(New York)

Some investors live and die by it, but all should pay attention. The stock-bond ratio is an old investing indicator that can tell you when one asset class may be ready to head higher, and right now it is sending a strong signal. Ned Davis Research says that the ratio tends to bottom before economic recoveries. Therefore, if we have truly hit the bottom of the current economic cycle, then the ratio (S&P 500 divided by the US long-term treasury bond index) should start improving. “Barring an escalation in the trade war, we should see a recovery in early 2020 based on historical lead times”, said Ned Davis Research.

FINSUM: This is a very handy way to think about, and keep track of, risk-on/risk-off.

(New York)

One thing about the wealth management landscape that has never made much sense is how JP Morgan is not early as big a player as one might expect given the overall strength of its brand. Morgan Stanley and Merrill Lynch hog all the AUM and attention, with JP Morgan and Goldman Sachs mostly on the outside looking in. Well, that may be about to change, as JP Morgan is now planning some big changes to its wealth management business. According to the WSJ “The bank is creating a unit that will combine its U.S. wealth-management operations for affluent clients and the Chase branch network’s financial-advisory business”.

FINSUM: This sounds like a plan to go after mass market wealth management like Morgan Stanley or the Thundering Herd. Could be a big play.

(New York)

Investors should take a look at big banks. Executives at top financial companies are excited about potential Q4 performance. Earnings estimates are moving higher based on more bullish guidance. Last year’s fourth quarter saw a dismal performance from big banks, so that sets up a very favorable comparison to this year. Morgan Stanley’s earnings may be up 41% according to analysts surveyed by Bloomberg.

FINSUM: It will probably be well-telegraphed, but big bank stocks still seem like they might see movement higher now and a pop on earnings releases.

(New York)

Gold had a great first nine months of the year, rising 25%. Since September though, it has been quite bad, falling 7% versus an S&P 500 gain of 10%. So where is it headed? Godman Sachs says the metal still has a strong case. The bank’s research team says “gold’s strategic case is still strong … We expect ‘Fear’-driven investment demand for gold to be supported by late cycle concerns, political uncertainty and high [developing market] household savings”. Even if the Fed increases rates, GS thinks gold will be solid because rates still remain so low, which is a positive for the zero-yielding metal.

FINSUM: If you think the risk-on rally will continue, then stay away. However, if you think the market is going to be flat in 2020 because of political and economic uncertainty, then gold is at a decent buying point right now.

(New York)

Despite all the worries that plagued the market this year, things have actually been very strong. Exceedingly so. But don’t expect that any longer, says Blackrock. The world’s largest asset manager expects returns in 2020 to come way down. The firm says that the big changes in monetary policy this year outweighed the geopolitical issues and caused huge returns, which won’t happen next year. Blackrock thinks returns in the mid single digits in 2020 seem realistic.

FINSUM: This is sort of a middle of the road call in terms of forecasted numbers, but we like the summary of what happened this year and how next year’s performance is not likely to be duplicated.

(Atlanta)

Expectations of higher compensation and more “freedom” usually top the list of articles that discuss why advisors are breaking away from large brokers. However, there is more to it than that. An interesting piece in Financial Planning tells the story of a team breaking away from Merrill Lynch. In reality it is not just comp that is an issue, and it s rarely the sole reason for breaking away. Often times it has to do with institutional limitations, like corporate bureaucracy, a bad branch manager, or small clients getting funneled to call centers. Other times it is because advisors are offering tons of service, like tax planning, cash flow management, loan refinancing etc that they just don’t get paid for.

FINSUM: This is a good piece that goes deeper than usual in exploring the real reasons advisors leave and whether doing so is a good idea.

(Chicago)

Small cap stocks are starting to have their day in the sun. The Russell 200 has started to catch up to large cap indexes this autumn, and some stocks look ready to surge. The index is now up 21.2% for the year, just a few points behind the S&P 500’s 25.5%. According to Merrill Lynch, economic recoveries “tend to be the best phase for small-caps …That’s one key reason we think we could be poised for a shift from large to small”. According to a Jefferies analyst, “I think small is primed to outperform as the economy and earnings improve in 2020 … That’s going to be the whole ballgame”.

FINSUM: It is hard to imagine the US is going to enter an “economic recovery phase” at the end of a ten-year bull run, but the market’s perception of the current economy is exactly that, so these forecasts might be spot on.

(New York)

If one thing is for sure about markets at the moment, it is that investors are less worried about the economy and less stressed about the chances of a bear market. That is exactly why the market is at risk. The market’s fear index, the VIX, jumped a whopping 16% yesterday, signaling some underlying anxiety building after a calm and positive stretch. One of the factors that is looming over markets is whether the tariff deadlines on China get delayed or not, which will be a sign of progress or failure on the trade deal. Further, fears over the election, and higher rates, are likely to dampen corporate spending and slow the economy.

FINSUM: Our worry is that the anxiety level at the moment does not seem to be matching the real risk, which ironically is when the chance of a market downturn is at its highest.

(New York)

One of the first big changes under new Goldman CEO David Solomon is becoming clear. That first major move is in wealth management, where Goldman is attempting to push much more broadly into the market. The bank plans to launch a robo advisor to get people with as little as $5,000 to invest to join its offering. Goldman has traditionally gone after very wealthy clients ($10m+), so this is a major change of pace for the the bank and is more in line with its recent increased focus on mass market savings products. A senior figure at Goldman explained “It’s a pipeline for future clients” to allow them to “experience the Goldman Sachs’ way”.

FINSUM: Goldman seems to believe it has stretched the high end of its market (big corps and UHNWIs) as far as it could go, and this is just the next logical area for growth. The challenge here is that we don’t think the Goldman name has the same cache with the mass market that it does with the HNW market.

(New York)

One of the big worries on small RIAs’ minds right now is whether Schwab is going to leave them out on an island to wither. Small RIAs have always been the bread and butter market for TD Ameritrade, but with its recent acquisition by Schwab, that could all change—such is the fear of the small independent shop. However, Schwab has taken a couple of moves that seem to indicate they are not going to forget about the group. In particular, they have hired Tom Bradley from TDA, who for years ran TDA’s RIA custody business, to lead the new combined effort.

FINSUM: There is still a good degree of doubt over whether Schwab will mainly focus on its institutional clients and large RIAs, but this is a sign that Schwab is not likely to forget about its small RIAs.