Daily Research Updates
Morning Briefings
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Huge Jump in Earnings
(1) Analysts now saying TCJA adding $11-$12 per share to S&P 500 earnings this year. (2) Joe says $14-$15 is likely. (3) Earnings meltup should trump P/E meltdown. (4) Even revenue estimates seem to have gotten a big TCJA boost. (5) Raising our 2018 and 2019 S&P 500 earnings estimates to $155 and $166 based on trend growth plus TCJA bump. (6) Following TCJA upward earnings revisions, earnings forecasts should resume usual downward drift. (7) Sticking with 3100 year-end forecast for S&P 500 thanks to strong earnings tailwind. (8) Lots of upbeat earnings indicators.
Algorithms Behaving Badly
(1) Get a neck brace. (2) ETF-led flash crash. (3) S&P 500 down slightly from when taxes were cut at the end of last year. (4) The differences between the 2016 and 2018 tightening tantrums. (5) Bouncing off the 200-dma. (6) Consensus expected S&P 500 earnings for 2018 now almost $11 more than before tax cut. (7) Latest correction wasn’t a Black Swan event, strictly speaking. (8) Bond Vigilantes are saddling up. (9) Dudley’s small potatoes. (10) Fed is starting to taper its balance sheet just as fiscal policy is ballooning the federal budget deficit. (11) Raising our bond yield forecast to 3.00%-3.50%.
More Tax Windfalls
(1) The 1970s are back for US oil output. (2) US oil trade deficit is tiny. (3) US frackers may be about to put a lid on oil prices. (4) Energy earnings have been energized. (5) Exxon planning on spending more to make America even greater in oil production. (6) Exxon has been paying its taxes on foreign earnings. (7) Valero planning to buy back shares with extra cash. (8) Mickey’s effective tax rate will fall from 35% to 21%. (9) MaBell used cash windfall to pay bonuses and for medical plan, and will spend more on capital equipment.
Panic Attack #60
(1) Stock market still suffering from PTSD. (2) Counting the number of panic attacks on 12 hands. (3) A few Fed tapering and tightening tantrums along the way. (4) From FOMO to LIFO. (5) Missing Yellen already. (6) Asking to see the Powell Put. (7) No ETF flash crash so far. (8) Valuation correction leaves stocks pricey, but not excessively so. (9) It may be too late to panic.
Fundamentally Strong
(1) While valuation may be an issue, earnings are no problem for stock prices. (2) Measures of business revenues growth are strong. (3) S&P 500/400/600 forward revenues rising in record territory. (4) January M-PMIs confirm that global economy is strong. (5) TCJA has boosted analysts’ 2018 EPS consensus for S&P 500/400/600 by 6.2%, 5.1%, and 6.0% so far. (6) Each quarter of 2018 likely to show double-digit growth rates for S&P 500 earnings. (7) TCJA likely to reduce federal corporate income taxes from $283 billion last year to $211 billion this year.
666 Again!
(1) Robert Langdon, where are you? (2) A repeating number. (3) Another Black Monday today? (4) Analysts have raised S&P 500 EPS estimate for 2018 by $9.00 since tax cut! (5) Despite Friday’s wage-led panic attack, wage inflation remains subdued for most workers. (6) Higher wage inflation won’t necessarily beget higher price inflation. (7) Tightening tantrum started in the bond market earlier this year. (8) Welcome, Jerome Powell. Hope it isn’t 1987 all over again. (9) Fed’s Williams says stay calm. (10) Adieu, Fairy Godmother, we will miss you. (11) Can the bull charge ahead without fairy dust?
How To Spend Tax Windfalls
(1) Industrial sector was mighty strong even before tax cut. (2) Next boosters for sector could be infrastructure and defense spending. (3) Looking even better ex-GE. (4) Notes from three conference calls: Honeywell, Lockheed Martin, and Illinois Tool Works. (5) Repatriated earnings will be used for share buybacks, dividends, M&A, capital spending, and to increase matches for 401(k)s. (6) Simpler global tax structures will reduce accounting and legal costs. (7) The best offense is more defense spending. (8) Paying pension plans forward. (9) More R&D. (10) Hint of inflation. (11) Quacks disrupting healthcare.
Looking Under GDP’s Hood
(1) Growth is good and getting better. (2) The Q1 curse hitting Citigroup Economic Surprise Index. (3) Year-over-year growth in real GDP still more like 2.5% than 3.0%. (4) Will Trump’s tax cuts boost economy’s cruise speed? (5) Capital spending rebounding smartly, led by equipment spending. (6) Information processing equipment and software among the strongest components of capital spending. (7) Transportation equipment spending recovering from recent dip. (8) R&D at record high. (9) Inflationary pressures remain subdued in GDP.
Profits: Us vs Them
(1) Profits growth during recoveries and expansions. (2) TCJA bumps earnings growth above 7% long-term trend line. (3) Analysts are predicting much higher earnings from tax cut than we are. (4) Stocks are more fairly valued if the analysts are right about earnings. (5) Analysts’ estimated tax-cut impact on corporate profits implies big hit to corporate taxes collected by US Treasury. (6) The Bond Vigilantes Model has been too bearish on bonds since the start of the current expansion. (7) Central banks’ QE programs and weak economic growth have kept yields down. (8) Fed rate hikes and normalization of ECB and BOJ monetary policies, along with faster US growth, could push US yields higher.
Don’t Worry, Be Wealthy
(1) Meltups don’t have to be followed by meltdowns if they are fundamentally based. (2) A brief chronology of our meltup call. (3) Let’s try a different analogy: simmering and boiling water. (4) HUGE increase in stock market wealth y/y. (5) Trickling up and down. (6) One-shot bonuses won’t boost wage inflation. (7) Sentiment as bullish as in early 1987. (8) The next bear market could be like 1987, when stocks recovered rapidly because there was no recession in earnings. (9) Movie Review: “Hostiles” (+).
Upward Revisions
(1) Drilling down to assess TCJA’s impact on S&P 500 sectors’ earnings estimates. (2) Big jump in S&P 500’s NERI, led by Financials sector. (3) Consensus earnings growth higher in 2018 than 2017 for most sectors! (4) Drilling down deeper to the industries showing biggest TCJA earnings spikes. (5) Financials 2018 earnings expectations broadly up in double-digits across all major industries. (6) US Bancorp working on four-minute loans. Do you want fries with that? (7) Fintech is in the Wild West.
Off the Charts
(1) The teetotaler-in-chief. (2) High on tweets. (3) Stocks are high on after-tax earnings. (4) Since the TCJA, industry analysts have been scrambling to boost earnings estimates. (5) Forward earnings rising faster than forward revenues, sending forward profit margins higher. (6) A good problem to have: stock prices going through the roof and our charts’ scales. (7) Adding another angel to Blue Angels. (8) Lovefest in Davos as IMF raises world economic outlook.
Commodity & Currency Review
(1) Stocks having more fun. (2) The length of a mile is getting shorter for stocks’ marathon runners. (3) DJIA’s 5000 markers. (4) Commodity prices signal global growth. (5) Dr. Copper is too busy making money to make house calls. (6) Oil prices rising despite lots of US oil production. (7) The trade-weighted dollar is inversely correlated with our Global Growth Barometer. (8) The former is weak, while the latter is strong.
Many Happy Returns
(1) The longest Santa Claus rally on record. (2) Trump vs FDR. (3) Market says: “Love him or hate him, don’t bet against him.” (4) Lots of happy returns as stock market soars. (5) Biggest corporate tax-cut winners are spreading the love to their workers. (6) US Treasury projected to collect more than $300 billion from more than $2 trillion of repatriated earnings. (7) Great Rotation beginning as money leaves bonds for stocks. (8) Political turmoil in Germany. (9) Germany’s economy booming. (9) Movie Review: “The Shape of Water” (+ +).
Autonomous Auto World
(1) Showing off auto technologies. (2) Hurricanes can be good for auto sales. (3) New cars competing with lots of cheaper used ones. (4) Driverless cars will arrive soon. (5) Wirelessly networked cities. (6) The big debate: will driverless cars decrease or increase traffic congestion? (7) We are all Ubers now. (9) Amazon on wheels.
Valuation: Beauty & the Beast
(1) More on earnings-led vs P/E-led meltups. (2) The former is more sustainable than the latter. (3) Is the “Great Rotation” finally starting? (4) Buffett Ratio is going higher, according to S&P 500 price-to-sales ratio. (5) Forward earnings soaring while forward revenues are flying. (6) REY and MAPE models show fairly valued market. (7) More on impact of TCJA on earnings. (8) DTA vs DTL.
Earnings-Led Meltup
(1) Meltup odds rising. (2) Odds of a meltdown haven’t increased. (3) Bullishness is over the top. (4) Is an earnings-led meltup a meltup? (5) Analysts are just starting to boost their earnings estimates in response to tax cuts. (6) Revenue and profit margin estimates are also rising. (7) Companies are starting to share their windfalls with workers. (8) A bull market within a bull market. (9) Global economic indicators continue to heat up. (10) 666 again! (11) Movie review: “The Post” (+).
FANG-dango
The next Morning Briefing will be sent on Tuesday, January 16. (1) Taking a shower with Alexa. (2) FANGs gaining market cap share. (3) Say “hi” to Alexa Voice Services. (4) Semiconductor firms are big winners. (5) Volocopters are coming. (6) FANGs cannibalizing FANGs. (7) FANGs under attack by regulators and critics. (8) Show biz has turned into a blood sport.
Revisiting Animal Spirits
(1) Animal spirits higher today than a year ago. (2) The “hard” data is looking harder than a year ago. (3) Remarkable reversal in surprise index. (4) No more chatter about “secular stagnation.” (5) Consumer and business surveys showing that jobs are plentiful and available workers are not. (6) Fewer small businesses complaining about government regulations. (7) M-PMI orders index through the roof. (8) TCJA is jacking up consensus earnings forecasts. (9) Q1 data likely to be firmer than during the previous Q1s of current expansion.
Morning Briefing 2018-01-09
Morning Briefing. (1) TCJA is the sausage de jour coming out of DC’s sausage factory. (2) $1.3 trillion in corporate tax windfall over next 10 years has some sizeable offsets. (3) Net interest deduction is capped. (4) It doesn’t pay to have lots of debt anymore. (5) NOL deduction is also limited. (6) New rules for R&E amortization. (7) Big bonus for depreciating assets. (8) Different strokes for different folks. (9) Will the repatriated profits windfall go to buybacks, dividends, bonuses, or capital spending? Or all of the above? (10) Very interesting earnings conference calls ahead!
Crying Wolff
(1) Author Wolff cries that “wolf” is in the White House. (2) Beware of psychiatrists offering free analysis. (3) Tweets from the genius with the biggest button. (4) Investors see more upside in global economy than downside from latest Washington circus. (5) Global PMIs are hot. (6) Dr. Copper is upbeat. (7) Earnings expectations are pumped up for earnings season. (8) Bulls showing no fear of bears or wolves. (9) Despite mismatch between lots of job openings and jobless workers, wage inflation remains subdued. (10) A match made in Heaven for stock investors: solid growth with low inflation. (11) Double Feature Movie Review: “Molly’s Game” and “I, Tonya” are both rated (+ +).
2018: More Happy Returns?
(1) Earnings expected to keep on trucking. (2) Higher oil prices and a weaker dollar are tailwinds for earnings. (3) Lots of positive earnings revisions leading up to corporate tax cut. (4) Reinsurance should bounce back, barring more disasters. (5) No disasters for other insurers last year, or this year. (6) Falling inventories and turmoil in Iran could give Energy sector an earnings boost, offset some by falling P/Es. (7) Outlook for Tech earnings winners still bright with reasonable P/Es. (8) Drone spotting.
Happy New Year!
(1) Back from abroad, and back to work. (2) Invest in Chinese tourists. (3) 2018: Continuation of the global synchronized boom. (4) Global trade growing solidly. (5) US economic surprise index very strong. (6) Housing may be starting to boom. (7) Trucking index off the chart. (8) Tax cuts could fuel a stock market meltup this year. (9) Deferred tax assets make analyzing effective tax rate a taxing exercise. (10) Movie Review: “All the Money in the World” (+ +).
Creative Destruction in 2018 and Beyond
The next Morning Briefing will be sent on January 3. We wish you all the best during the holidays and the year ahead. (1) The year of living disruptively. (2) 2017 saw sea changes in how we shop, relax, store energy, and think of money. (3) Winds of change have buffeted sector leadership. (4) Change is the only constant, so expect more of same. (5) Next year’s game- and life-changers: AI, robotics, genetic engineering. (6) May 2018 bring tidings of comfort as innovations make life easier and joy as investment opportunities abound.
Good Morning, Vietnam
(1) Southeast Asia family vacation. (2) First stop: Hanoi. (3) Mopeds are like dragonflies in this city. (4) Government determined to rev up economy. (5) Enticing foreign investors with beer. (6) Next stop: Thailand, where a gift sometimes isn’t. (7) The investment equivalent of a white elephant.