Eq: Total Market

(New York)

We have just experienced a major market rout. Stocks are off over 5% in the last two days, largely because of almost esoteric worries about rising rates. The big question for investors is “where do we go from here?”. Well the Financial Times has tried to answer the question, and their answer is pretty simple—higher. The paper thinks this tumult will prove short-lived as they contend that it is really recession that ends bull markets, and the US isn’t anywhere near one right now. They suspect corporate earnings will come in strong in the next month and right the market ship.

FINSUM: We agree that this seems like the most likely outcome of the current rout, especially given the strength of the economy. However, we do have an outside worry that investors’ minds are finally changing about the risk/reward of stocks given rising rates and a toppy-looking economy.

(New York)

Rising rates are good for financials, right? Well, not always, especially for asset managers. The sector is not as directly impacted by rate rises as banks, and investors need to be on the look out for losses. The whole sector is experiencing a grave fee war, with fund pricing recently hitting zero. All managers are now in an effective race to the bottom on fees and only a handful of winners will emerge, all reliant on increasing scale massively to make the low fees viable.

FINSUM: Asset managers are in a nasty and long-term fight. The damage to shares would have been much worse, but the rise in stocks and other assets has boosted AUM, which has offset a lot of the lost revenue from lower fees, helping to insulate the sector.

(New York)

Something very odd happened in markets yesterday—the reaction to a stimulus had gotten so bad, that it reversed the original stimulus. We are of course referring to the fact that the stock sell-off, itself seemingly a response to the rise in bond yields recently, became so bad yesterday, that bond yields finally turned around and moved lower. In other words, bonds scared stocks so much that bonds themselves got scared. The stock market has fallen more than 5% in two days.

FINSUM: This was an interesting, albeit easy to forecast, move. It makes one wonder, which is the cart and which is the horse?

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