(New York)

Stop worrying so much about the US economy. That is what Bank of America is saying. The bank’s CEO went on the record yesterday explaining the simple reason that the US will avoid a recession. That reason? US consumer health. Moynihan cited internal statistics from BAML that showed that consumer spending has risen almost 6% in Bank of America accounts in the last 12 months versus the previous 12 months, showing that consumers are healthy. Consumer spending makes up 68% of the US economy. Moynihan was dismissive of the yield curve inversion, saying it is likely just a product of an influx of money because of negative yields elsewhere.

FINSUM: Bank of America is the largest US deposit holder, so it has an unparalleled insight into consumer spending. We think this is quite a positive sign.

(New York)

It is finally happening—riskier junk bonds are seeing outflows as investors shy away from the lowest rated credits. Junk bonds have been coated in Teflon for the most part, with the riskiest bonds rallying for several months. But recently, alongside recession fears, investors have been more anxious about how such credits might fare in a downturn. Accordingly, spreads between CCC-rated bonds and BB-rated bonds have jumped to 8%, the highest level since 2016. 

FINSUM: This makes a lot of sense, and is one of the more logical moves in the high yield market we have seen in some time.

(New York)

The muni market has traditionally been a safe haven for investors seeking steady returns. However, things are beginning to change. The huge drop in yields is fueling some very risky behavior in certain corners of the muni bond market. With yields on even the riskiest munis down to about 4%, highly speculative borrowers, such as those building risky mall developments or far-away housing projects are raising muni money through governmental agencies.

FINSUM: Investors need to look out for these kind of deals. However, what could be more troublesome is how they will inevitably end up in many popular funds without investors even having awareness of them.

(New York)

Vanguard made some headlines earlier this month when it re-opened one of its long closed-to-new-investors dividend funds (VDIGX). However, it was not the only fund to reopen, as a whole suite of Vanguard dividend funds are once again available. The funds come in two flavors, active or passive. VDIGX is actively managed and has the best one-year return, but it is almost the most expensive. Check out the firm’s VIG fund (Dividend Appreciation), which has a 11% one-year return and charges only 6 basis points.

FINSUM: This whole suite of funds has a good track record and some have characteristically low fees.

(New York)

What is the biggest risk to the equity market right now. Is it a recession? Is it a trade war? Neither, it is something much more mundane—earnings, at least according to John Hancock Investment Management. Analysts, and the market by extension, are expecting big earnings growth in 2020. And we mean big—the average analyst estimate for S&P 500 earnings growth is 10.5%. That seems like a huge number given that earnings growth in 2019 is set to be only 1%, and has been flat for a couple of quarters. It is made even more unrealistic by the direction of the economy. John Hancock says that defensive sectors like utilities, pipelines, and electricity grids should hold up best in the possibly forthcoming recession.

FINSUM: 10.5% earnings growth in 2020 sounds frankly laughable right now. That said, the market can adjust to these kind of expectations fairly fluidly, so a downturn in expectations may not wound equities all that much.