The S&P 500 earnings yield hit a new low

The Daily Shot: 05-Feb-21
Equities
Alternatives
Energy
Commodities
Rates
Emerging Markets
Asia – Pacific
The Eurozone
The United Kingdom
Canada
The United States
Global Developments
Food for Thought



 

Equities

1. US indices rose to record highs on Thursday.
 

 
Bloomberg’s measure of the S&P 500 earnings yield hit a new low. Of course, Treasury yields are extremely low as well.
 

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2. Goldman’s index of stocks favored by retail investors is up 100% over the past year.
 

 
3. US small caps continue to widen their outperformance.
 

 
Small-cap valuations are still low relative to large-caps.
 
Source: SunTrust Private Wealth Management  

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4. The Reddit day trader army has been moving into biotech.
 
Source: CNBC   Read full article  
 
Relative performance over the past year:
 

 
Online search activity:
 
Source: Google Trends  

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5. Cannabis stocks have gone vertical in response to M&A activity and expectations that prohibition will end soon.
 

 
Source: @axios   Read full article  

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6. Here is “pump & dump” in action.
 
Source: @howmuch_net   Read full article  
 
According to BCA Research, the fractal dimensionality of some of these stocks has collapsed (see comment below).
 
Source: BCA Research  

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7. Peak FANG?
 
Source: Deutsche Bank Research  
 
8. Who are the largest sellers and buyers of order flow?
 
Source: @WSJ   Read full article  
 
9. Large-cap growth stock earnings have stabilized relative to large-cap value stocks.
 
Source: SunTrust Private Wealth Management  
 
10. Here is a look at equity factor preference at different phases of the business cycle, according to Commerzbank.
 
Source: Commerzbank Research  
 
11. High savings rates push up corporate earnings and valuation multiples.
 
Source: Denise Chisholm  
 
12. Active traders tend to have more volatile portfolios.
 
Source: @WSJ   Read full article  


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Alternatives

1. Which sectors saw the most private equity deals last year?
 
Source: S&P Global Market Intelligence  
 
2. Venture capital investments surged in Q4.
 
Source: @FactSet   Read full article  
 
The technology service sector continued to accumulate the most capital from VC investors in 2020.
 
Source: @FactSet  
 
3. VC-backed companies are increasingly going public, amounting to $40.9 billion in exit value last year. 
 
Source: @FactSet  


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Energy

1. US crude oil futures are approaching pre-COVID levels.
 

 
2. The Brent curve is moving deeper into backwardation.
 

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3. Here is a forecast for the US electricity generation mix.
 
Source: S&P Global Market Intelligence  
 
4. US natural gas futures are back above $3/mmbtu amid forecasts for frigid weather.
 

Source: NOAA  
 
Natural gas in storage is now well inside the 5-year range and moving lower.
 

 
5. Since we are on the topic of weather (and because it’s Friday), how often does Punxsutawney Phil get it right?
 
Source: NOAA  


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Commodities

1. US cotton futures are rallying on large China purchases and Texas drought.
 

 
2. Demand for lithium is expected to rise along with electric vehicle sales.
 
Source: Fitch Solutions Macro Research  
 
Lithium carbonate has been rebounding in China.
 
h/t @annieLee23  


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Rates

1. The Treasury curve continues to steepen.
 

 

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2. As we mentioned earlier, Treasury cash balances at the Fed are expected to tumble (2 charts).
 
Source: @WSJ   Read full article  
 
Source: Nordea Markets  
 
That should give excess reserves a massive boost.
 
Source: Nordea Markets  
 
Reduced issuance is depressing T-bill – OIS spreads.
 

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3. The aggregate duration of fixed-income markets keeps climbing, which will exacerbate losses if rates rise suddenly.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  


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Emerging Markets

1. The Brazilian real has decoupled from commodity prices over the past year.
 
Source: BCA Research  
 
Separately, Brazil has a great deal of domestic debt to roll this year.
 
Source: IIF  

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2. Russia’s car sales deteriorated last month.
 

 
3. South Africa’s electricity production has recovered.
 

 
4. Here is a forecast for EM GDP growth (from Capital Economics).
 
Source: Capital Economics  
 
5. Below is a look at EM external financing needs this year.
 
Source: IMF   Read full article  
 
The ability to pay external debt has sharply deteriorated in Ecuador and Turkey.
 
Source: Oxford Economics  


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Asia – Pacific

1. Japan’s December household spending was firmer than expected.
 

 
2. Next, we have some updates on Australia.
 
The AIG service sector index showed growth strengthening last month.
 

 
Business investment is in a structural decline, mainly due to lingering effects of the mining bust.
 
Source: RBA, h/t Tony  
 
The mining sector’s contribution to overall business investment has declined over the past decade.
 
Source: RBA, h/t Tony  
 
Broad money growth has far outpaced credit expansion.
 
Source: RBA, h/t Tony  
 
Similar to the US, Australians are moving out of large cities.
 
Source: @Scutty  


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The Eurozone

1. Italian 10yr bond spread to Germany dipped below 1% for the first time since 2016.
 

 
2. December retail sales at the Eurozone level were weaker than expected (dragged lower by Germany).
 

 
3. German construction activity remains soft.
 

 
4. Euro-area household borrowing is at record lows.
 
Source: Pantheon Macroeconomics  


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The United Kingdom

1. The BoE told banks they have six months to get ready for negative rates, which are probably not coming.
 
Source: Reuters   Read full article  
 
The pound and gilt yields jumped.
 

 

 
Market-based probability of negative rates collapsed.
 
Source: Pantheon Macroeconomics  

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2. Construction activity lost momentum last month.
 

 
3. Car sales tumbled in January.
 

 
Source: Pantheon Macroeconomics  


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Canada

1. With commodity prices gaining traction, TSX forward earnings-per-share are now rising faster than S&P 500 forward earnings-per-share.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
2. Canadian healthcare stocks have been on a tear so far this year.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
And here are Canadian healthcare sector returns versus the world.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  

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3. Housing supply is incredibly tight.
 
Source: Oxford Economics  
 
Greater Toronto and Vancouver homes are overvalued, while national home prices are aligned with fundamentals, according to Oxford Economics.
 
Source: Oxford Economics  
 
Overvalued Toronto housing took five to six years to return to affordability in the past. 
 
Source: Oxford Economics  
 
Prices for detached Toronto homes soared while apartment prices fell last year (migration to the suburbs – similar to the US.) 
 
Source: Oxford Economics  


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The United States

1. US productivity tumbled last quarter as workers’ hours increased.
 

 
Unit labor costs jumped, pointing to higher inflation ahead.
 
Source: Pantheon Macroeconomics  
 
However, this increase in labor costs is exaggerated. Here is a comment from Andrew Husby, Economist at Bloomberg LP.

… unit labor costs likely exaggerate aggregate cost pressures for the same reason as the productivity statistics, namely the pandemic’s severe impact on select industries.
 
It also overstates the total degree of cost pressures facing businesses, as unit non-labor payments, which account for subsidies like those provided by the Paycheck Protection Program, fell markedly in the fourth quarter (-6.3%) and for the year as a whole (-4.1%).

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2. Factory orders were quite strong going into the year-end.
 

 
3. Next, we have some updates on the labor market.
 
Initial unemployment claims declined again but remain above one million per week.
 
Source: Oxford Economics  
 
This chart shows the relative changes in US private employment by sector.
 
Source: TS Lombard  
 
The official jobless rate is understating the level of unemployment.
 
Source: Capital Economics  

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4. Finally, here is the composition of net domestic savings.
 
Source: Mizuho Securities USA  


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Global Developments

1. The table below shows the average 60-day correlation between the dollar and G10 currency peers.
 
Source: Fitch Solutions Macro Research  
 
2. Countries whose stock markets were hit the hardest during the pandemic saw stronger recoveries from vaccine announcements.
 
Source: ECB   Read full article  
 
3. The IMF expects global growth to rise at its best pace since 2007.
 
Source: SunTrust Private Wealth Management  
 
4. The rise in global manufacturing PMI bodes well for corporate earnings. 
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  


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Food for Thought

1. Working from home means working longer hours:
 
Source: @business   Read full article  
 
2. Most popular video games:
 
Source: Metacritic  
 
3. Spending on video games vs. books:
 
Source: @EconguyRosie  
 
4. Lithium battery prices:
 
Source: Blackstone Resources  
 
5. Senate campaign fundraising:
 
Source: @axios   Read full article  
 
6. Time it takes to vote vs. neighborhood’s income:
 
Source: @UpshotNYT   Read full article  
 
7. Sources of greenhouse gas emissions:
 
Source: @wef   Read full article  
 
8. Executions in the US:
 
Source: Chatr  
 
9. Vaccination updates:
 
Vaccinations by region:
 
Source: @sobata416   Read full article  
 
COVID cases vs. vaccinations:
 
Source: @financialtimes   Read full article  
 
One- or two-dose vaccine?
 
Source: @YouGovAmerica   Read full article  

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10. Super Bowl halftime performers:
 
Source: Morning Consult   Read full article  

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Have a great weekend!


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