There is a growing sentiment to regulate the technology sector, and that push isn’t isolated to just the U.S., the rest of Europe is planning on changing regulations as well. However, despite this potential crackdown on the fastest growing sector for over two decades, Morgan Stanley remains bullish on many digital advertising companies like Alphabet, Meta Platforms, Snap, and Pinterest. While Morgan Stanley says there is a bear case, the base case is quite positive for tech companies and the odds of extremely tight regulation cracking down are long. The worst case scenario would be if the U.S. adopted some Euro area approaches to regulation, and whistleblowers would become commonplace in tech.

FINSUM: The moderate regulation scenario is already priced into tech stocks in the U.S. so unless Congress fully revamps its regulation tech stock looks to be bullish.

Sweeping changes to the financial regulatory landscape are coming quickly. Stemming from changes to the interpretation of a Trump-age exemption are widening the regulatory umbrella. The U.S. The Labor Department is pushing a variety of accounts including annuities to be included in this expansion. Hidden and/or lofty fees in these areas are the source of the concern and lawmakers want the ‘best interests’ of investors in mind. Many companies are sprinting to align themselves with the regulation. Complying will include recordkeeping requirements, new policies and procedures, and new disclosures.

FINSUM: The drastic changes to regulation will really start to come in at the start of the year, and could monumentally alter the annuities market.

Model portfolios are being adopted by advisors at lightening speed, and that is turning itself into one of the fastest growing asset classes. This year model portfolios upped their holdings to $4.9 trillion, almost a 29% increase from the prior year. Companies like BlackRock have really leveraged model portfolios to fight inflation and changes to their portfolios yielded billions in inflows earlier this year. They aren’t just used to hedge against inflation they are being used to pick out ‘fallen angel’ corporate bonds which have a chance to ditch their junk bond status. Model portfolios allow for these tweaks which can more rapidly adjust to the macro changes in the economy.

FINSUM: Model portfolios give investors wider access to more quantitative methods which can outperform in the more volatile times like we are in now.

ETFs have been a fee destroyer since their inception, and advisors/companies have been forced to either play along or bleed AUM. However, direct/custom is putting the power back in in the hands of the advisors. BlackRock, Vanguard, and Morgan Stanley are all buying their way into the direct indexing craze. Direct Indexing is giving investors and advisors the best of both active and passive investing worlds. While stock picking might not have the best record, starting from a base index and then stripping or adding based on preference could give investors. Custom Indexing can be for a preference for/or against a stock but more importantly it gives investors the reins when it comes to their tax burdens.

FINSUM: Direct Indexing is the goldilocks solution to the low fee/advisor specialty conundrum, and will be the dominant trend in investing over the next decade.

Talks were making progress on the state and local tax reductions but they hit a wall this week. Democrats are splitting on the SALT deduction, specifically Senator Bernie Sanders has withdrawn from the previously agreed to plan. Democrats have been in agreement for a 10-year revenue neutral deduction, but Sanders wants to use the SALT deduction to be a revenue generator and use the multiple hundred billion dollars in revenue to pay for vision and dental in a Medicare expansion. The biggest disagreement is what incomes would be eligible for the unlimited benefit; Sanders wants to set the market at $400k while most democrats feel the limit should be $550k. Overall the current SALT write offs in the Build Back Better bill give up to $80k in write offs and this is too much for Senator Sanders.

FINSUM: Holding up the BBB for a SALT deduction is a small grievance. These deductions were revenue neutral which should be a bi-partisan victory.