(New York)

Well they might not have exactly said what is in this headline, but they might as well have. The bank is urging investors to rotate into European equities and out of US stocks, shifting the former to “overweight” and the latter to “neutral”. The bank argues that European stocks represent a much better value after their underperformance over the last year. They believe European stocks have a great deal of upside and look close to “outright cheap”.

FINSUM: European stocks do seem to have a lot more room to move higher, but they also have a giant morass staring them in the eye called Brexit.

(San Francisco)

2019’s IPOs could hardly have gone worse. If you take the average performance of the top IPOs this year—Lyft, Uber, Pinterest, and Chewy—you see a loss of 30%. That is phenomenally poor considering the hype of these companies coming into their IPOs. And what’s worse, that figure doesn’t even count the worst one of all—the failed WeWork IPO. However, one company which looks like it has suffered unnecessarily and deserves a long-term bet is Slack, the office communications technology. It has a highly sticky user base and is not burning cash at anything close to the rate of the others. Users report that it is almost impossible to stop using Slack’s service once your office has converted to it.

FINSUM: Slack is essentially trying to replace internal office email. That is a long road but there has been a lot of early success. It seems like it is worth of a long term bet, especially after selling off by 43% this year.

(New York)

Over the last few years, Goldman Sachs has undertaken one of the biggest bets in its history. It is trying to change its DNA as a pillar of high finance to become a broad financial services company that includes a large consumer-facing business. This led to the launch of its new business, Marcus, which is a consumer investment and lending unit. So far, the results have not been pretty. The bank has lost about $1.3 bn from investing in Marcus, and the default rates on its loans have been much higher than average, causing it to pull back from the space somewhat. It has also caused a lot of internal tension at the bank, with many senior partners leaving as the company completely overhauls itself. On the positive side, the bank has pulled in $50 bn in consumer deposits, which is a new source of funding it never thought it would have access to.

FINSUM: Goldman’s stock is still at 2014 levels. That says it all.

(New York)

The market has been very up and down lately. 50 bp losses or gains in a day feel pretty standard by now. But all of that may be wreaking havoc on investors’ nerves and portfolios. So what is the best way to hedge against the volatility? Most low volatility funds invest in stocks with a low beta, or those that change little compared to market movements. However, there may be an even better way to go about hedging. AGF has an ETF call BTAL, which not only buys low beta names, but also shorts high beta ones, all in equal weight with equal sector balance. In bouts of volatility, those shorts tend to really help gains in a way that holding long-only positions does not.

FINSUM: This seems like a smart approach that gives a sophisticated level of protection to investors. Worth a look.

(Washington)

It had seemed somewhat of a formality to this point, but it is now official: Eugene Scalia has been confirmed by the Senate as the head of the Department of Labor. Scalia has long been a legal crusader against both financial regulations and worker’s rights, and will now take the helm of what is likely to be a very different Department of Justice. This has made opponents of the the fiduciary rule 2.0 cheer. However, Scalia announced recently he may have to recuse himself from being involved in that regulation given government ethics guidelines. Still, many argue that his influence will mean the DOL moves in a much more conservative direction on all fronts.

FINSUM: The fiduciary rule seems like the biggest thing the DOL has going at the moment (at least it seems that way if you are in wealth management). This seems to be backed up by how much political attention it is getting. It is hard to see him not being involved, or at least heavily influencing the approach, even if he is not directly taking part.

(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.