(Washington)

In what we think might be the worst case scenario for the industry, it is looking like the DOL and SEC are in a full scale partnership to regulate the wealth management industry. With the DOL’s announcement that it is taking another crack at the fiduciary rule, and its guidance that it would issue a new rule in September 2019 (the same month the SEC says it will debut an updated best interest rule), many insiders now expect that the DOL and SEC are working together to craft a comprehensive package of fiduciary regulations. According to Fred Reish, a top industry lawyer, “It appears that DOL and the SEC have coordinated their agendas so that the SEC's rules can be incorporated into a new exemption for prohibited transactions resulting from non-discretionary fiduciary advice”.

FINSUM: Some think this is a good sign, but more partnership between the regulators means a more diverse set of rules to adhere to. Further, there will inevitably be significant gaps between the different agency rules, leaving a lot of doubt and grey area, which causes headaches for anyone trying to play by the rules.

(New York)

The S&P 500 is off about 6% this month, almost enough to eliminate its gain for the year. At the same time, earnings have grown strongly. Put together, a good question emerges: when do stocks again become cheap? In the last several selloffs, stocks have found support when valuations fell to 15x earnings, so it seems a good target. Taking account of various earnings forecasts, it appears stocks would need to fall a further 14% from here to make it to that level.

FINSUM: That would put the S&P 500 near a bear market just to bring the p/e ratio back down to 15x. Bleak.

(Houston)

Stocks fell around 0.5% yesterday after being down much more. Oil fell 4%. The reasons why are many, but mostly it seemed to be bad timing. Saudi Arabia announced it would pump more oil at the same time as the market is worried about economic growth and aggregate demand. Invesco’s chief market strategist summarized the situation best, saying “Markets have underreacted to tariffs, because they weren’t really tangible. Now it’s getting more tangible with the IMF lowering growth forecasts and showing up in what could be seen as canaries in the coal mine … That’s putting downward pressure on stocks and on oil”.

FINSUM: We feel like oil is too high for where it should be right now. That said, the geopolitical risks surrounding Saudi Arabia could have a directly negative affect on gross oil supply, which would be positive for prices.

(New York)

One of the big developments of this month is not just that stocks have been getting hammered, but that bonds are too. While yields have stagnated from their jump a couple weeks ago, bond funds are seeing major outflows. In fact, investors are withdrawing so much capital from bond funds that it is likely to be the worst month for outflows in the last three years. Through October 19th, investors had pulled almost $25 bn from mutual funds and ETFs that invest in bonds. The losses break 21 straight months of inflows.

FINSUM: A couple things to note here. Firstly, considering Treasuries started the year yielding 2.4% and are now at 3.13%, one month of outflows does not seem too bad. On the negative side, however, it is worrying that bonds are seeing major outflows at the same time as stocks are losing in a big way.

(New York)

The market is so turned on its head right now that yesterday’s 126 point drop in the Dow seems like good news. The market has been so bad lately, that the fact that yesterday’s potential 550 point loss shrunk to only 126 points seemed like a positive development. Investors are worried about the idea of peak earnings, but analysts insist they are overreacting, with many reiterating that earnings will continue to be strong and the economy will stay in expansionary mode. Kate Warne, a strategist at Edward Jones, says that investors will realize this is not the end of the economic cycle just yet. “It’s not peak earnings, it’s peak earnings growth”, says Warne, continuing “The pace is still positive, just the growth rate isn’t as high as it was”.

FINSUM: We tend to agree with the strategists. If earnings still continue to grow in the next couple of quarters and the economy stays strong, it is hard to imagine that stocks will keep falling.