendations. The U.S. horizontal rig count (unconventional/shale drilling) has begun to recover in response to oil prices rising off of an oversold trough, but still remains well below the level that would be sufficient to prevent continuing production declines. Capital availability and rising service costs will be moderating factors on the pace of a drilling recovery, but the completion of drilled but uncompleted wells (DUCs) will allow operators to bring on some additional production faster and cheaper than organic drilling programs. Without the impact of the DUCs, we estimate U.S. shale production would continue to decline through mid-2017; with an aggressive DUC completion program (100 wells per month over the course of a year, starting now), overall production would stabilize 3-6 months sooner and at a higher level (300,000-400,000 b/d) than drilling alone. In this environment, we recommend financially strong oil shale producers who will be able to ramp-up reinvestment fastest (EOG, PXD, PE, FANG), as well as the completion and service companies (HAL, SLB, SLCA) that will benefit from the increased oilfield investment more than drillers. To learn more about this new service, please contact Chris Cook (Chrisc@bcaresearch.com).
The 35-year bond bull market is coming to an end and the downward sloping trend channel for yields is changing to flat. Asset allocators should trim duration and fixed income exposure.
With the broad market breaking out to new highs courtesy of flush liquidity conditions and rising risk appetite, the momentum-driven biotech group stands an excellent change of reclaiming previous relative performance highs. We upgraded the S&P biotech index to overweight a month ago because value had been fully restored and underlying fundamentals remained solid. For instance, demand-driven pharmaceutical pricing power gains remain intact, which is driving productivity improvement. Increased profit potential should attract renewed capital inflows and translate into higher share prices, especially now that the supply of biotech stocks is ebbing fast: biotech IPOs have cratered. Importantly, drug industry M&A activity remains robust, suggesting that the S&P biotech index has the potential for a re-rating. We reiterate our recent upgrade to overweight. The ticker symbols for the stocks in this index are: BLBG: S5BIOT- AMGN, GILD, ABBV, CELG, BIIB, REGN, ALXN, VRTX.
In order to make room for this week's upgrade of the consumer discretionary sector, we have downgraded the utilities sector to neutral after a strong run. Overweight positions in this sector were predicated largely on external forces rather than sector-specific factors, largely that the overwhelmingly deflationary global backdrop would turbo-charge the search for yield, culminating in a re-rating in equity fixed income proxies such as utilities. Worries about a slide into recession have ebbed, because domestic consumer spending has stayed resilient, job growth has bounced back after a difficult few months, and the U.S. manufacturing sector is showing signs of life. Even the global economic surprise index has climbed into positive territory, driven mostly by an uptick in the U.S. Consequently, utility stocks may have difficulty generating additional outperformance, especially within the context of the broad market overshoot. We recommended taking profits of 17% and trimming to neutral in Monday's Weekly Report. BLBG: S5UTIL.
This week, we are sending a <i>Special Report</i> written by BCA's Chief Global Strategist Peter Berezin, discussing the end of the 35-year global bond bull market. In addition, we are also sending you a joint <i>U.S. Bond Strategy/Global Fixed Income Strategy Weekly Report</i> which discusses the end of the secular bond bull market and the implications for global bond strategy.
This week, we are sending a <i>Special Report </i>written by BCA's Chief Global Strategist Peter Berezin, discussing the end of the 35-year global bond bull market.
In recent months we have outlined and acted on the bull case for media by upgrading both the S&P cable & satellite and S&P movies & entertainment indexes. This week we added another sub-component to the overweight column. The S&P advertising index has an opportunity to positively surprise in the coming quarters. Expectations are subdued, as measured by both long-term and cyclical relative forward earnings growth estimates, as well as elevated short interest (third panel). On this front, accelerating outlays on media services are a positive omen for marketing budgets, as well as advertising stocks, particularly if consumers begin to loosen their purse strings. Already, advertisers have enjoyed solid revenue growth, in contrast with the contraction in overall S&P 500 sales. As a result, ad rates have gone up, as proxied by the producer price indexes for radio, broadcasting and network TV (second panel). A demand-driven increase in pricing power should be viewed as sustainable, and has higher odds of translating into premium share price valuations given the positive impact on industry productivity (bottom panel). True, the leveling off in auto sales is a risk given the industry’s massive marketing budget, but there are offsets, including the boom in electronics spending, which has positive implications for content demand and potential digital media spending. Netting it out, the reward/risk tradeoff is favorable for an upshift to overweight. The ticker symbols for the stocks in this index are: BLBG: S5COND - OMC and IPG.
In order to harvest a tactical continuation of the high-risk, momentum-driven broad market advance, we have made a few tweaks to our portfolio, while maintaining a core non-cyclical emphasis given that the global growth outlook remains sketchy. This week, we added the cyclical interest rate-sensitive consumer discretionary sector to the fold after recently upgrading the S&P home improvement retail index back to overweight. Relative performance has dropped to a four year low, once heavyweight Amazon is excluded, but a recovery window has opened if the Fed stays lax while wage growth continues to firm and the U.S dollar regains strength. The consumer is the strongest engine in the U.S. economy, and is benefiting from lower oil prices and plunging mortgage rates. Our Consumer Drag Indicator (CDI), comprising mortgage rates and gasoline prices, has climbed significantly, heralding ongoing consumption resilience. Importantly, the CDI has a good track record in leading relative performance (second panel). Money growth is sending a similar message, particularly given a healthy clip in consumer lending growth (top panel). After deleveraging for several years, financial obligations are not onerous, even if interest rates rise modestly. Any upgrade in consumer confidence as a consequence of income growth could unleash pent up dry powder for consumption. As a result, we recommend buying into relative performance weakness and upgrading to overweight, including a boost to the advertising group, please see the next Insight. BLBG: S5COND.