Displaying items by tag: risk

(New York)

The market is in its toughest position in recent memory. Numerous headwinds, none of which are easy to resolve, are stacked against it. Wit that in mind, banks are starting to publish their doom and gloom outlooks for 2019. Nomura has identified a number of “grey swans” (not black) which could topple the market next year. Some of the most interesting risks they identified included a European debt crisis sparked by Italy, oil plunging to $20 per barrel, the end of populism, and an “inflation sonic boom”.

FINSUM: To be honest, we think these are all very unlikely. What is much more likely is a recession accompanied by a trade war.

(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)

The markets look troubling right now. They are just about to cross to a new high at the same time as they have just breached the record for the longest ever bull market. P/e ratios are way above historical averages and stocks have risen 400%+ (including dividends) since their lows in 2009. At the same time, there are ample geopolitical headwinds, tightening rates, and trouble in tech. Is it time to take risk off the table? Maybe, but don’t act rashly. The key is to take small, gradual, and reversible steps. If you end up being right, you will have minimized your losses, but if you end up being wrong, you won’t kick yourself from missing gains.

FINSUM: Advisors say that these kinds of strategies are well-received by most investors, so simple risk mitigation efforts can go a long way to minimizing the psychological discomfort one feels at the potential peak of the market.

(New York)

How about some high growth and low risk stocks for your portfolio? Sounds too good to be true, but Barron’s has run a piece today highlighting the top picks of a midcap fund manager who is aiming for that profile. The idea of the Touchstone Mid Cap Growth Fund (TEGAX) is to find good growth at a reasonable price. The fund has returned 13.6% per year over the last five years. Their top holdings include: Worldpay, Pioneer Natural Resources, FleetCor Technologies, TransUnion, Tiffany, and Cooper.

FINSUM: These are some very diverse picks. Examining the fund’s methodology, we like their approach and suspect these stocks are worth a look.

(New York)

One of the biggest arguments of the junk bond market is this: one needs to be careful of junk bond indexes because they automatically skew investors to the companies with the most debt, making portfolios inherently more risky. The argument has a seemingly sound logic which is similar to the “skew” often referred to in equity ETFs. However, the reality is the complete opposite, as the companies with the most debt actually tend to be larger and have more conservative levels of leverage. The larger companies with the highest total debt in the high yield market tend to have lower default rates, so there is actually no correlative relationship between more debt and higher risk. The analysis is from S&P Global Market Intelligence.

FINSUM: This is very useful analysis, because the more debt = more risk fallacy is an easy-to-fall-into mental trap.