Eq: Total Market

(New York)

Morgan Stanley has just published a list investors should probably pay attention to. The bank’s research has chosen ten stocks which it says may tank. It is unusual for bank analysts to have negative views of stocks, but when they do, it is worth listening to. Without further ado, the list is: Abercrombie & Fitch, Avis Budget Group, Bed, Bath & Beyond, EQT, FitBit, Hertz Global Holdings, Juniper Networks, MSG Networks, Seaspan, and Tenneco.


FINSUM: The most interesting ones for us are the car rental companies (Hertz and Avis). They say ride-sharing is a risk, as is a decline in used car values. We agree with the former, but we think the latter is off base because as new car buying slows (as does the economy), used car sales will pick up.

(New York)

Jack Bogle, the founder of Vanguard, is a legendary name is investing. Not only did he found and grow one of the largest asset managers in the world, but he has a habit of being right when he predicts returns. Well, he has just made another prediction, and unfortunately it is not one investors will like. He thinks returns over the next decade are going to lag their historical levels badly. His forecast is that investors can expect a 1.75% net return with a 50%/50% stock-bond portfolio over the next decade.


FINSUM: If this call turns out to be right, it will have huge implications for retirees and pension funds, as “safe spending” rules and total returns for pensions will be devastated. That sad, we think forecasting that far out is all but useless.

(New York)

One of the pillars of this nearly decade-long bull market has been the growing profits of US corporations. US stocks have seen their profit margins rise steadily since 2009 and are around a record mark of 10%. Analysts continue to forecast growth to around 12% in 2020. At the beginning of the 1990s, margins were just half of now. However, this narrative is fraught as just 10 stocks account for around 50% of all the margin growth in the S&P 500 since 2009. Those stocks? All tech, unsurprisingly. But what it means is that many other companies are not as healthy as many assumed, and as we enter a tougher era for margins, including higher labor costs, increased input costs, and higher interest costs, there could be some steep falls.


FINSUM: We think this is a reason to worry, as when margins really start to fall on the back of higher rates and costs, investors are going to be very alarmed.

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