(Washington)

So one thing is very obvious about Trump’s tweets—they can move markets. However, what is less well-known is that their frequency also has an effect on indexes. So how do markets fare on days when Trump is hammering out tweet after tweet versus days when he only pens a few? The answer is that more is worse. On days where Trump write 35 tweets or more there is a 9 basis point drag on markets versus days where he tweets 5 times or less, where there is a 5 basis point tailwind.

FINSUM: There is not much one can do with this info, but it is an interesting data point. How long before a new “smart beta” product comes out focused on this? Haha.

(New York)

How to defend against this tough equity market? Some say to buy defensive sectors like healthcare and consumer staples. Others buy gold. Ironically, however, the best protection may be to stick with the old 60/40 balanced portfolio. Despite all the market turmoil recently, if you had been holding a 60% SPY and 40% AGG portfolio over the last month you would have had a net return of negative 0.62%, which is pretty good considering how ugly markets were. If you had been holding it for the whole year, you would have a sterling return of 14.45%.

FINSUM: These stats are a testament to old fashioned diversification!

(New York)

September is usually a very poor month for stocks. Investors are generally uptight because of this, but this year tensions are much higher after a brutal August that saw benchmarks fall around 3%, a figure which frankly does not do justice to the turmoil. The Dow actually averages a large decline in September historically, and the month has only had positives returns 36% of the time in the last 100 years. This statement from Barron’s says it all: “If you only owned the S&P 500 in September during every year, a $100 investment starting in 1969 would now be worth just $70.

FINSUM: September is usually bad (which does not really mean anything for this year in itself), but this year could be extra ugly because it may just be more of the same turmoil that has already been occurring.

(New York)

Rollovers are one of the most important and hotly contested areas of forthcoming regulation. The mostly defunct DOL rule stated that advisors need to act in the best interest of clients when dealing with rollovers only if the firm was a fiduciary. However, the big forthcoming change is that the SEC Best Interest rule essentially states that advisors AND brokers need to act in the best interest of clients all the time, but allows that disclosure of material conflicts can be sufficient to overcome any hurdles. According to Drinker Biddle & Reath, a leading wealth management law firm, “Reg BI standard of care obligation requires that a broker-dealer have a reasonable basis to believe that taking the assets out of the plan and rolling them over to an IRA is in the best interest of the participant at the time of the recommendation”.

FINSUM: So the DOL rule was very strict but fairly narrow in application, while the SEC rule is broader (encompassing brokers and fiduciaries) but less strict.

(New York)

The last month has been an unusually tough market. While the volatility itself is not highly irregular, what has been difficult is the rise of correlation. Over the last month, the market has traded the same way a whopping seven times. On those days, stocks, bond yields, and commodities have all traded in the same direction. When that happens it is very hard for investors to find a place to hide.

FINSUM: A couple of months ago using bonds as a safe haven seemed like a good idea. But prices have gone up so astronomically without a real change in the economy, that fixed income is looking like a fragile place to hide.

(New York)

New data just released shows the US economy is a bit weaker than everyone expected. Second quarter GDP data has been revised downward, showing that the US expanded at only 2.0% in the quarter instead of the first-reported 2.1%. Government spending, weaker exports, and private inventories weighed on the numbers. However, the very good news in the data is that consumer spending increase was the strongest in 4.5 years.

FINSUM: Consumer spending is at its highest levels since 2014 at the same time as bond yields are at extraordinary lows and everyone is worried about a recession. Either a recession will arrive or there will be some big losses in bond markets.

(Los Angeles)

Pimco is probably the most respected name in fixed income, and the firm just went on the record warning about the economy and encouraging the Fed to act. The asset manager argues that the US economy is in worse shape than many think and is admonishing the Fed to cut rates more aggressively than expectations. Pimco says that momentum in the labor market is slowing, the trade war is showing little sign of abating, and the risk of financial excess caused by lower rates appears minimal. According to Pimco, “We can’t emphasise enough that labour market momentum has decelerated more markedly than most forecasters were previously expecting”.

FINSUM: We actually are on the opposite side of the fence as Pimco. We think the market is blowing things out of proportion about the economy and is overly worried. We surely hope we are right.

(New York)

Investors tend to go to the same old ports to ride out the storm of a recession—gold, Treasuries, healthcare, utilities etc. However, finding a new safe haven can be not only the means to good protection, but also solid capital appreciation. With that in mind here is a very unglamorous, but potentially lucrative idea—buy garbage stocks. We don’t mean bad stocks, we mean stocks of solid waste companies, like Waste Management, Waste Connections, and Casella Waste Systems. Garbage companies are highly recession tolerant (it is not as if there is less garbage), and they tend to throw off huge amounts of free cash flow. Michael Hoffman, an analyst at Stifel is recommending these shares.

FINSUM: This seems like a very good recession hedge. Garbage is a very durable sector. Will this be the next recession star?

(New York)

The bond market is doing something that it usually doesn’t—it is scaring stocks. Generally speaking, big sell offs in stocks drive moves in bonds, but rarely do moves in bonds spook stocks. Except for right now, that is. The ten-year yield dropped to 1.48% recently, below the two-year’s 1.51%, signaling another 2y-10y inversion which is a classic recession indicator. But the 3m-10y is even scarier as it touched a fresh new low of negative 51 basis points.

FINSUM: The bond market thinks a recession is coming and that Fed policy is too tight. The velocity with which that sentiment is driving yields is spooking stocks, and rightly so.

(Washington)

Whichever side of the political aisle you are on, the new polls coming out about the 2020 presidential election look misleading. A new Gallup poll released this week showed that Biden has a 54% to 38% lead over Trump. Furthermore, the poll found that any of the 5 top Democratic contenders would beat Trump in the election were they to win the bid. Additionally, 37% of voters reported that they felt the economy was worsening versus 31% who said it was improving, the first time recently that Americans have been pessimistic about the economic outlook.

FINSUM: The polls don’t seem to be doing justice to how close this election feels. They just don’t reconcile for us. That said, the numbers on economic sentiment are quite interesting.