(New York)

If there was one subset of stocks that looks deeply out of style right now, it has to be utilities. Back a few years ago, they were immensely hot as the stock market’s bond substitutes in an insanely low-yield era. Now, you can earn almost 2% on a short-term Treasury bond. However, it might be time to take another look at the sector. Most utilities are yielding about 3.3%, and have been supported over the last few weeks by the fact that bond yields have stopped rising. The sector’s stock prices have fallen just short of 10% since last September, but that means valuations look attractive, as do yields.

FINSUM: If you think yields won’t climb that much further—which we don’t, at least in the short to medium term—then utilities do seem like a good-yielding bargain.

(New York)

Many in the industry think a big bust in commercial real estate (CRE) is coming. If you think of the residential real estate market, you probably think about tight supply, rising prices, and more buyers than sellers. The commercial real estate market is currently characterized by the opposite conditions. A building boom and a glut of new CRE debt is threatening to wipe the sector out. The sector looks very vulnerable to rising rates because the massive amount of debt (which just hit a record) and the overindulgence of borrowers. So how can one play the fall? Oddly, the best strategy might be to buy homebuilders, who will be much less sensitive to rate rises, and sell REITs.

FINSUM: The paired strategy sounds like a good one, but the bigger theme here is that a bust in CRE is reportedly on the horizon.

(New York)

Goldman Sachs says it has a new wealth management strategy, and it has to be one of the oldest and simplest ideas in the book. The bank is trying to aggressively grow its wealth business, and wants to increase revenue there by $1 bn in the next three years. Its big plan for doing so: get the money it makes for founders through its investment banking business to stay at the firm in its wealth management arm. One of the bank’s top wealth management managers says that there is no formal requirement for founders to do so, but “it’s obviously a very positive introduction”.

FINSUM: A very good strategy indeed, but then again, that is an incredibly narrow segment of clients!

(New York)

While it is the first high profile closure of a robo advisor in recent memory, it feels like the start of a big change in the industry. This week, robo advisor Hedgeable announced it was closing its doors. The platform was a smaller rival to Betterment and Wealthfront and was founded by two former employees of Bridgewater Associates. The platform received a good deal of media coverage and tried to differentiate itself via a unique offering. However, it was unable to attract sufficient assets to keep operating. The $80m it had in client AUM will now be passed on to Folio.

FINSUM: All the VC money that was funding these robo advisors is going to start running out, which means a mass wave of consolidation is coming.

(Washington)

Try not to lose your mind, but just when the industry thought the DOL’s fiduciary rule was fully dead and gone, it might be coming back. A financial advisor news site, BenefitsPro, has run a piece covering an obscure court move in North Texas on June 28th where a judge issued an order allowing anyone advising “relief” regarding the DOL rule to let the court know by July 12th. What the order means is that state attorney generals, such as from New York, California, and Oregon, could still step in to try to make a case out of the DOL rule.

FINSUM: Those states already tried to step into the Fifth Circuit Court case, but were refused. It is unclear what they will do here, but it stands to reason that they may make a go of it.

(Washington)

A senior wealth management expert, Scot MacKillop, has just run a piece in Wealth Management, arguing that the SEC has made a big mistake in the drafting of its new rule. The piece carefully employs various SEC statements to show that there is no sound logic for why the regulator created an entirely new two-tier structure for regulating brokers versus advisors. The piece makes clear the idea that if there is no fundamental difference between the service of brokers versus an advisor (something the SEC’s Clayton has said), then why should there be a regulatory difference. The SEC could have simply extended the rule from the Advisers Act of 1940 to also cover brokers.

FINSUM: It is true that simply extending the rules to brokers would have created the littlest amount of confusion amongst clients (one of the stated aims of the SEC). But at the same time, the nature of the relationship between brokers and advisors and their clients is different, so we understand the road the SEC took.

(Washington)

Trump has named his next choice for the Supreme Court—Brett Kavanaugh. Mr Kavanaugh has a long judicial history to review, and by all accounts, he looks like a very friendly pick both for Wall Street and wealth management. He has consistently sided with the interests of financial businesses in his rulings, including rulings against regulators like the SEC.

FINSUM: Obviously all the focus of the media is on Kavanaugh’s impact in a wider sense, but from a purely financial standpoint, he appears to be very anti-regulation.

(New York)

Whether investors like it or not, a lot of signs are currently pointing to a pending recession. The yield curve has flattened dramatically, and the trade war and hawkish Fed loom large. With that in mind, JP Morgan has put out a piece telling investors which currencies to own when a recession hits. According to Paul Meggyesi of JP Morgan, it will be best to own the US Dollar, Swiss France, Japanese Yen, and Singapore Dollar, and to get rid of any emerging market currencies. The Yen and Dollar look best, as in a deleveraging scenario, the whole world needs to buy back Dollars as it is the default funding currency.

FINSUM: No surprises here, but given how long it has been since a recession, it is always useful to revisit the logics and strategies to use during one.

(Detroit)

The auto industry has been the center of an ongoing technological battle. Not only are auto companies and tech businesses battling over self-driving vehicles, but there is another competition going on over how to power them electrically. With that in mind, here are four stocks to play the electric vehicle revolution; hint, you won’t know any of them. The four names are Aumann, Constellium, Sherritt International, and Visteon. All of the companies make some key component for electric vehicles, from batteries to copper wire installations.

FINSUM: Electric vehicles are one of those revolutions where it seems best to own the component makers rather than the actual carmakers. The big question for us is the horizon for appreciation, as the exact timeline for electric vehicles becoming mainstream still seems unclear.

(New York)

One of the really worrying parts of this year’s stock market is that buybacks are booming to new records, yet share prices remain flat. US companies are on pace to buy back $800 bn of stock this year, a figure which would even eclipse 2007’s bonanza. But worryingly, 57% of the more than 350 component companies that have bought shares back this year are trailing the S&P 500’s return. That is the highest share to fall short of the index since the 2008 Crisis.

FINSUM: Aside from the worries about share prices not responding, the other concerning factor is that companies are buying their shares back at very high prices, which seems like it might portend the end of the bull market.