(New York)

If there was ever a counterintuitive sentence about stocks, it is the title to this article. However, that is what has proven to be true in the past. According to research produced by the Wall Street Journal, stock markets tend to perform poorly after great earnings seasons. The study found that over the last seven years, both US and European stocks tend to perform poorly following great earnings. Perhaps even more interestingly, when earnings undershot estimates, stocks tended to perform better than average.

FINSUM: This is a tough one to explain except by taking account of markets’ pre-pricing of earnings. Nonetheless, something of which to be mindful.

(New York)

Morgan Stanley has put out a unique list of stocks. The bank has published a piece outlining what it sees as the thirty best stocks for the medium term. The picks are based on having a sustainable competitive advantage and were viewed as having the best chance in this sideways-moving market. Some of the picks include: Accenture, Alphabet, BlackRock, BNY Mellon, Charles Schwab, Dollar General, JP Morgan, Microsoft, Salesforce.com.

FINSUM: This is a very interesting list, especially because it is cross-sector (which does not happen as much given the sector-first structure of equity research). It was also particularly useful that many of these names are in wealth or asset management, allowing advisors special insight.

(New York)

Investors beware, credit quality is quickly eroding in the real estate sector. While lending standards started strong after the Crisis, they have eroded significantly in the last few years as investor demand for yields has pushed lenders further down the credit spectrum and eroded protections. The credit quality of both prime and sub-prime borrowers has fallen and the popularity of CRT (credit risk transfer) securities, or mortgage bonds not fully backed by Fannie and Freddie, has risen. Worryingly, yields have not reacted to the decline in quality, as such risky CRT bonds have recently traded at less than a 100 bp premium to Treasuries.

FINSUM: So the big worry with mortgage bonds is that they always collapse faster than any model can predict. Because mortgage payments are so linked to the underlying economy and employment, when a recession happens, the defaults just flood in. We could be headed in that direction.

(New York)

The long-time biggest bond shop on Wall Street (actually they are in California) has just put out a stark warning to investors—ten-year Treasuries are going to hit 3.5% in the near term. The manager thinks yields will make it to that level this year but then stall. Above 3.5%, they say, yields would have a detrimental effect on growth and that as yields rise investors will be moving their money into different asset classes.

FINSUM: A 3.5% yield on the ten-year would be a pretty attractive proposition to many, and it seems likely that given how that figure would be simultaneously appealing and a warning of poor future growth, investors will likely move out of equities.

(Seattle)

How Amazon plans to use Whole Foods as part of its broader strategy is becoming clearer today. The company has announced that it will begin to offer significant discounts on hundreds of products, in addition to special offers, for Amazon Prime members who shop at Whole Foods. The company already has great Prime penetration of Whole Foods shoppers (75%), but less than 20% of Amazon Prime members shop at Whole Foods. The perks are a way to lure more Prime members into Whole Foods. The company seems likely to use the increased sales to offset any cost rises to its Prime service.

FINSUM: This seems like a good idea as the move will feed both its Prime business and Whole Foods.