(New York)

Wall Street research teams have been pretty split in their market outlooks recently. While the general mood is always bullish in equity research, an inordinate number of banks have been pessimistic lately. Do not count Morgan Stanley in that group, as they have just come out with what cannot be considered anything other than a bullish note given the current environment. The bank says there is only an 11.4% chance of a recession in the next year. Morgan Stanley also pointed out that each asset class has its own positioning right now, saying “Rates are generally pricing in a higher risk of recession than equities, giving equities greater relative downside should a recession emerge and bonds greater relative downside should economic growth begin to trough/reaccelerate”.

FINSUM: As Morgan Stanley also added in this piece, the real time to worry is if companies start cutting jobs to maintain margins. Once that happens, consumer spending and sentiment will fall rapidly.

(New York)

The world’s biggest family offices are feeling very bearish. A new study by UBS found that over half of them are expecting a recession and over 40% of them are increasing their cash reserves. 45% are taking steps to mitigate risk. Family offices have struggled in the last year, averaging only a ~5% return; much lower than the 9-13% returns they typically target.

FINSUM: Normally speaking we might think this is a good counter-indicator, but family offices represent so much AUM that they could have a real impact on the market.

(New York)

Peloton went public yesterday, and the results were much less than impressive. In its first day of trading, the company saw its shares fall 11%. The company priced shares at $29, but saw them fall throughout the day. The company produces exercise equipment and classes and has a cult following among its customers. Despite the fall though, in some way the IPO is a big success, at least for the founders of the company. In its last private funding round in 2018, it was valued at $4.15 bn, but opened at $7.7 bn yesterday. That is a much better showing than other recent big IPOs.

FINSUM: This company is losing almost $200m per quarter on revenue of less than $1 bn. It is fortunate it did not fall further given the current environment.

(Washington)

For the last couple of months it has been pretty easy to assume that the new version of the DOL’s fiduciary rule would not have nearly as heavy a hand as the first iteration. Most have thought it would likely sing to the same tune as the SEC’s best interest rule. One of the integral reasons for this view is that the DOL is now under the leadership of Eugene Scalia, son of Antonin Scalia, the former of which is one of the top securities lawyers in the country and long a fierce critic of the fiduciary rule. However, a major new development this week—Scalia says he may have to recuse himself from the whole fiduciary rule process because of federal ethics rules. Scalia was part of the lawsuit that defeated the rule last year, which is the reason for the recusal.

FINSUM: It now seems very likely that Scalia won’t be leading this process, which means it is commensurately more likely the DOL rule 2.0 could be much tougher than expected.

(Washington)

House Speaker Nany Pelosi made big waves yesterday when she announced a formal impeachment inquiry into President Trump, all stemming from the alleged Ukrainian incident. The political implications are one aspect, but what does this mean for the stock market? The answer is that nobody knows. Nixon’s impeachment process saw a big loss in stocks, but it was also the Oil Crisis; while Clinton’s impeachment was quite positive for equities. Each situation was completely unique, as was the market environment at the time.

FINSUM: Our best guess is that this won’t do much to stocks, mostly because there has been so much political theater over the last few years that, for better or worse, this likely just seems to be more of the same for investors.