(New York)

On Tuesday markets seemed to reverse course. Even as stocks plunged, it appeared that for the first time in recent memory, they were the asset class driving bonds rather than the other way around. Yesterday, the idea of equities taking on a life of their own seemed to reinforce itself, as stock rose modestly even as bond yields jumped higher and stayed steady above 3%.

FINSUM: This is a very tenuous time for markets. Something is definitely happening in bonds, but no one—Wall Street included—knows exactly what.

(New York)

Bloomberg has just made a bold call—they say the bull market ended yesterday. While stocks dropped sharply, 1.7% for the Dow, which basically eliminates all the progress they had made over the last couple of weeks, it is hard to say that it means the end of the bull market. The reason Bloomberg argues so is that the market has been stuck in a rut for three months, and yesterday, investors digested a dark survey which showed that Americans, on average, expect stocks to be lower 12 months from now, a sharp turnaround in sentiment. One portfolio manager from Stifel Nicolaus summarizes where the market is now, ”Investors have this understanding that equity markets are at lofty levels and we are in a low-return environment, so as the risk-free rate moves higher, even in a gradual manner, that becomes more of a competitive asset class”.

FINSUM: We are not particularly bearish, but do concede that if rates keep moving higher it is going to be hard for equities to do the same.

(Washington)

Many advisors seem to be confused about the new SEC fiduciary rule proposal, and we can commiserate. While the rule is called a new fiduciary rule, by all accounts, it really is not. While it does compel additional disclosures to clients and efforts to minimize them, it does not try to eliminate conflicts entirely. It has no best interest contract, and no capacity for clients to sue advisors they are unhappy with. It also has no uniform standard for brokers and advisors and maintains the distinction.

FINSUM: This rule is very different than many were expecting. Perhaps its biggest impact will be in reforming and restricting who can use the word broker, which in our opinion does a great deal to make the market more transparent to clients.

(New York)

The ten-year Treasury rose to just above 3% for the first time in years yesterday, possibly signaling the start of a new era for fixed income. Therefore, one would be forgiven for thinking the bond market drove the big losses in stocks yesterday. However, the opposite may be true, as for the first time in a while, it seems that worries over earnings and new measures of investor sentiment sent the market sharply downward. In a total reversal from January, investors are now very bearish on the market according to economic surveys. This news appeared to spook investors and then in turn disturb the bond market.

FINSUM: Yesterday might be the start of a poor cycle, where stocks and bonds take turns scaring one another to steeper losses. Perhaps that is just a manifestation of a changing cycle.

(New York)

If anything is becoming clearer in financial markets, especially after yesterday, it is that rates and yields are bound to rise. Thus many might be worried about how to protect their clients from the changing market. Barron’s has some suggestions. The key is to hold a fixed income portfolio for several years, a minimum of six, and to make sure to reinvest proceeds in higher yielding bonds. To achieve the targeted five-year maturity sweet spot, consider Vanguard’s intermediate Treasury fund, while also mixing in some Treasury Inflation Protected Securities (TIPS) to provide further protection.

FINSUM: This seems like a good strategy for a long period of gradual rate hikes.