(New York)

Investors are currently worried about the trade war between China and the US. Tensions have reached a new peak this week after threats from President Trump regarding hiking the tariff rate to 25%. This big development, and the trade war generally, prompted JP Morgan CEO Jamie Dimon to weigh in this week. “The odds of something bad happening [in trade negotiations] is now double. Whatever you thought they were — 2%, 5%, 10% is probably doubled. That’s why the market is reacting to it because they’re not just afraid of the direct effect, they’re afraid if it reverses global trade, it reverses global growth and hurts trade around the world”. All that said, he sees an 80% likelihood a deal will occur because smart people on both sides will make it happen.

FINSUM: We agree with Jamie. Both sides have a lot on the line and we think everyone will eager to seal a deal, even if a modest one, and move on. Perhaps that is western-centric thinking though.

(New York)

What is the biggest threat to the bull market? Is it a recession, high valuations, interest rate volatility? In reality, the biggest threat to the bull market might be rearing its ugly head now—a trade war. Trade tensions between the US and China have skyrocketed again this week and it has investors worried that there could be a global slowdown in trading which would sink the economy. In fact, that is the point that some don’t understand—it is not just about whether the US and China close a deal in the near term, it is about how the trade tensions the US and China create percolate through the global economy. Astute market watchers will have noticed new data out of China shows that exports have dropped, a sign of potential weakening.

FINSUM: We think cooler heads will prevail and the US and China will get a deal done. Our expectation is that it will not be ground-breaking in scope, but that it will be enough so that both countries can claim victory and investors can happily put these tensions in the rear view mirror.

(New York)

One of the oldest tricks in the American tax book is seeing new life because of recent changes to the tax code. The process is referred to as upstream tax planning. Changes to the tax code mean that investors can take assets that have seen capital gains and transfer them to a trusted older relative with the understanding that they will be bequeathed. When that asset is re-inherited by the original donor it now has a new basis and can be sold into the market immediately with no taxes due despite the initial capital gains. One estate planner summarizes the changes, saying “People didn’t want to use up their estate tax exemption, but the whole paradigm has shifted because of this new high exemption amount … When they doubled the exemption, everyone thought they’d do away with the step-up in basis at death, but that didn’t happen. So this creates a huge opportunity for taxpayers”.

FINSUM: This is a very good loophole, but it does have a trust component where the donor needs to be confident the beneficiary will hold onto the asset!

(New York)

One of the behaviors that we like to follow to see the underlying health of markets is whether investors are “buying the dip”. Such behavior tends to indicate a fundamental belief in the direction of the market. Therefore, the recent drop off in investors doing so is worrying, but not for the reason that seems obvious. The lack of buy the dip is because until this week, the market had rarely fallen this year. That has meant buying behavior has been concentrated in the hands of bulls not afraid the buy into a rich market, which left many discount-seekers looking from the outside in. Now, many top analysts, and likely investors alongside them, have turned bearish.

FINSUM: The velocity of the market’s gains this year has been very impressive, but it naturally makes a lot of people worry it could come down just as fast.

(New York)

One of the most famous names in bonds, Jeffrey Gundlach, has just put out a bold statement. Gundlach thinks there is forthcoming trouble in markets and he thinks it is the Fed’s fault. Specifically, Gundlach thinks the bond market is set for a lot of volatility. “interest rates cannot maintain the low volatility they have maintained over the last eight years”. To be clear, Gundlach is not calling for a recession, but says “But I am starting to think it is much less of a lock that there won’t be a recession before the next recession”.

FINSUM: There are two conflicting ideologies here. The Fed thinks volatility is largely an extension of the economy and policy, both of which it feels it can control to an extent. Gundlach and many other investors think there are underlying forces in the economy and markets that can only be pacified for so long. We think they are both right to an extent.

(New York)

Stocks woke up to a volatility explosion this morning. President Trump made a surprise announcement that he was considering boosting tariffs on China. Specifically, the president threatened to raise tariffs to 25%. Beijing is reportedly infuriated. The comments come towards the end of what seemed to be a smooth negotiation with Beijing about a new trade package. Therefore, they riled markets to a major extent. Headline indexes shed a couple percent at peak (so far) and sectors like technology and industrials sold off sharply. The trade delegation from Beijing is still expected to attended a planned tariff meeting this week.

FINSUM: It is very hard to know how significant this is (whether Trump actually wants to do this), or whether this is just a negotiating tactic.

(New York)

Barron’s has interviewed some of the top financial advisors in the country to figure out how they incorporate ETFs into their portfolios. We thought our readers might be curious. Raj Sharma, from ML, said that he thinks ETFs are just a tool and that active management still has a big role to play, especially in emerging markets and small caps. One top advisor, for whom ETFs comprise 50% of their business, says they use options bets against ETFs, something you can’t do with active funds. Another top advisor from ML, Peter Rohr, summarized ETFs nicely, saying: “ETFs allow us to control the controllable. We can control fees, we can control taxes, and we can control risk level”.

FINSUM: ETFs are a very flexible, and largely inexpensive product, facts which explain their explosive growth. However, that flexibility also means it takes strategy to put them to their best use.

(New York)

Millennials are the largest generation in the US and are primed to start entering their peak earning and spending years in the next decade. The oldest of the group is now 38, and thus entering prime home buying and spending time. Consumers usually see their spending peak in their 30s and 40s and taper in their 50s. With that in mind, here are some stocks (2 niche plays, 3 big companies) that could really gain from Millennial spending growth: Zuora (cloud based subscription payments provider), Lovesac (specialist furniture maker), Home Depot, Nike, and Farfetch (online luxury clothes retailer).

FINSUM: Boomers’ spending is fading, and Gen X is smaller, so Millennial spending is what is going to drive the consumer space.

(New York)

The trade war seems to be back on with full force. Trump spooked markets today by warning that he may impose higher tariffs on China. With that in mind, here are the stocks and sectors most at risk of big selloffs. Industrials and technology shares are the most vulnerable to tariff worries. It is difficult to say what stocks will be most affected because the potential impacts are widespread. However, the following list looks very at-risk: Colfax, Danaher, Emerson Electric, Fortive, Gates Industrial, 3M, and Kennametal.

FINSUM: We are very early in the volatility for this round of trade fears. Hopefully this minor panic will be the extent of it.

(Washington)

Not to be outdone by the DOL, the SEC made some comments on its forthcoming Best Interest Rule yesterday. SEC chief Clayton has been tightlipped about the rule and its updates, but yesterday said that it would be out soon, likely much sooner than expected. The expectation has been that the SEC would debut the rule in the fall, but speaking on timelines Clayton said “Wait and see … You won't have to wait long”. Reporters taking note of the comment say he suggested the final rule was imminent.

FINSUM: We bet some unveiling of the final rule happens before Memorial Day. This means the DOL’s updated rule is likely coming very soon as well, as they are working in concert.