(New York)

If there were ever a small cap sector overwhelmed by their larger cousins, it would be in technology. Small cap tech stocks are so overshadowed by FAANGs and the like that one would be forgiven for not even realizing they exist. However, they do, and they may very well be a good buy at the moment. The S&P 600 Small-Cap Technology currently trades at half the valuation of the S&P 500 Technology index, way down from its historical spread. What’s more, profit estimates are healthier too. Calling small cap stocks “mini-fangs”, Leuthold Group argues that “the mini-Fangs offer a significantly higher growth profile at a substantially lower valuation”.

FINSUM: A couple notes here. Firstly, the FAANGs aren’t even really “tech” stocks anymore after the sector realignment, so the valuation comparisons are not perfect. Secondly, what is the catalyst? Leuthold argues that if the economy does a little better than expected then higher inflation will boost tech stocks. That sounds flimsy.

(New York)

It may seem overly bearish right now, but put this one in the “take note” category. A hedge fund manager on Bloomberg yesterday argued that the market looks set for a bear market downturn very similar to last year. According to the manager, a mix of liquidity constraints, insufficient Fed support, and large geopolitical issues, could all combine to drive prices down 20% or more in benchmark indices. The most interesting part of this argument is that he contends the pressures will create this downturn in the next few weeks.

FINSUM: Last year’s bear market was principally about investors worrying the Fed would hike the market into a recession. That is a completely different backdrop from right now. We don’t discount the chances for a downturn, but this logic does not seem sound to us.

(New York)

The likelihood of a recession is growing. Weak manufacturing data this week accompanied by poor jobs data this morning is once again driving fears that the economy may be headed for a downturn. Accordingly, Goldman has put out a recommendation for the best stocks to hold for the forthcoming recession. According to the bank, stable growth stocks fare best in an environment of slowing growth and rising uncertainty. As a reminder, stable growth stocks are those on the less risky end of the growth curve, a group which has been underperforming fast-growing stocks by a considerable margin. Some names to look at include Fiserv, Autozone, Amdocs, Omnicom, Johnson & Johnson, and Walmart.

FINSUM: We quite like Autozone and Walmart for their consumer-staple characteristics and unique abilities to hold up well in a recession.

(New York)

Remember when everyone was really worried about corporate bonds several months ago? A lot of that anxiety faded as yields tumbled. That led companies to once again issue mountains of debt this year. Now, we are circling back towards worries over a recession, and with that progression there is reason to worry about corporate bonds, especially the BBB variety. The big anxiety, as ever is that a whole section of the BBB bonds universe (the lowest rung of investment grade) will get downgraded to junk status in a recession, causing a massive selloff.

FINSUM: So these fears are not new, but the likelihood of a recession appears to be growing. Here is what really worries us—the BBB market is enormous, amounting to $3 tn in the US versus just $1.2 tn for the whole high yield bond market.

(New York)

It was uncertain for a while, and still is, but markets are increasingly expecting the Fed to cut rates again this month. Investors now put around a 75% chance that the Fed will slash rates by another 25 bp this month. The interesting thing is at the beginning of this week, the market’s odds were under 40%. However, the release of weak manufacturing data a few days ago sent expectations surging that the Fed would once again step in.

FINSUM: New jobs report data out today will only bolster the case for further rate cuts.

(New York)

The Dow is oversold. That is what at least one Wall Street analyst (and Barron’s) is saying. The manufacturing report this week made recession worries flare up in a big way, leading to a sharp sell-off. However, it may only be a matter of time until the Fed’s more accommodative policy starts rippling through the economy with positive benefits. This is arguably already being seen in the housing market, where new and existing home sales were up sharply in August.

FINSUM: The market may be poised for a nice rebound if economic figures start to improve, as prices are currently being held back by recession fears.

(New York)

Charles Schwab may have just changed market access forever. The giant custodian and broker-dealer just announced that it was eliminating all trading commission on stocks, ETFs, and options. It is unclear if it is doing the same for advisors on its platform, but it said it would extend the offer to clients of RIAs who trade on its platforms. TD Ameritrade immediately matched Schwab’s offer within just a few hours. Following the announcements, brokerage stocks plunged. TDA fell about 26% and E*Trade fell 16% to new 52-week lows. Estimates are that the change in fees will depress both TDA and E*Trade’s earnings by 22%.

FINSUM: This is a game-changing move. Hopefully they will extend this to all trades for advisors. This is a brutally competitive landscape and retail investors and advisors are seeing the benefits.

(Seattle)

Microsoft might have a big edge that no one is giving them credit for. That edge? It is the fact that money is pouring into ESG funds, and Microsoft is largely included in that category. Almost all of the top five ESG ETFs are overweight Microsoft, and as ESG continues to draw in more and more capital, that will become an increasingly important advantage for MSFT and other big tech names as well. In fact, many large tech companies are seen as ESG-friendly, so this is a hidden tailwind for several companies, including Google.

FINSUM: ESG ETFs are only going to grow in strength, so this is a nice little bit of momentum that will be pushing tech names higher.

(San Francisco)

It is getting ugly on the left. While big tech companies have always been fairly far-left politically, a new line has just been drawn. In new transcripts just released, Mark Zuckerberg, CEO of Facebook, says he will “go to the mat and fight” with presidential hopeful Elizabeth Warren to stop her plan to break up big tech companies. “If she gets elected president, then I would bet that we will have a legal challenge, and I would bet that we will win the legal challenge. And does that still suck for us? Yeah. I mean, I don’t want to have a major lawsuit against our own government … But look, at the end of the day, if someone’s going to try to threaten something that existential, you go to the mat and you fight”, said Zuckerberg. Warren retorted “What would really ‘suck’ is if we don’t fix a corrupt system that lets giant companies like Facebook engage in illegal anti-competitive practices, stomp on consumer privacy rights, and repeatedly fumble their responsibility to protect our democracy”.

FINSUM: Warren is still a long way from office, but this is a glimpse of what the future would look like should the far-left win the election. Instead of probes and whistleblowers, we would have major courtroom dramas over anti-monopoly measures.

(New York)

Is New York a bellwether of US real estate performance or is it an isolated enclave with no real relevance to the majority of the country? Hard to know, but if the former, then there is a lot to worry about. NY home sales are plummeting and just showed their worst decline since the Financial Crisis. Median sales prices in Q3 dropped 12% from the previous year, the sharpest drop since 2009. Average home value fell below $1m for the first time in four years.

FINSUM: In our opinion, this is idiosyncratic to New York. The city is seeing a huge flux of newly built apartments that are boosting inventory, and at the same time there is a new progressive mansion tax hurting demand.