(Riyadh)

The oil market has been in an extremely rough patch over the last several weeks. Just a couple months ago, many were talking about the return of $100 oil. Suddenly, prices are just half that. The question is where is crude headed next. Well, the Saudis seem committed to keeping it weak, as the Kingdom, which leads OPEC, has just announced that it will not cut production. The catch is that it said it will not do so alone, which keeps the door open to another coordinated OPEC-wide cut, such as happened several months ago.

FINSUM: The big difference between a coordinated cut now and the one from a couple years ago is that the world looks much closer to recession a present, which means demand could flatten or fall even if output lowers. That means producers could lose revenue by cutting (instead of the difference being made up by price gains), which makes a big difference.

(New York)

On the whole retail has had an okay year, certainly much better than the rough period of 2017. Lately though, stocks in the sector have been suffering. Will that change? The good news is that the initial evidence about the performance of the current holiday shopping season looks promising. Black Friday sales were strong this year, which bodes well for seasonal shopping. 165m Americans shopped in-store or online during Thanksgiving weekend, more than surveys forecasted, and the average purchase size was over $300. Department stores seemed to be doing particularly well, as foot traffic was up almost 8% over last year.

FINSUM: We think this is going to be a good holiday season for retailers, but that probably won’t be enough to convince investors that the underlying issues have been resolved.

(Washington)

The Fiduciary Rule is supposed to be dead, right? Well that seems to be more of a myth than reality, as the rule has taken on a life of its own in many forms. Not only is the DOL planning to issue a second version of the rule in 2019, but many states are now creating out their own fiduciary rules. For instance, New Jersey is poised to become one of the first states to adopt a uniform fiduciary standard. Many others already have various fiduciary standards that were put in place after the demise of the first rule. Those that have or are considering changes incude Nevada, Connecticut, California, South Carolina, and South Dakota.

FINSUM: There is a definitely a strong fiduciary undercurrent slowly pushing across the country. However, some states have definitively ruled that a fiduciary relationship does not exist between a client and broker, including New York.

(San Francisco)

In what comes as an almost apocalyptic announcement for Apple investors, President Trump indicated yesterday that he may impose a tariff directly on iPhones. When asked about whether he would do so, Trump said “Maybe. Maybe. Depends on what the rate is … I mean, I can make it 10%, and people could stand that very easily”. One analyst summarized the development this way, saying “The Street will not be taking this news lightly as with the litany of bad news Apple (and its investors) have seen over the last month … this tariff threat on iPhones out of left field from Trump and Beltway will surely add to this white-knuckle period for Apple”.

FINSUM: We don’t think this will happen. If Trump tried to raise iPhone prices 10% he would likely have a popular revolt (from both sides of the aisle) on his hands. He certainly doesn’t want that.

(Detroit)

There have been a lot of recession indicators lately—the yield curve, slowing growth, the end of the tax cut boost. However, one that really catches the eye this week is GM’s massive job cuts. The company is shedding over 14,000 jobs across many states, including in Michigan, Maryland, and elsewhere. The cuts amount to 15% of its work force. The move comes in response to slowing sales and changing tastes. All of the plants being closed make parts for passenger cars, not the SUVs that have become much more popular with buyers.

FINSUM: This could either be the canary in the coalmine, or it could be a response to the very specific automation pressures that are hitting the car market.

(New York)

Something interesting has been happening for value stock investors lately—value stocks have been outperforming. Value investing as a discipline has been suffering for at least a decade as growth stocks won out. The malaise has been so poor that many have given up on the philosophy altogether. So with the recent turnaround, should that be reconsidered? Barron’s says the answer is a firm “no”. The recent outperformance of value may just be an aberration related to movements in particular sectors. The reality is that most value indexes have little exposure to the sectors that are suffering, like tech and consumer discretionary. Therefore, their outperformance is more a coincidence than a turn in the market.

FINSUM: We’d have to agree with this view. It does not seem like there has been some fundamental change in investors’ thinking, more that anxiety has just struck the most growth-oriented sectors.

(New York)

The stock market has had an undeniably rough quarter. We are currently in the midst of the second big rout in the last two months and indices and markets are essentially flat for the year. However, things are actually much worse than flat if you dig slightly deeper. Get this—forward looking P/E ratios are down a whopping 17% this year. In fact, the fall recently has been one of the worst in decades on a valuation basis. In 2008, valuations only slid 18%, just one percentage point more than this year. It is the third biggest drop in valuations since 1991.

FINSUM: This is a very ominous sign in our opinion, as shares have plunged even as stellar earnings have come out. Classic case of buy the rumor (2017), sell the news (2018).

(New York)

Stock markets have been taking a beating lately. Between worries over trade and rising rates, as well as the fading effects of tax cuts and the prospects of weaker earnings, stocks have been getting hammered. Now there could be another material blow coming: corporate deleveraging. For years, companies have gorged on debt to fund buybacks and dividends. However, as rates a rising, they are now under pressure to deleverage, and there will be increasing plans for paying down debt. All of that means companies will be spending less in equity markets and on growth.

FINSUM: This is bad news. Stock buybacks have been one of the main drivers of returns the last few years, and the evaporation of that stimulus will add pressure.

(Houston)

When oil falls it tends to boost the US economy. For all the growth of our shale industry, the US is still a net importer of oil. When prices fall, Americans tend to spend more on other items that boost the economy, so oil prices sinking is usually good news. However, this time around, the fall will be bad, at least according to the Wall Street Journal. The problem is that the oil industry has grown large enough that capital expenditures in the sector make a major impact on growth. Accordingly, the capex cut that will come from falling prices will be prove a net detriment to GDP figures.

FINSUM: When oil fell in 2014-2016, US economic output also slowed, so this is a very real affect. What is worse is that it will likely show up in 2019, which is already looking to be a much weaker year.

(New York)

Christmas is not looking very merry for retailers. While 2018 has been kind to retailers, especially compared to 2017, the fourth quarter has been rough. The stocks have been getting hammered on the back of weak guidance from a handful of companies in the sector. Not only are retailers under topline pressure from ecommerce, but costs are rising too, squeezing margins. As an example, Target’s shares fell 9% on Tuesday and the shares are down by more almost 20% since August.

FINSUM: This selling pressure seems to be a combination of economic worry and fears about rising costs.