FINSUM

FINSUM

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Friday, 16 November 2018 11:37

Apple Just Entered a Bear Market

(San Francisco)

We have covered a lot of bear market indicators this year. Every investor is understandably wondering when the next bear might bite. So how about this for an indicator—Apple just entered a bear market. Now we know that Apple’s decline seems to be quite particular to its own situation—especially the fear over iPhone sales that were cemented by the company’s announcement that it will stop reporting such figures—but what if it is a leading indicator for the whole market? Apple is not alone among big companies either—over 40% of the S&P 500 was in its own bear market at the October low in equities.


FINSUM: We do not think Apple’s bear market in its self signifies much about the underlying market. Apple’s trouble really stems from one issue—one of the most successful products in history is finally starting to see slower growth as the result of its own spectacular success. We do not think that is a bear market indicator.

(New York)

It might not always feel like it, but rising rates are good if you are an income investor. Rates are most definitely rising. Treasury yields are up strongly and the Fed is hiking quarterly. That can cause some rate driven losses even as yields on fixed income assets rise. One fund manager summarized the risks and benefits this way, saying “Rising rates and/or lower equity valuations should lead to higher long-term expected returns, although the movement from low yields to high yields, or high valuations to low valuations, often requires a painful short-term capital loss”.


FINSUM: The move to “low valuations” sounds terrifying as an investor, but the key is to take advantage of higher yields while holding hedged positions.

Friday, 16 November 2018 11:34

The Fed is Sounding More Dovish

(New York)

Those worried about rate hikes will be happy to hear this news. Ever-hawkish Jerome Powell is finally starting to sound just a bit more dovish. Powell says the economy is strong, but could face “headwinds”. He says the Fed is discussing how much and how fast to raise rates and acknowledged that the Fed’s actions could inhibit the economy. He said the Fed’s goal is to “extend the recovery, expansion, and to keep unemployment low, to keep inflation low”.


FINSUM: It is good to hear some public consideration that rates might get in the way of the economy. While we would not exactly say this is dovish, it is certainly less aggressive than previously.

Friday, 16 November 2018 11:33

Brexit Deal Already Almost Dead

(London)

Just a couple of days ago it seemed like the UK and EU were on the verge of coming to an agreement over Brexit. Now, just 48 hour later, a deal actually seems further away than it ever has. Reviewing UK headlines, the irony of PM May’s proposed deal is that it did what no one else has been able to—unite Britain. However, the unity is driven by shared hatred from all sides over what a terrible agreement the government has proposed. Numerous government ministers have resigned on the back of the proposal.


FINSUM: The pushback to this deal has been more than anyone would have anticipated. A no-deal Brexit looks increasingly likely.

Thursday, 15 November 2018 14:16

Goldman Sachs Says Yield Inversion Looms

(New York)

With all the volatility of the last month, and midterms, less focus has been on one of the most ominous of economic signs—the yield curve. Well, Goldman Sachs has just weighed in, warning investors that a yield curve inversion is looming. Goldman went further than to say that 2-years might be flat or overtake 10-years, the bank said that spreads between 2- and 30-year bonds would fall to zero. To put that call into perspective, it would be a narrowing of 50 basis points versus now. Goldman highlighted the move in its top themes to watch for 2019.


FINSUM: We have to give Goldman Sachs a little credit here as they have been consistently hawkish about rates for at least a year and are sticking to it. We tend to agree with this view.

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