(New York)

The Dow experienced mild gains yesterday, with just a 40-point move higher. After so much back and forth recently, nothing could have been more welcome for many investors. The mild move begs Barron’s to ask the question of whether stocks have finally found a floor after a roller coaster two weeks. Stocks started rough, but rallied late in the day, giving signs of renewed optimism. The most interesting part was that after opening down 180 points, bids started to appear which supported the market, leading some to believe that there is actually a market clearing price in place.

FINSUM: Whatever the market did until now is immaterial in our opinion, as it is this morning that inflation data comes out, and that will ultimately be what moves markets in one direction or another.

(New York)

Everyone is blaming last week’s big volatility on the VIX index. Explanations for the big falls are swirling and include an over-reliance on VIX-linked funds and insurers’ volatility strategy. However, FINRA is now looking into another potential cause—deliberate manipulation of the VIX. FINRA suspects traders have been trying to deliberately influence the VIX to move the price of derivatives. The tip on the behavior was given by an anonymous whistleblower.

FINSUM: Given the track record of misbehavior (e.g. Libor), it would be no surprise if traders were trying to manipulate the VIX. However, it is unclear what role that might have had in last week’s crash.

(New York)

Some may like it, some may not, but there is no changing the fact that ESG, or the acronym used to describe various social, governance, and environmental considerations when investing, is now part of the mainstream. Asset managers large and small, recently led by BlackRock, are now using ESG as a key factor in their investing. One asset manager comments that “In general, companies with the strongest records on employee relations and environmental sustainability, for example, often have better financial performance over the long run than those with the weakest records … Do you really want to hold a carbon-intensive company that’s not thinking about [the risks?”.

FINSUM: The big news here is that ESG and other “responsible” funds have had better returns in recent years than conventional funds, so the old mode of thinking this area has poor returns needs to shift.

(New York)

Goldman Sachs put out a big warning to the market yesterday. The bank’s fixed income division says that it thinks yields on ten-year Treasuries are going to rise to 3.5% within two quarters as the Fed continues to hikes rates and the market sells off. Goldman called its prediction “not very brave”, indicating it thinks yields might be higher, especially since it feels the Fed will hike four times this year. Goldman’s forecast for rates is much higher than most analysts, so if it comes to pass, it could have big ramifications for equity investors.

FINSUM: If yields rose to 3.5% or above that quickly, we expect the equity markets would perform very poorly, and it may be the kind of scenario where we have a recession.

(New York)

Well the stock market finally stabilized yesterday with a solid rally (who knows where it will end up today), which may let many breathe a sigh of relief. However, one of the most prominent names in investing, in his typically unemotional way, says that stocks are currently very dangerous as they look like the definition of a bubble. Investors are still buying the market even though they think it is overpriced, saying Schiller. According to him, “that's almost the definition of a bubble. If you think it's overpriced but think it still has time to go, that's the definition of a bubble”.

FINSUM: So our view is that there is still a good deal to be positive about, but that if you really think we are in for a correction, then what just transpired was not nearly enough to “correct” the market.