(New York)

“We think U.S. growth may have just peaked”, says the chief US economist for Barclays Capital. The US is coming off a strong GDP report, but the reality is that growth fell from 4.2% in the third quarter to 3.5% in third quarter. Most economists say that will slow to 2.5% in the first quarter of 2019, and 2.3% one year from now. In other words, the economy has already seen “as good as it gets” and we are past-peak. Most expect consumer spending and business investment to stall as the benefits of the tax cuts wane, weighing on the economy.

FINSUM: It is hard to imagine the economy getting better than it has been this year. Furthermore, we have a hard time believing it is going to slow down as gradually as the forecasts. We think a more abrupt recession is probably more likely.

(New York)

There is a significant minority of investors who have a very particular worry about the Treasury market right now. That worry is that foreign demand for Treasuries is slumping, which could cause a big sell-off or sustained period of losses. The potential issue has two parts—the first is that a huge amount of Treasury issuance is set to take place, the second is that foreign holdings of Treasuries are at their lowest in 15 years. The combination of seemingly low demand with high supply is making some think the bonds could be in for a rout alongside forthcoming auctions. JP Morgan strategists estimate that yields on Treasuries will rise 7-8 basis points for every $200 bn of Treasuries sold. Foreigners hold $6.3 tn of Treasuries.

FINSUM: This could be a problem, but given that central bank reserves have not been growing, it makes sense that foreign Treasury holdings haven’t either. Foreign governments still need Dollar liquidity, so there is a built in demand for Treasuries which we think won’t simply evaporate.

(New York)

So where is the market headed next? That is the question on every investor’s mind. Guggenheim Partners’ CIO has just made a bold call. His answer—much higher. He argues that stocks are strong and increasingly cheap, which will spark a rally. “Stocks are cheap based on forward multiples and should rally by 15%-20% from here unless policy uncertainty around China and tariffs remains in place”. He continued, saying “I think we’re going through a classic seasonal adjustment”, but that it is paving the way for a move higher.

FINSUM: We think that once the panic passes, which it may have this weekend, investors will realize that stocks are less expensive than before Trump was elected and the economy is going strongly.

(New York)

One of the big questions in this market fall is why junk bonds aren’t tumbling in tandem with stocks. Generally speaking, high yield bonds trade in the same direction as small cap stocks as they are driven more by company fundamentals than other areas of the bond market. However, in the recent rout, this was not the case, as junk bonds have continued to perform well. When both markets fall in unison, it usually means there is big trouble brewing, but when they have become uncorrelated, it can mean there is a rally to come. For instance, in 2011, small caps fells strongly, but junk only a touch. In the following months, small caps surged 15%.

FINSUM: We think this is a positive sign for small caps, as high yield investors are not worried about company fundamentals.

(Detroit)

Many might not think of it this way, but automotive stocks are good leading indicators of the economy. Between the top car companies and auto parts suppliers, the car business creates a little shy of $3 tn in sales per year. But the market is not well at the moment. Big car company shares are down 13% this year, while suppliers have fallen 24% (not one of the top 25 has risen). Interestingly, though, vehicle sales have not fallen yet and are still strong, as they often are when unemployment is falling and consumer confidence is high. The trouble may be in China, where sales are weakening, but the key point is that there is a lot of pessimism on auto shares.

FINSUM: It is important to remember that aside from the economic factors, car companies are under a disruptive threat from technology (e.g. self-driving cars and Silicon Valley), which may be contributing to the poor performance.

(New York)

Yesterday’s relief rally has already turned sour. Earnings out of Amazon and Google greatly disappointed the market and shot the Nasdaq down as far as 3% in premarket trading. However, despite all the trouble, Wells Fargo says it is the best time to buy stocks since before Trump’s presidency. According to the head of the Wells Fargo Investment Institute, “We believe that this isn’t the end of the cycle or the bull market, and we favor deploying cash now—or even allocating incrementally over the coming days and weeks”, continuing “Current conditions have the potential to create some of the best entry points into equity markets since the November 2016 elections”. That said, Wells Fargo acknowledges that we are at the end of the “easy period” of low volatility and an accommodative Fed.

FINSUM: It is anybody’s guess as to whether this view is right, but we reluctantly tend to agree that stocks are probably going to recover from this bout of volatility sooner rather than later.

(Washington)

For the most part, President Trump has been seen as quite positive for markets. The big rally in his first year cemented that idea, and for most of this year, stocks were in good shape. However, here is an interesting fact—equity valuations are now lower than when he took office. As the media puts it, “the Trump Bump is turning into the Trump discount”.

FINSUM: Two thoughts occur here. The first is that a big reason why valuations have fallen is because earnings are so good, and a lot of that has to do with the Republican-led tax package, so it is not fair to turn that into a negative. Secondly, most of the market trouble stems from the trade war, so it is more an isolated case of policy than a broad effect. In fact, what could be better than good share appreciation without a rise in valuations? It is exactly what you are looking for as an investor—something that earns well but doesn’t look increasingly overpriced.

(New York)

The reality is that the Fed has been hiking steadily, and investors should expect 2-3 more hikes in 2019. That means that adjusting one’s portfolio is a must. One thing to remember is that there are now plenty of ETFs that are designed to not lose from rates rising and still give an easy 2-3% yield. This is a big change from the post-Crisis paradigm, where safety meant negligible yields. One conservative way to play the environment is the SPDR Barclays 1-3 Treasury Bill ETF (BIL). Another is the iShares Floating Rate Bond ETF (FLOT), which only yields 2.5%, but with very little rate risk. One much more intriguing option is the WisdomTree Barclays U.S. Aggregate Bond Negative Duration ETF (AGDN). This fund holds a long bond position coupled with a short Treasury position with a target duration of -5 years, meaning it is designed to gain when rates rise.

FINSUM: This is a good selection of ETFs, and that Wisdomtree option looks quite interesting. It truly seems a way to profit as rates rise.

(New York)

The market is not doing well this month. That is probably a serious understatement, in fact. Yet, that leaves room for opportunity, both in aggregate, but also in specific shares that might lead in these tougher times. Retail is an interesting choice right now, as the economy is still doing well and we are headed into the busy holiday shopping period. With that in mind, take a look at Gap, Foot Locker, and Michael Kors Holdings, all of which look cheap “relative to their respective sectors” and have “identifiable catalysts between now and year-end”, according to analysts at Jefferies.

FINSUM: Retail is interesting to us at present because it is not overly rate sensitive and is heading into its strongest period of the year right when the economy is looking best. That said, we are worried about consumer spending falling on the back of these equity losses.

(Houston)

The oil market has been in an interesting period since at least 2014. In the years prior, many had been worried about the concept of peak oil, or the idea that the world was past its peak output of oil and that supply would grow ever tighter. Then the shale boom happened and the world was suddenly floating in the stuff, causing prices to plummet. Now we are somewhere back in the middle as there are genuine concerns about supply at the same time as growing demand. Shale growth is slowing in the face of capital constraints and pipeline issues, and “The Saudis are just about out of spare capacity”, according to a top energy adviser.

FINSUM: We think the concerns over supply are legitimate enough that they will be supportive of prices even if we are slowly headed towards recession. That said, we think more supply will come to market to meet demand than many anticipate.