Displaying items by tag: stocks

(New York)

Is this a watershed moment for the equity market or just another small blip in the exorable march higher? That is the question investors are asking themselves this week after the losses of the last few trading days which occurred as a response to quickly rising yields. Many analysts and Wall Street veterans think that heavy pressure will be on equity prices as yields move towards 3.5%. According to BNY Mellon, as yield move higher is hurts “investors’ ability to call this stock market reasonably valued”. Some investors are more sanguine, believing the market can handle higher rates.

FINSUM: One of the biggest signs here does not have to do with yields themselves. Rather, some big money managers are admitting that they are rotating some money out of stocks and into bonds to reap the gains of higher yields. That will likely be the biggest challenge for stocks.

(New York)

ETFs are a product that has been growing at breakneck speed. AUM in the product is approaching $4 tn, which is astonishing given that it has really only taken a decade to get there, but still quite a bit smaller than the $16 tn in mutual funds. Experts say that the ETF market is going to increasingly resemble the mutual fund market as offerings diversify into smart beta, thematic ETFs, customizable ETFs, and fixed income. The last area—fixed income—is where creative indexing makes the most sense, as doing so can account for the common weighting issues that are much riskier in bonds than in equities (you don’t want your largest holding to be the issuer with the most debt).

FINSUM: The logic for fixed income ETFs is very strong, especially given how illiquid and restrictive buying bonds directly is. However, smart beta and other active ETFs (which are more expensive) don’t really have a big leg up on experienced mutual funds.

(Washington)

The midterm elections are just around the corner and there is some anxiety over how they might impact stocks. The last few days have been poor, while the preceding month had been good. Barron’s argues that the election will be bullish for stocks. The reason why is that no matter what happens, stocks look likely to rise. Even when the sitting president’s party loses seats, stock tend to gain, and the year after such a loss tends to be the best year of a president’s term. One of the reasons why is that the party in power typically undertakes economic stimulus after their defeat. The Wall Street Journal summarizes “Either way, many believe that stocks will get a boost after the midterm elections as investors will be contending with one less uncertainty”.

FINSUM: We think the election will be good for stocks as well. If the democrats see success, there is less risk of a brutal trade war. If the Republicans win, there is probably more pro-business policies put in place.

(New York)

JP Morgan has put out an interesting piece of analysis this week. The banks says that the Fed, and Chairman Jerome Powell in particular, have cost investors over $1 tn this year just through his statements. For some reason, the market particularly dislikes hearing Powell. On average, the market drops significantly (0.40% or more) when the Chairman speaks. Further, his remarks usually cause an intraday inflection point, which means he is actually the one moving the markets, it is not just bad timing. JP Morgan summarizes that “While we acknowledge that it is not possible to attribute the market impact of each speech with certainty, simple math indicates that about $1.5 trillion of U.S. equity market value was lost this year following these speeches”.

FINSUM: We do not think this is anything to do with Powell specifically. It is more just about being a Fed chairman during a rising rate era.

(Los Angeles)

In a turn of events that stretches the boundaries of our understanding, Elon Musk took to Twitter yesterday to mock the SEC. The move comes in the same week that the CEO agreed to settle a suit with the regulator over his misleading tweets this summer. Musk tweeted yesterday afternoon that “Just want to [say] that the Shortseller Enrichment Commission is doing incredible work … And the name change is so on point!”. Legal experts say the tweets jeopardize his potential settlement the SEC as they violate specific clauses of the agreement.

FINSUM: We know he is a defiant character, but this kind of behavior seems to show extremely poor judgment, if not borderline mental instability.