(New York)

Corporate earnings are doing well and are forecasted to keep rising. Alongside those improvements in operating performance, one would expect stocks would likely keep rising. Not so fast, says Goldman Sachs, who says that earnings improvements will likely do little for stock prices. David Kostin, the firm’s chief US equity strategist, says that earnings’ influence on prices will be moderated by a number of factors. “The appreciation potential will be constrained by tightening monetary policy, a flattening yield curve, rising trade tensions, and the upcoming mid-term Congressional elections.”

FINSUM: In other words, stock market investors are dealing with much more than operating performance. We think the market will discount earnings even more than expected because a lot of the gains are being driven by the tax policy change, making the improvement temporary in nature.

(New York)

Well, the Dow might be about to suffer its longest losing streak in 40 years. The index has lost eight days in a row, and many of them were punishing. Now, if the Dow loses again today, making it nine days in row, it will be the longest streak since 1978. Since 1896, the Dow has only suffered ten losing streaks of nine days or more.

FINSUM: This seems like one of those stats that appears fairly meaningless when it is happening, but in hindsight might seem the start of a bear market/correction or recession.

(New York)

One of the big worries about the stock market right now is that the rise in bond yields could threaten appetites for equities. Well, the ultimate test of that theory has arrived. As of this week, the yield on the One Month Treasury note, yes the one month, is now just about equal to the S&P 500’s average yield. The One Month is yielding 1.84% versus 1.89% for the S&P 500. The notes have very little credit risk or interest rate risk. ETFs that invest in short-term debt have seen $17 bn of inflows this year.

FINSUM: So fund flows are starting to show why we are worried about stocks. Equity dividend funds have been seeing outflows, while fixed income funds have been seeing inflows.

(Washington)

For an industry that was initially happy with the SEC best interest rule proposal, things have really gone south. On top of the battle over the use of the advisor/adviser title, industry critics are slamming the proposal for a new 4-page disclosure document called a “Customer Relationship Summary” which is supposed to “synopsize an advisor’s services, fiduciary status, fees and other information”. Many say the document is too long and arduous for advisors and will only confuse clients. Charles Schwab, for instance, says that the CSR “could saddle advisors with duplicative and unnecessary compliance challenges”. The firm wants a one-page version.

FINSUM: It is interesting to see that the more the industry has dug into the rule proposal, the more it dislikes it. We wonder how much the SEC will revise the rule following the end of the comment period.

(New York)

One of the world’s most famous fund managers has just gone on the record warning investors that the next recession is likely to lead to a brutal reckoning for markets. Paul Tudor Jones, famed for making a killing in the stock market crash of 1987, said that “highly dubious” asset prices are going to be hit as monetary policy exhausts quickly. He is worried that the US does not have any fiscal stabilizers to help ease a recession. Jones believes that interest rates will normalize and that asset prices will fall in the very long run.

FINSUM: This is a lot of doom and gloom, but it is hard to imagine it really being this bad. A bear market, maybe, but a total collapse seems unlikely.