Equities and bonds moved higher following the October CPI report that came in much softer than expected. As a result, traders increased their bets that the Fed hiking cycle is over, while Fed fund futures showed an increase in the number of rate cuts expected in 2024. Further, odds of a hike at the December meeting went from 21% to 0%, and the market’s consensus for the Fed’s next move is now a 50-basis point cut in July of next year. 

In terms of fixed income, the 2Y Treasury note fell by 20 basis points, while yields on the long end saw similar declines. The data is also supportive that the Fed can successfully achieve a ‘soft landing’ as the economy continues to expand, while it’s managed to make significant progress in terms of battling inflationary pressures. Many market participants didn’t think it would be possible for the Fed to successfully curb inflation without throwing the economy into a recession.

Some of the key takeaways from the report were core CPI hitting a 2-year low, while headline inflation was flat on a monthly basis and up 3.2% on annual basis. Some of the biggest contributors were weakness in energy prices, shelter costs moderating, and small declines in airfare prices and vehicle costs. 

Finsum: Fixed income and equities soared higher following the October CPI report which came in much softer than expected. 

The US Department of Labor is proposing a rule to close loopholes around the fiduciary standard. Specifically, they are looking at rollovers from 401(k) plans to IRAs; products not regulated by the SEC such as indexed annuities and commodities; and recommendations to employers on which funds to offer in 401(k) plans. 

The SEC raised the bar for financial advice in 2019, applying the fiduciary standard to most types of investments. Yet, there are certain areas where the SEC doesn’t have jurisdiction. However, the Department of Labor does have regulatory authority over retirement accounts. 

The fiduciary standard mandates that any investment recommendations need to be made in the best interest of clients and that any conflicts of interest should be disclosed. This has major implications given that nearly 6 million Americans rollover approximately $600 billion into IRAs every year, while 86 million Americans are putting money into their 401(k) plans. Indexed annuity sales were $79 billion in 2022 and expected to easily exceed this amount in 2023. 

According to the administration, hidden costs and junk fees are denting households’ retirement savings by up to 20%. However, there is some pushback as critics contend that these rules will lead to more confusion, expenses for compliance, and eventually negatively affect retirement plans and retirees. 

Finsum: The Biden Administration is looking to expand the fiduciary standard to cover areas that fall outside of the SEC’s jurisdiction such as commodities and fixed annuity products. 

Fixed income ETFs are in demand especially with interest rates over 5% and a cloudy economic outlook with risks like a recession and fears of another surge in inflation. Within the fixed income universe, investors can express their views through duration positioning while still taking advantage of income opportunities.

Many ETFs allow investors to focus on specific parts of the yield curve. The most well-known examples are several Treasury ETFs which range from ultra short-term to 20+ years. Lately, issuers have launched ETFs for single-year strategies for further optimization. 

However, many market participants believe that even more duration-targeting ETFs need to be launched given the disparity of views and volatility that is endemic to a higher rate and inflation environment. While there is an abundance of options in the US, there are less options in the UK and EU.

As the fixed income ETF market grows, duration-focused ETFs will continue to be a major area of growth especially as more institutional investors are embracing the asset class and driving demand for these products. Many are also of the opinion that higher rates will lead to an environment of increased volatility, shorter cycles, and faster moves. Additionally, these options will be even more imperative for allocators who are investing in shorter timeframes. 

Finsum: The fixed income ETF market is growing rapidly. Along with inflows and an increase in volatility, several ETFs have been launched that are focused on a specific part of the curve.  

Japanese stocks have been mired in a multi-decade bear market since 1990. Remarkably, Japanese equities had an annual gain of -0.3% between 1990 and 2023. Some of the major reasons for this poor performance was that stocks become extremely expensive at the peak in 1990, companies were less profitable than European and US competitors, deflation was raging, and the currency was also very strong which hurt exports.

Now, we are at the opposite end of the spectrum in many ways. Japanese companies are flush with cash and have low levels of debt. Deflation is no longer a threat, while the Japanese yen has weakened and become quite competitive with other countries. On the aggregate, profit margins have risen from 3% to 5.5% since the early 90s. In turn, Japanese stocks have returned 7.4% annually since 2010. 

Another positive development for equities is that activist investors have been successful in unlocking shareholder value on balance sheets. The government is also actively encouraging consolidation within fragmented industries and companies to focus on maximizing shareholder value. 

Despite these initiatives, Japanese stocks still remain quite cheap with half of companies trading below book value. Yet, there is some compelling evidence to believe that Japanese stocks have more upsides given this combination of catalysts.

Finsum: Japanese stocks are quite cheap relative to the rest of the world. In addition, there have been quite a few positive developments in recent years in terms of corporate behavior and government policy.

Financial advisors can increase their chances of success of landing Generation Z clients by understanding their generational preferences. Many of these younger investors have an intuitive relationship with technology, so they are interested in digital solutions which will give them a more interactive experience. At the same time, they are also accustomed to having instant access to information.

Therefore, it’s prudent to have the right tech stack in place to facilitate this in addition to a comprehensive digital marketing and communication strategy. This includes social media, interactive content, and other tools to increase engagement. These can also be effective mediums for advisors to show their personality and knowledge to build a more authentic connection with prospects. A successful and repeatable strategy is to offer a free financial assessment which can be an effective lead-generation tool and more effective for younger investors than a phone call or face-to-face meeting.

Many in this generation are also enamored with newer asset classes like cryptocurrencies, so advisors should be able to engage on these topics. In terms of soft skills, advisors should cultivate an air of approachability, relevance, and empathy to increase their appeal.  

Finsum: Gen Z is coming of age and will soon be entering their 30s. Here are some tips on how to appeal to this demographic.