(New York)

A lot of of investors don’t really know what to do with Wall Street equity research. While certain analysts are very insightful, the misaligned interests and intentional underestimation sometimes make it hard to separate what to listen to from what to ignore. However, there is a clear way to make purchases based on Wall Street forecasts—when there is a heavy consensus on a stock, buy it. The key signals to look for are when price targets are similar across all analysts, and when all are saying “overweight” or buy. Such occurrences are not as common as many might think, but they are very potent when they do appear.

FINSUM: This makes some sense as equity research analysts are a reflection of the general sentiment amongst institutional investors. If all seem to be positive, then the underlying feeling on that stock is bullish.

(New York)

Gold just took the jobs report on the chin. As our readers will know, the US jobs report from Friday was nothing short of stellar, with the job creation numbers blowing away all expectations, and in doing so, lowering the odds and potential pace of Fed rate cuts. That led to a big sell-off in gold on Friday that followed an even larger one Monday. Gold lost almost 4% over just two days last week.

FINSUM: The jobs report simultaneously sapped gold of the fear boost it gets from worries about the economy, as well as the potential benefit of lower rates.

(Washington)

Will the US and China make a substantial trade deal? That is a trillion Dollar question for markets. Some argue that China may defer doing any deal and take the risk that Trump does not win the election, effectively letting the clock run out. However, an astute view is that China might be desperate to do deal while Trump is still in office. The reason why is that if Trump were to lose to a Democrat, who in all likelihood would be a more conventional US president that takes a much friendlier approach with international allies, then China would be in a very compromised position. A Democratic president would likely approach the Chinese trade deal with a much more united front of trade allies, which would be a worst case scenario for Beijing.

FINSUM: The irony of this is that Trump has been by far the hardest president on China in memory, but at the same time, the Chinese have the best chance at a good resolution by dealing with him.

(New York)

The yield curve inversion has largely faded from headlines. Things that become the status quo often do! But in that development lays a hidden but worrying truth—the longer the yield curve is inverted, the more likely it is that there will be a recession. The inversion has been in place for over a month now and it is actually getting worse, with long-term yields continuing to drop. A yield curve inversion has proceeded every US recession in the last 50 years.

FINSUM: If the Fed proceeds with cuts, it seems like the inversion may abate. But then again, the rate cut would be an implicit admission that we are on the way to a recession.

(Chicago)

There is no arguing it, small caps have had a rough year. While the S&P 500 is up 9.4% from a year ago, the SmallCap 600 is down 8.4%. The divergence has been surprising to many, as several macro trends appear favorable for small cap appreciation, such as the trade war. However, for small caps to really get wind in their sails, things needing to be looking up in the economy, which seems unlikely in the short term. Therefore, one of the best ways to bet on size in your portfolio is to buy a specialized fund like the iShares Edge MSCI USA Size Factor ETF, which holds stocks in inverse proportion to their size. The smaller the stock, the greater its weight in the fund, helping investors skew towards small stocks, but not totally away from larger ones. The fund has outperformed the S&P 500 this year.

FINSUM: This is a very specialized angle, but does make some sense. We agree with the assessment of small caps right now—the underlying economy is not favorable for small cap bullishness.