(New York)

The market has been highly topsy turvy lately. With no real direction, stocks have been swinging back and forth based on economic and COVID news from day to day. With this kind of market looking likely for the near term, Goldman laid out some of its best picks for this kind of environment. Speaking about the market generally, the bank said “Consensus expects 9% upside to the typical stock over the next 12 months and volatility should remain elevated through the rest of the year, suggesting low risk-adjusted returns in the coming months.” Its stock picks included: Merck, Verizon, Philip Morris, General Motors, Comcast, Mondelez, and Coca-Cola.

FINSUM: A lot of old blue chips here whose earnings aren’t likely to be hurt too much by COVID.

(San Francisco)

Facebook’s stock has taken a hit lately, and with good reason. Several large businesses have announced boycotts of Facebook because of their poor record on hate speech. A recent survey found a third of top US brands are planning to suspend their social media spending soon. That spending is of course not just limited to Facebook, but Twitter, and others as well. According to the World Federation of Advertiser’s, a trade body covering 90% of the world’s ad spending, the survey of 58 WFA members who account for $90 bn of ad spend worldwide found that combined with the one-third just mentioned, an additional 41% were still undecided about whether to pause campaigns. According to the CEO of the WFA, “In all candour, it feels like a turning point … What’s striking is the number of brands who are saying they are reassessing their longer-term media allocation strategies and demanding structural changes in the way platforms address racial intolerance, hate speech and harmful content”.

FINSUM: Hard to tell if this could be a sustained movement that could really hurt Facebook and other social media companies, or this will just be a few-week flash in the pan that will make no real difference. Our view is that the social media companies will respond strongly now that it is threatening revenue, and the advertisers will quickly fall back in line because the social media platforms are the bedrock of current customer acquisition strategies.

(Washington)

Most advisors will have heard of Michael Kitces’ lawsuit to try to stop Reg BI from implementation. This lawsuit, often cited in media as XY Planning Network, is an effort by the RIA planning group to block the lawsuit. XY says that the new Reg BI does not represent Congress’ intent with the Dodd-Frank Act, and that it does not creative a uniform standard of conduct for brokers and advisors as the 2010 law intended. Seven states joined the XY effort, but last week a US circuit court of appeals upheld the SEC. This means Kitces and the team may try to take the rule to the Supreme Court.

FINSUM: This effort seems completely doomed to us. In Kitces’ own words “Courts do tend to give [government regulators] deference and the bar is fairly high to prove that they misunderstood the law itself and did not apply it properly”.

(New York)

While some are saying that we are in “TINA” mode with equities (i.e. there is no alternative), high yield bonds have been seeing a big influx of demand. Because dividends are drying up in the stock market, high yield bonds are becoming increasingly attractive, and Bank of America thinks they are going to do well. They point out that yields in some bonds are much higher than similar yields on equities in the same sector and they expect spreads to tighten in the coming quarter. “While the easy money was last quarter, we still see many tailwinds to nudge high-yield spreads tighter in Q3...Markets should be treated to plenty of positive data surprises now that economies are exiting their lockdown hibernation…an essential ingredient for leveraged credit to perform.”

FINSUM: This seems like a reasonable call, but we think the positive data surprises might be a stretch. That said, yield-hungry investors will likely keep the high-yield space humming along.

(Washington)

In a week that saw American COVID cases surge and claim one quarter of all the world’s 10m cases, the US health secretary said that the US may not be able to contain the virus. The US has recently seen a huge jump in cases, with only two states showing a weekly decline in cases. This has led to speculation that the virus may be completely uncontained in the country. Health secretary Alex Azar appeared to acknowledge this, and when discussing containing the virus, he said “The window is closing…”, and that the southern US was seeing the worst of the flare up.

FINSUM: All the hopes that warm weather would hurt the virus have been proven wrong—the hottest places in the country are having the worst outbreaks! How does one price the odds of another economic decline because of this surge?