(New York)

Investors seem to have stopped worrying about it, but a recession is still in the cards. Ever since the Fed backed off, the market seems to have forgotten that we are likely at the very end of an economic cycle. However, most economists are differing from investors, as the majority are still calling for a recession by 2021. That is the view of over 75% of US business economists, with most still saying the Fed will continue hiking this year. 52% of those surveyed said a recession would start this year or next.

FINSUM: It is interesting to see how out-of-touch economists and investors are. A recession by 2021 sounds very reasonable to us, but the Fed continuing to hike this year does not.

(San Francisco)

Have you been upset about missing out on some of the big tech companies in the last decade? Well, your chance to buy in is coming; or at least that is what Wall Street’s bankers want you to think. A string of big tech IPOs appear to be in the works. From Lyft, to Uber, and featuring Pinterest, Airbnb, Slack, and WeWork, a big Silicon Valley roadshow is coming to the market this year and next. The major question is how the companies will fair once public. The tech market has been hurt recently, and public market valuations have been wounded.

FINSUM: These companies have massive private market valuations, and it seems like they will underperform a bit when they do finally debut (at least in the short-term). That said, a couple of them will likely turn into incredible long-term holds.

(Washington)

Several weeks ago the Fed slammed the brakes on more rates rises. The market has taken a deep sigh of relief to the tune of major gains in stock indexes. But within the pause is a more sophisticated, and perhaps more consequential, rethink of the Fed’s goals. The Fed is puzzled by weakness in inflation. With the labor market so tight, inflation should be rising strongly. Yet it has failed to reach the Fed’s two percent goal and appears to be weakening again. Accordingly, there are discussions going on internally at the Fed, about the disconnect and how to approach it.

FINSUM: There is a major question here—will the Fed revise its target higher and take a more aggressive approach to boosting the economy, or will it leave the target at 2% and be content. In either scenario, rates look unlikely to rise soon.

(New York)

One of the best ways to pick stocks is to look at insider purchases. When those in-the-know on a company are buying stock with their own money, it is a probably a good time to pay attention. Well, one well-known but dormant stock (in terms of insider purchases) just saw a significant move—Goodyear. One of the rubber company’s board members just spent about $650,000 to buy 35,000 shares of the company. There has not been an insider purchase that large at Goodyear since at least 2004.

FINSUM: We obviously don’t know the catalyst for this buy, but the chatter about how tire companies will benefit in the long-term from self-driving cars (i.e. more miles driven because it is cheaper to keep the cars moving than park them) seems like a strong fundamental.

(New York)

Next week is going to be a media circus, as the odds of real Trump fireworks look likely to surge. The reason why is that Michael Cohen is going to testify at an open public hearing before the House Oversight Committee next Thursday. The committee, seemingly defending its actions, commented that “Congress has an obligation under the Constitution to conduct independent and robust oversight of the Executive Branch, and this hearing is one step in that process”. The questions Cohen will answer will concern hush money payments, potential Trump conflicts of interest etc, but will not touch on Mueller’s probe into Russian interference.

FINSUM: No matter how you feel about Cohen, or whether you think this is just political theatre, the odds of a media bombshell, true or not, seem high.

(New York)

There is a big development happening in fund management. That is change is that fundamental and quantitative approaches are merging. Often, funds are no longer purely fundamental or quantitative, but instead merge the two, creating a whole new category which is starting to be referred to as “quantamental”. In its most simple form, quantamental often looks like a multi-factor ETF that also includes some continuous “human” intervention, such as reducing statistical quirks. However, more sophisticated approaches truly blend the two, using human skill to analyze stocks which are sending promising technical signals.

FINSUM: We are pretty fond of the principles which underpin quantamental approaches as they seem to take the best aspects of both philosophies. Time will tell if the approach is a winner in a broad sense.

(New York)

Quantitative ETFs are growing in popularity. Using rules-based approaches to stock-picking is cost effective and has proven successful in many cases, making quantitative methods a good fit for ETFs. With that in mind, here are seven of the best quantitative ETFs: QuantX Dynamic Beta US Equity ETF (XUSA, 0.59% fee), Hull Tactical US ETF (HTUS, 0.92% fee), Cambria Global Momentum ETF (GMOM, 1.03% fee), U.S. Quantitative Value ETF (QVAL, 0.49% fee), IQ Chaikin U.S. Small Cap ETF (CSML, 0.35% fee), Vesper US Large Cap Short-Term Reversal Strategy ETF (UTRN, 0.75%), and the SPDR MFS Systematic Growth Equity ETF (SYG, 0.61% fee).

FINSUM: CSML was the most interesting of the group for us, as we think there is more alpha to be had in small caps with these sorts of approaches. We also ran this story in case anyone has clients who have been asking for more quant funds.

(New York)

If history is any indication, the big surge in stocks that has started this year seems likely to continue. Markets have had a great week and the S&P 500 is up 11% on the year. Prices are only 5.3% off their all-time high. That bodes well because stocks tend to track their first two-month performance for the rest of the year. 64% of the time stocks continue to perform throughout the year just like they did in January and February. The last time the S&P 500 climbed more than 10% in January and February (1991), it rose an additional 14% for the year.

FINSUM: Stocks are in a sweet spot right now, with the Fed having backed off and trade fears easing. That seems likely to stay in place for a while, but we wonder if any stresses related to the 2020 election might start to weight on the market later this year.

(New York)

The yield curve narrowed continuously throughout most of 2018. The spread between 2- and 10-year Treasuries fell to just over 9 basis points in December and sits at 14 now. Where is it headed? The answer is likely towards an inversion. The Fed is releasing its minutes, and once it does, it seems likely the spread will continue to narrow. There are two scenarios that would likely create an inversion. The first is if the Fed minutes show that the central bank may raise rates again soon (sending short term yields higher). The other, and perhaps more likely, scenario is that the Fed expresses some anxiety about a recession (pushing long-term yields lower).

FINSUM: This is interesting because the two most likely scenarios for what the Fed might say/do in the near-term both add up to the same thing—a yield curve inversion.

(New York)

Along with warehouse growth, data center expansion is one of the hottest areas of commercial real estate. So how to play it? These REITs were hit pretty hard at the end of the year, but they are now making a strong comeback. The big driver at the macro level is demand for cloud services and the growth of AI, both of which increase the need for data center space. Four stocks to look at are Equinix, CoreSite Realty (COR), Iron Mountain (IRM), and InterXion Holding (INXN).

FINSUM: Data centers seem to have some strong growth drivers behind them, and along with warehouses, we think they are strong ideas for REITs.