Below are the raw bullet points I send to the producer prior to my appearances. I’ve had requests for written commentary to accompany some videos. Hopefully this helps understand a bit about my stance at the time these these videos are shot. I’ll attached the video once the network posts it.
* please know that there may be spelling and grammatical errors as well as incomplete thoughts and sentences as I am rushing to get my ideas out in very short order
-Bloomberg 08/28/14
Current Trends in S&P 500 (1,995) /economy
- GDP growth number was acceptable, but remember that this is HIGHLY revisable. Market participants are “accepting of the number.” The 4.2% growth in GDP showed growing personal consumption, private inventory investment, exports, both residential and nonresidential fixed investment, as well as local government spending. The gains were partially offset by an increase in imports, which negatively impact GDP, and a 0.9% decline in federal government expenditures.
o Since the economy contracted 2.1% in the first quarter of this year this jump is a minor snapback giving the economy a 1% gain in the 1st half of 2014 – The street is really only expecting 2% for the year.
- Option traders were showing their bullish card all throughout the dip in early august and after a brief pause here, it doesn’t seem that much of a cap is on the upside
- Summer has delivered on its promise of low volatility with 30 day rolling volatility remaining well below 10%
o The option markets (and me) believe that another 5-8% in the next couple months wouldn’t be out of the question.
- Russian tensions are adding a little caution to the mix with Vertical skew more pronounced that it was two weeks ago (this is a protective measure that traders are taking) 25 delta put vol 155% more expensive than corresponding calls in Sept
- Options horizontal skew has INCREASED slightly over the last month as this low summer vol currently around 9.25% is expected to increase to 12% by Jan 15; but still incredibly low.
- SPX technicals are line and longer-term bullish trend remains intact.
- Yellen and the Fed are continuing to support cheap money and accommodative policy, fueling the equity trade
- Earnings for the S&P 500 reached record levels with an acceleration in growth compared to last quarter
- Not only do US equities still represent the best vanilla investment in the world, but the trajectory of overall economic data and earnings is improving.
o Major cost cutting, layoffs of higher paying positions and some weather related acceleration helped earnings over the last 2 quarters
o My concerns for the future lie with the housing market/rates and the slow changes taking place in the workforce. Personal spending has been on the rise (.4% expected Friday, but income remains stagnant.
o Low commodity prices (save oil ,fuel and bacon) have really helped carry the consumer and keep foodstuffs at reasonable rates. The good news for the future is that a higher dollar will help curtail higher prices.
Earnings
- Total earnings for the S&P 500 made new all-time quarterly record.
- Importantly, strong earnings growth this quarter has been broad-based and driven by top-line gains, not just cost cutting.
- Total earnings are up +8.1% from the same period last year
- Also on +4.4% higher revenues, with 65.6% beating EPS estimates and 61.0% coming out with positive revenue surprises.
- This is better performance than we have seen in other recent reporting cycles, certainly a nice quarter
Future outlook
- The consumer is still struggling; 2.5% growth in personal consumption is below the 3.3% average seen since the Great Depression and sharply lower than the recovery average.
- All eyes will be on the consumer and housing for me…I’d expect both to remain stable in the back half of 2014; the retail numbers will tell us a detailed story of the state of things
- I see the S&P adding another 5% before year end with about a 7% correction
- Given the low volatility environment and lack of alternatives, I see 5% as the new 10% and 7% as the new 15% in terms of corrections for the remainder of the year.