(New York)

If there were ever a small cap sector overwhelmed by their larger cousins, it would be in technology. Small cap tech stocks are so overshadowed by FAANGs and the like that one would be forgiven for not even realizing they exist. However, they do, and they may very well be a good buy at the moment. The S&P 600 Small-Cap Technology currently trades at half the valuation of the S&P 500 Technology index, way down from its historical spread. What’s more, profit estimates are healthier too. Calling small cap stocks “mini-fangs”, Leuthold Group argues that “the mini-Fangs offer a significantly higher growth profile at a substantially lower valuation”.

FINSUM: A couple notes here. Firstly, the FAANGs aren’t even really “tech” stocks anymore after the sector realignment, so the valuation comparisons are not perfect. Secondly, what is the catalyst? Leuthold argues that if the economy does a little better than expected then higher inflation will boost tech stocks. That sounds flimsy.

(New York)

It may seem overly bearish right now, but put this one in the “take note” category. A hedge fund manager on Bloomberg yesterday argued that the market looks set for a bear market downturn very similar to last year. According to the manager, a mix of liquidity constraints, insufficient Fed support, and large geopolitical issues, could all combine to drive prices down 20% or more in benchmark indices. The most interesting part of this argument is that he contends the pressures will create this downturn in the next few weeks.

FINSUM: Last year’s bear market was principally about investors worrying the Fed would hike the market into a recession. That is a completely different backdrop from right now. We don’t discount the chances for a downturn, but this logic does not seem sound to us.

(New York)

The likelihood of a recession is growing. Weak manufacturing data this week accompanied by poor jobs data this morning is once again driving fears that the economy may be headed for a downturn. Accordingly, Goldman has put out a recommendation for the best stocks to hold for the forthcoming recession. According to the bank, stable growth stocks fare best in an environment of slowing growth and rising uncertainty. As a reminder, stable growth stocks are those on the less risky end of the growth curve, a group which has been underperforming fast-growing stocks by a considerable margin. Some names to look at include Fiserv, Autozone, Amdocs, Omnicom, Johnson & Johnson, and Walmart.

FINSUM: We quite like Autozone and Walmart for their consumer-staple characteristics and unique abilities to hold up well in a recession.

(New York)

Remember when everyone was really worried about corporate bonds several months ago? A lot of that anxiety faded as yields tumbled. That led companies to once again issue mountains of debt this year. Now, we are circling back towards worries over a recession, and with that progression there is reason to worry about corporate bonds, especially the BBB variety. The big anxiety, as ever is that a whole section of the BBB bonds universe (the lowest rung of investment grade) will get downgraded to junk status in a recession, causing a massive selloff.

FINSUM: So these fears are not new, but the likelihood of a recession appears to be growing. Here is what really worries us—the BBB market is enormous, amounting to $3 tn in the US versus just $1.2 tn for the whole high yield bond market.

(New York)

It was uncertain for a while, and still is, but markets are increasingly expecting the Fed to cut rates again this month. Investors now put around a 75% chance that the Fed will slash rates by another 25 bp this month. The interesting thing is at the beginning of this week, the market’s odds were under 40%. However, the release of weak manufacturing data a few days ago sent expectations surging that the Fed would once again step in.

FINSUM: New jobs report data out today will only bolster the case for further rate cuts.