Just after many Wallstreet firms were predicting oil prices to skyrocket passed $130 the jets have started to cool and oil prices are falling. Oil dipped below $100 a barrel this week and the two biggest factors are demand destruction and China’s latest Covid-19 outbreak. In the U.S. the Ukraine war and high gas prices are deteriorating the demand for commodities and demand is beginning to weaken which in turn affects energy prices. Demand will drop by 1.4 million barrels a day according to Rystad Energy. Additionally, the U.S. is a strong dollar is making it hard to purchase oil-backed goods abroad. China’s lockdown in Shanghai drastically reduces global demand and could be a threat in the intermediate future. If Bejing follows suit it could be devastating.

Finsum: Oil investors should watch out for Russia, which is starting to feel the pressure on its economy.

Global turmoil is on the rise, but just as threatening to domestic returns is skyrocketing wages in the U.S. Sure there were great returns last year despite higher wages and inflation, but what stocks are primed to succeed in this current environment? The first is Arcutis Biotherapeutics which has an important drug in stage three clinical trials, which Goldman says could be very profitable. Next is Tricidia another pharma company that has a high buy rating and a potential upside of 126% according to analyst Madhu Kumar of Goldman. Coupang is the final pick which is a South Korean e-commerce retailer. They showed impressively robust revenues when the economy reopened and has great operating leverage according to Eric Cha of GS.

Finsum: These could be potentially good candidates in the tumultuous markets we are seeing currently. 

You know what sounds nice, consistent diversified income with little risk, but the problem is finding those solutions is difficult if not impossible. Model portfolios have popped up in the last decade to tackle this very problem, but there aren’t great options with diversity. One of the biggest reasons is treasury yields are still drastically lower than in the pre-financial crisis era. Nonetheless, there are pretty consistent income options, but they are riskier than ever because regardless of the model equities, high-yield debt, and emerging market debt are all more correlated than they have been in decades which means these funds fail to diversify. The GFC and the covid pandemic put a focus on macro fundamentals that the Greenspan-put eliminated.

Finsum: Income models can come with their risks, particularly as markets are getting more volatile.

Direct indexing seems targeted at high-net-worth individuals. They have huge tax incentives, a decent fee structure, and usually high minimums, but there is just one problem: they don’t know about them. According to a survey by Parametric Portfolio Associates over half of high-net-worth are unfamiliar with direct indexing. This is odd because it's one of the fastest-growing market segments expected to grow at 12% each year over the next half-decade. The survey also finds that advisors that do recommend direct indexing, lean mostly on the tax structure and benefits that they can capitalize on.

Finsum: Investors need to be aware of the benefits of custom indexing, the tax benefits tend to outperform fees, so they can edge out traditional ETFs. 

There has been a mass exodus in the corporate bond market which is making fixed-income funds as attractive as they have been in a while. Outflows started 21 weeks ago and are hitting $28 billion according to Refinitiv Lipper. With investors fleeing this has created even more negative returns on top of inflation and interest rate pressure. Investors willing to hold bonds to completion, particularly in value sectors like banking are getting them at an ultra bargain. One reason we are seeing investors flee corporate bonds is yields have been climbing faster than treasuries but many see interest rate risk already priced in which could be enough to turn around the investment-grade bond market.

Finsum: Value sector bond ETFs could be a smart play, with commodities and financials being major players. 

Investors were beginning to be skeptical of Hedge Fund performance, but volatility was enough to get them back in. Inflows this quarter have hit a 7-year high as they nearly hit $20 billion in Q1 2022. The biggest factors were inflation, the Fed’s response, and rising geopolitical tensions, which are all major sources of volatility recently. Macro strategy had the best performance for Q1 with a 9.1% return which is the highest its been in nearly 30 years. Multi-strategy and value were next up all with positive returns. The S&P 500 meanwhile dropped 5% over the same period. Corporate credit default and other short positions have been grabbed up by hedge funds recently to help counter volatility.

Finsum: This is a hedge fund's most crucial role in the financial world, they excel in these macro scenarios that are crippling standard markets. 

Most people think of alternatives as either a hedge in their portfolio against traditional market swings, or a big return generator with more risk, but REITs can be a great income generator. Dynex Captial is a great REIT with a 10.38% dividend as of April, and Citadel is a huge holder in the company. Gladstone Commercial real estate has a strong 6.71% dividend and never misses its distribution so it’s ultra-reliable. Finally, LTC Properties has a similar 6.31% dividend but has strong hedge fund love.  Their recent acquisition of LuxeRehab is a signal of their strength and has a good track record with tenants.

Finsum: REITs have lots of dividend options and are a good income alternative for those seeking a solution in this market, however it does have risk. 

Hedge funds have made it clear they are gonna short those not meeting ESG criteria, but the broader market is still willing to short Tesla because the bottom line means more. Despite all of its sustainability credentials investors are making bets against Tesla. Bill Gates took a big short position apparently, and Tesla CEO Elon Musk chirped back on Twitter, saying it's incompatible with their environmental concerns. All of this happens as Musk secured $44 billion to buy Twitter Inc. This isn't the first time Tesla is no stranger to short-sellers as sharks swarmed the brand for years as they thought they couldn't ramp up production to meet the actual demand. Tesla’s stock skyrocketed nonetheless.

Finsum: Short positions on these public favorites can be extremely risky poisons, there have been lots of strange rallies in the internet era.

Goldman Sachs released their latest economic forecast and predict the U.S. will grow at its second-highest rate in over 15 years. The 3.1% prediction would only be outpaced by the K-shaped recovery in 2021. Moreover, they said there is a lower risk of a recession in the next year than the rest of Wall Street with about a 15% chance. Attributing much of the inflation to supply chain issues, Goldman seems to be leaning on the latest core PCE inflation numbers that the Fed cares most about which were on the decline. The biggest ongoing risks to the world economy are China and the continuing Russia-Ukraine war.

Finsum: Goldman believes the Fed can thread the needle and hit the soft landing that many say is impossible, time will tell if they can.

Pick your favorite recession signal and there is a chance it's flashing the warning signs. Most are eyeing the 2-to-10 year yield curve which inverted in early April. Investors worried about the recession should turn to high-yield bonds, but specifically, those ‘sin’ goods are the best remedy for the recession. Alcohol and Tobacco are two of the best performing industries in the 12-months leading to a recession and the years after. Food and beverage, utilities, and healthcare all are great performers as well. The high yield bonds to avoid are telecommunications and retail shopping, as their returns can vary drastically.

Finsum: Junk bond yields are relatively high right now and less sensitive to Fed moves, high yield bonds are a potentially good alternative right now.