renmac 2h17 outlook call...2017/07/02 · kim wallace – washington & global policy jeff...
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Kim Wallace – Washington & Global Policy Jeff deGraaf – Market Technicals & Strategy Neil Dutta – Economics
RenMac 2H17 Outlook Call
For a copy of the slides please email: [email protected]
July 13, 2017
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Washington & Global Policy
Kim Wallace
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Fiscal: let’s lay it out
Source: CBO, RenMac 3
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Fiscal: Don’t mind the gap
Source: CBO, OMB, RenMac 4
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Fiscal: Brooding backdrop
Source: CBO, BEA 5
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Fiscal: Unpacking the enmity
Source: Pew Research (April 5-11, 2017)
What Bothers Americans about the Federal Tax System, and How Much (%)
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Healthcare: Ranked-choice voting
Source: Kaiser Family Foundation 7
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Employment: The growth imperative
Source: USA Today (BLS, CareerCast) 8
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Europe: Non-performing integration
Source: European Banking Authority 9
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Technical & Strategy
Jeff deGraaf
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Market Serm
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SERM is elevated but trend is still positive.
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SERM vs PE Ratio
SERM has superior forecasting
power across all horizon lengths.
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Non-Financial Leverage
When non-financial leverage
contracts from a level > 0,
there’s often trouble for the
market. Still ascending.
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Credit Conditions
Despite the Fed’s tightening, credit
conditions continue to ease. This is bullish for
the market.
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Credit Conditions vs Econ Surprises
Surprises are weakening,
while credit conditions are
in the 100th percentile.
We find stocks more
sensitive to credit
condition than economic
surprises.
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Credit Conditions vs Econ Surprises
Note that the t-stat of the
correlation between credit
conditions and 3-month
forward returns is positive
and significant. Economic
conditions do not carry the
same predictive power.
Credit conditions are key
to this rally
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Credit Conditions
The spread between non-investment grade
and investment grade bonds remains
contained. This will be an important
indicator for us to turn more cautious, along
with general credit conditions.
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European Banks
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European Banks
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Euro/Yen
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Industrial Metals vs Precious
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Sector SERM/Trend Position
Momentum
Contrarian
1) Vertical axis represents momentum (higher better)
2) Horizontal axis represents SERM (left better)
3) Color equates to bullish/bearish proprietary option score (green bullish)
4) Size represents the % > 65-day moving average for the group. Big = OS Small = OB
Bubble legend in order of
importance
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Health Care vs Tech SERM
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Health Care vs Tech
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GDP Factors
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Economics
Neil Dutta
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Labor market: Solid employment
27 Source: Bureau of Economic Analysis, Bureau of Labor Statistics, Conference Board, NFIB
Strong growth in hours worked of late Temp help employment has picked up (% change, year-over-year)
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
07 08 09 10 11 12 13 14 15 16 17
3-month SAAR YoY % Change
-6
-4
-2
0
2
4
6
-30
-20
-10
0
10
20
30
91 93 95 97 99 01 03 05 07 09 11 13 15 17
Temp help (LHS) Private ex temp (RHS)
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Housing: Taper tantrum 2.0? No.
28 Source: Renaissance Macro Research, Mortgage Bankers’ Association, Haver Analytics
Purchase applications breaking out (four-week moving average)
Home prices not rising as quickly (% change, year-over-year)
150
160
170
180
190
200
210
220
230
240
250
260
1.4
1.6
1.8
2.0
2.2
2.4
2.6
2.8
3.0
12 13 14 15 16 17
10 Year USTs (LHS) Mortgage Purchase Apps (RHS)
-15%
-10%
-5%
0%
5%
10%
15%
20%
11 12 13 14 15 16 17
Case-Shiller HPI New Home Median Price
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Inventories: More of a boost
29 Source: Renaissance Macro Research, Bureau of Economic Analysis, Haver Analytics
Inventory corrections hurt industrials Inventory build now a tailwind Real change in private inventories (billions $)
-250
-200
-150
-100
-50
0
50
100
150
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
90 92 94 96 98 00 02 04 06 08 10 12 14 16
Railcar Loadings (YoY%, LHS) Private Inventories (billions $, RHS)
-20
0
20
40
60
80
100
120
10 11 12 13 14 15 16 17
Real Change in Private Inventories
Change Consistent With Final Demand
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Trade: Cyclical upswing
30 Source: Renaissance Macro Research, Haver Analytics
Signs of a rebound Structural problems to global trade (year-over-year % change)
-25
-20
-15
-10
-5
0
5
10
15
20
25
35
40
45
50
55
60
65
93 95 97 99 01 03 05 07 09 11 13 15 17
ISM New Export Orders (LHS)
Goods Exports (YoY %, three-month lag, RHS)
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
92 94 96 98 00 02 04 06 08 10 12 14 16
World Trade World Industrial Production
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Fed: How much tightening?
31 Source: Renaissance Macro Research, Haver Analytics, Bloomberg
Broad financial conditions remain easy Real rates have backed up (10Y UST less core CPI)
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
Mar-15 Sep-15 Mar-16 Sep-16 Mar-17
Adjusted National FCI (LHS) Fed Funds Target (RHS)-1.0
-0.5
0.0
0.5
1.0
1.5
14 15 16 17
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Fed: Searching for neutral
32 *Age-adjusted rate uses age distribution fixed at December 2007 weights (prior business cycle peak) Source: Haver Analytics, Bureau of Labor Statistics
Participation comeback (Labor Force Participation Rate)
Full employment helps lift productivity
62.0
62.5
63.0
63.5
64.0
64.5
65.0
65.5
66.0
66.5
07 08 09 10 11 12 13 14 15 16 17
Actual Age-Adjusted*
5
10
15
20
25
30
35
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
Productivity (8 quarter % change, SAAR, lagged 3 years, LHS)
NFIB: Labor Quality and Costs (single-biggest problem, RHS)
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RenMac 2H17 Outlook Call
For a copy of the slides please email: [email protected]
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