Developed Countries
US foreclosures fell to a 35 year low in the fourth quarter of 2019. This is a testament to both the health of household balance sheets and the ease of US monetary policy. Falling foreclosures also suggest that the price-to-income ratio of the US housing…
Cyclical & Secular Underweight We remain underweight the S&P interactive media & services (IM&S) subgroup on both cyclical and secular (ten-year basis) time horizons as increasing regulation will likely deal a blow to the industry. Early signs of regulation are already springing up around the globe as California and the European Union have already adopted strict privacy laws. This will likely pave the way for a federal bill aimed at protecting the consumer and his data. In our recent Weekly Report, we draw parallels between the US chemical industry in the 1970s and the present day S&P IM&S index. Specifically, the Toxic Substances Control Act (TSCA) of 1976 dealt a blow to chemical equity prices in absolute and relative terms (see chart) turning investments in chemical stocks into dead money for a whole decade. Bottom Line: Increasing odds for tougher regulation compels us to remain underweight the S&P IM&S index. The ticker symbols for the stocks in this index are: BLBG S5INMS – GOOGL, GOOG, FB, TWTR. For additional details, please refer to this Monday’s Weekly Report.
The euro is in a tricky spot. On the one hand, the euro benefits when global growth recovers. This pro-cyclical behavior reflects the heightened sensitivity of Europe to the global manufacturing cycle and to the Chinese economy in particular. On the other…
The US job openings from the December JOLTS survey were weak. Job openings paint an image of a weak labor market, which contrasts sharply with the low level of unemployment initial claims or the strong employment indicators from the NFIB. Even within the…
A key takeaway from the New Hampshire primary was its elevated turnout, the highest since 2008. If the coming states confirm this trend, it will suggest that the Democrats are highly mobilized. Another important inference is that the centrist/populist vote is…
Neutral In this Monday’s Weekly Report we lifted the hard-hit S&P hotels index to neutral from previously underweight and cemented gains of 20% since inception. Relative retail sales have rebounded over the past several months with discretionary sales reclaiming the upper hand signaling that it no longer pays to be bearish the S&P hotels index (top panel). At the same time, while overall PCE is decelerating, relative consumer outlays on hotels is picking up momentum (middle panel). Importantly, our S&P hotels EPS growth model that encapsulates all the key industry macro drivers is also arguing that relative profit growth is slated to turn the corner in the coming quarters. Bottom Line: Lift the S&P hotels index to neutral and lock in gains of 20% since inception. Please refer to Weekly Report for additional details. The ticker symbols for the stocks in this index are: BLBG S5HOTL – MAR, CCL, HLT, RCL, NCLH.
Germany’s December industrial production was a truly dismal number, contracting at a 6.8% annual pace, or the worse result since the GFC. Unsurprisingly, the potential for a German or European recession now concerns global investors. While a technical…
BCA Research's US Bond Strategy service believes that the Fed will not cut interest rates unless the outbreak worsens. Markets have already moved to price-in a Federal Reserve reaction to the Covid-19 outbreak. The overnight index swap curve prices in 43 bps…
The annual growth rate of the US business sales-to-inventories ratio has formed a bottom. Historically, this indicator has provided excellent leading signals for US industrial production, suggesting that the US industrial sector should experience a meaningful…
What matters for stocks, aside from interest rates, is EPS growth. On that front, the Street continues to expect 10% profit growth for calendar 2020 which is a tall order according to our “Three EPS Scenarios” analysis in mid-January, warning that the SPX is still 8% overvalued as per our base case EPS and multiple scenario. The tech sector sits atop the contribution to earnings growth table and leads its peers by a wide margin. Health care and financials occupy the second and third spots. While these rankings are more or less in line with the sector profit and market cap weights, what stands out is the delta between the market cap and earnings weights (see Table). According to this valuation proxy, tech, consumer discretionary and real estate sectors are the most expensive, while financials, health care, and energy are the cheapest. Bottom Line: We remain underweight real estate and consumer discretionary, neutral on tech and overweight all three most undervalued sectors: financials, health care and energy. For more details, please refer to this Monday’s Weekly Report.