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This morning (07/18/19), the Conference Board released its monthly Leading Index, which fell -0.3% m/m. Recall, we classify the U.S. market cycle into six phases based upon the rate of change in the three-month rolling average of this Index. According to our framework, the U.S. market cycle remains solidly in the ‘Late Deceleration’ phase (5th of 6th phase).
Increasingly, over the past year, we’ve been focused on identifying potential short stock ideas/avoiding stock blow-ups. Our short screens comprise the 12 most potent valuation, earnings quality, capital creation, capital allocation, and sentiment metrics we’ve found to be most useful in searching for ideas on which to complete additional fundamental analysis. These short screens represent the backbone of the process we use into which to dig deeper and identify the most compelling short ideas.
This morning (07/10/19), Fed Chair Powell testified before the House Financial Services Committee. He said that since the FOMC’s June meeting “it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook.” This is being read as modestly more dovish than many investors had feared. The futures market implied probability that the FOMC cuts by 75bps+ by year end increased from 46% to 62%. Further, Gold — which we believe has been trading on global easing expectations — is also trading up today.
Coming into 1Q19 earnings season, analysts revised down estimates sharply into trade uncertainty, the start of the current ‘soft patch’ in global growth, and the deep selloff in equity markets at the end of last year. Following the big downward revision coming into last earnings season, S&P 500 companies proceeded to jump over a low bar, beating on the top- and bottom-lines by nearly 1% and 5%, respectively.
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