A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Citi U.S. equity strategist Tobias Levkovich listed the top four concerns of the company’s institutional clients and more or less waves them off,
“The Street is worried about the economy since the current expansion is viewed as being ‘long in the tooth’… Business cycles do not die of old age; they are murdered by the Fed or some exogenous shock. .. we think that credit conditions will be crucial … Profit margins are always brought up … [but] If companies can push any rising employee expenses through to customers (which appears to be happening), the concern about profitability may be overstated. Valuation is regularly cited as a source of anxiety but low inflation allows P/E ratios to hover in the 18x trailing earnings range if history is any guide. Our normalized earnings yield gap analysis still augurs well for S&P 500 gains in the next 12 months with 88% probability … Clients complain that money flows have been weak, but this problem could have been cited for the past 10+ years.”
“@SBarlow_ROB Levkovich assuages the biggest fears of Citi's institutional money managers” – (research excerpt) Twitter
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Merrill Lynch sees “Greed Shoots” in its analysis of client asset flows,
“5 ‘greed shoots'…trends to following to signal unambiguous bullish Positioning: 1. Greedy $102bn inflows to credit YTD… 2. Greedy hedge fund leverage…BofAML April FMS showed biggest jump in net equity exposure since Jun’18. 3. Greedy technicals … BofAML Global Breadth Rule now at 14-month high of 64% (i.e. 64% of MSCI country equity indices are above 50 & 200dma) … tactical sell signaled when rule hits 88% … 4.Greedy institutional call buying … US equity index delta adjusted open interest now $524bn … was $837bn at Jan'18 highs and was -$980bn at Dec'18 lows. 5. Greedy rotation…furious US healthcare sell-off also reflects inflow-starved institutions funding rotation to cyclicals via selling of defensives … sell-off in US REITs & staples and European utilities & staples would signal bullish rotation complete.’
“@SBarlow_ROB ML sees ‘Greed Shoots’” – (research excerpts) Twitter
See also: “SBarlow_ROB Citi: FOMO rally possible but “The concern now is that YTD performance of +16% diminishes the risk/reward.” – (research excerpt) Twitter
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Equity futures were lower Monday pre-open ahead of a flood of U.S. earnings results.
So far, 82 out of the S&P 500’s 498 companies have reported with revenue growth up 2.5 per cent year over year and profits higher by 0.29 per cent in aggregate.
From CNBC,
“Dow Jones Industrial Average futures indicated a drop of more than 50 points at the open… corporate results remain the biggest focus for the U.S. this week. On Monday, Halliburton reported better-than-expected quarterly results, sending its stock up more than 3% in the premarket. Other companies reporting earnings on Monday include Kimberly-Clark and, after the bell, Whirlpool and Celanese. The week ahead will be the busiest of the earnings season with Coca Cola, Procter & Gamble, UnitedTech, Verizon, Twitter, Lockheed Martin and eBay just some of the companies reporting Tuesday.”
“US stock futures signal a lower open ahead of busy earnings week” – CNBC
“Earnings deluge could make or break sentiment” – Reuters
“Will US company results neutralise ‘earnings recession’ fears?” - Financial Times (paywall)
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Tweet of the day:
Diversion: “Where Canadian wages go far – and where they don’t” – Lundy, Globe and Mail
Scott Barlow