(Dallas)

Markets tumbled yesterday, and it appeared to happen mostly because of the resignation that a second wave of COVID-19 was forming across the US. In several recently reopened states the number of hospitalizations has been surging, leading investors to fear that more lockdowns—and their corresponding economic damage—could be on the way. Top epidemiologists have been warning of a second wave, and one leading doctor said he worries about states reopening before they have the virus truly under control. “My worry is that we end up in a kind of stuttering, endless loop”, says Dr. Schneider of The Commonwealth Fund.

FINSUM: The market was priced for perfection, and a big second wave didn’t fit that narrative. Hence the 6% fall yesterday. Going to be choppy for a while as the market’s bad news antenna is back up.

(Washington)

We have some interesting new information about the recently re-drafted DOL fiduciary rule. Last week, the DOL sent what is largely considered to be its new fiduciary rule—entitled “Improving Investment Advice for Workers & Retirees Exemption”—to the OMB. The rule’s text has not been released, so to this point there has only been speculation about its contents. That said, a top industry lawyer familiar with the current process has said he expects the rule to have very close coordination with the SEC’s Reg BI. So much so, in fact that the lawyer—George Michael Gerstein, co-chair of the fiduciary governance group at Stradley Ronon Stevens & Young—expects if a firm is abiding by Reg BI it would likely be entirely exempt from the fiduciary rule. In his own words, “The DOL leadership under President [Donald] Trump has emphasized that they want the SEC to take the lead in terms of conflict of interest regulations, particularly when it comes to brokerage practices. It now seems likely that, if a broker/dealer [B/D] engages in actions that amount to providing investment advice under the Employee Retirement Income Security Act [ERISA], to the extent that the entity complies with Reg BI, that will be sufficient for meeting ERISA’s fiduciary duties.”

FINSUM: It sounds like Reg BI is going to be the dominant rule, and that anyone abiding by it may be exempt from DOL enforcement. This will likely be music to the ears of many in the industry.

(Chicago)

You might not pay much attention to them—most don’t—but closed end muni funds are an excellent deal right now. They are offering high yields relative to other fixed income peers. For example, you can readily get 5% yields on CEF muni funds, equivalent to an 8.45% taxable yield if you are in the top tax bracket. And to be clear, these are not junk muni bonds. The reason yields are so strong is leverage gained from borrowing money at short-term interest rates and buying longer-term bonds. That usually creates a risk that short-term rates could rise, causing losses. However, given the Fed’s position right now, that seems highly unlikely.

FINSUM: This is an ideal time to by CEF muni funds given the low rate risk and solid overall yields. Check out BlackRock’s MFT (5.39% yield), Putnam’s PMM (5.18%), or BNY Mellon’s LEO (5.56%).

(New York)

It seems to all be crashing down as we write. The markets had just eliminated all losses for the year and were above or near all-time highs (e.g. the Nasdaq). However, the market has all he hallmarks of irrational exuberance—indexes priced for such unlikely perfect outcomes that they just can’t stand. At 22x forward earnings, valuations are right around where they were in the tech bubble. The economy is likely to take two years to recover from the virus, but the markets only took two months.

FINSUM: The market seems to be getting a reality check this week. Legitimate fears of a second wave are growing as re-opening states are seeing hospitalizations surge.

(New York)

There has been a major change in the stock market’s attitude toward the president over the last several weeks. For a long time, the market was very concerned with Trump winning. If Trump looked weak in polls, it was bad for markets. According to RBC, for the last 12 months, the S&P 500 has moved mostly in line with Trump’s odds for reelection. According to the bank, ““For the past year, expectations as to whether Trump will win again in November (as tracked by the betting markets) have been moving in sync with S&P 500 performance … But that relationship has broken down a bit in early June, with Trump’s chances (according to the betting markets) falling and the S&P 500 surging”.

FINSUM: Markets care much more about the economy than they do Trump, and everyone seems to be betting that COVID stimulus will keep going even if Trump loses.