(New York)

The fiduciary rule has been dead for about six months now—much to the delight of most advisors. However, in what we feel was an inevitable development, the rule is starting to make a comeback. With the new SEC best interest rule getting a lot of negative feedback from all sides, it seemed very likely that states would take matters into their own hands and development states-level fiduciary rules. That is exactly what is happening. New Jersey is now working on a fiduciary rule of its own and it seems likely many other states will follow suit. If that transpires, advisors could face a patchwork of national rules that would make compliance a nightmare.

FINSUM: This was inevitable. States feel like the SEC’s rule is not as rigorous in its protections as the DOL rule was, and thus they feel they need to take matters into their own hands.

(New York)

The best US stock sector of 2018 is also now the market’s most risky. Consumer discretionary stocks have been on a run this year (as they often do when rates are rising), but that may be about to change. According to Morgan Stanley, consumer discretionary, which is composed of retail, apparel companies, and automakers, may be set for a big fall. “An early-cycle sector trading at peak valuations in a late-cycle environment”, is the way Morgan Stanley describes the sector. The average P/E ratio for consumer discretionary stocks is 35% above the S&P 500’s average.

FINSUM: Amazon is disproportionately responsible for the consumer discretionary’s gains this year, but the other stocks in the sector could be good shorting opportunities.

(New York)

Goldman Sachs has a new kind of fund it is offering, and we thought advisors might like to hear about it. In what are being called “tax-eating” funds, Goldman is offering the opportunity to invest in “opportunity funds”. These special funds, which are provided for in the new tax code, are designed to promote investment in low-income communities. Interestingly, the funds are deferred from capital gains tax until 2026, so clients can move their capital gains into these funds and shield them from taxes. Doing so will ultimately result in a 15% reduction in capital gains taxes on the original gains, and 0% taxes for any gains on the opportunity funds themselves.

FINSUM: Goldman Sachs has been doing this kind of investing for years, and now the tax change has really put wind in its sails. Seems like it may be worth looking into.

(New York)

October is usually associated with market panics and gives investors a general sense of anxiety. Many of the greatest market meltdowns occurred in October, including 1929, 1987, and 2008. However, this October seems likely to be different, says Barron’s. In fact, good Octobers are not infrequent. It may surprise investors to learn that October has the highest average return of any month in the last 20 years. But the reason this year might be good is that there is a midterm election in November, a factor that has historically made October a strong month for returns.

FINSUM: When you put together the numerous factors supporting markets with the midterm elections next month, it seems like this October will be a good one.

(New York)

In a sign that is setting off alarm bells on Wall Street, the market’s safest stocks have been surging of late. Investors are increasingly demanding “quality” stocks as a buffer against a potential downturn in the market. “Quality” stocks usually refers to to companies with a range of positive characteristics like high profitability and low debt. However, market strategists point out that such stocks are so well bought that they might not have their intended effect, “Quality factors are well bid so may not be as defensive as people expect”. ETFs that track “quality” stocks have been surging.

FINSUM: One can understand the flight to quality given very high valuations and the hawkish Fed, but it is still a worrying sign that so many feel the need to take cover.