(New York)

Income stocks are a tough asset to place right now. On the one hand they have provided steady income since the Crisis, but as rates have risen, they have started to be wounded by losses and their yields no longer look as promising. Only 25% of stocks in the S&P 500 have yields higher than the 10-year Treasury bond. But what about stocks that are still handily out-yielding bonds? The best places to look are in consumer staples (averaging 3.3% yields), real estate (3.4%), telecom (5.4%), and utilities (3.6%).

FINSUM: So you can still get some great yields, but the big risk at the moment is capital losses because of rising rates.

(Houston)

The oil market has had a great year. US oil prices have risen from $45 a year ago to over $70 recently. Big oil producers have successfully worked together to constrain output in an effort to boost prices. However, that condition may be set to change. OPEC has already warned that it may have to increase supply for its member producers, and now the country has a meeting in Vienna next week where that eventuality will likely be decided. One portfolio manager put it this way, saying “OPEC countries will be contemplating production levels that could potentially tip the supply/demand balance currently in place, leaving crude oil pricing susceptible to oversupply”.

FINSUM: We do not think the global cooperation with producers will last, as each wants to boost production as a way of increasing revenue.

(New York)

Rates are rising, and that usually means bad news for income stocks. This time looks no different. Both utilities and real estate have been wounded this year, with both down between 3% and 6% for the year. The sectors are also getting increasingly unfavorable ratings from analysts.

FINSUM: We are pretty worried about losses coming for good income stocks as short-term Treasuries are yielding so much. Additionally, the Fed is sounding more hawkish, which only adds momentum to losses for rate sensitive equities.

(New York)

It was a golden period, but it seems it only lasted less than a year. 2017 was a great year for the global economy. For the first time since the Crisis, the whole world seemed to be growing in unison. Even Europe, long in the doldrums after its sovereign debt crisis, had blossomed. But just as that growth was finally harmonizing, it is changing again. US growth still looks solid, but the rest of the world, especially Europe, is beginning to stagnate. China, too, leaks weaker, and both the ECB and Chinese central bank have held off on any rate rises.

FINSUM: We wonder if a global recession is coming. The US still looks strong, but then again we are coming off a very strong late stage tax cut.

(Washington)

Well, it was inevitable. The industry has officially started its major fight against the new SEC rule which seeks to stop brokers from using the title of “advisor” (or “adviser”). The National Association of Insurance and Financial Advisors (NAIFA) is on a winning streak, having been part of the group to take down the DOL’s fiduciary rule. Now it is turning its focus to the SEC title rule. According to NAIFA “We are still analyzing the almost 1,000 pages, and we’ll certainly comment on it, but one area where we have an issue already is the limit on who can use the term ‘advisor”.

FINSUM: It is critical to mention a couple of things here. One, this group, which has been very successful in taking down regulation, is an association of mostly brokers, not fiduciaries, so they have a keen interest in solving this situation. Secondly, the word “advisor” is part of their own name, so the new rule cuts to the heart of their very existence. We have a feeling this component of the SEC rule might prompt as much backlash as the DOL rule did.

(New York)

Investors look out! After years of booming asset prices on the back of extraordinarily loose monetary policy, everything looks like it is about to implode. Not only is the Fed hiking and looking hawkish, but the ECB is in the middle of a covert meeting likely about how to end QE. China also looks close to reigning in its economy. Altogether, the economy on which current markets have been built looks set for change, which might cause big problems for equity investors.

FINSUM: So far “normalization” of interest rates has been quite slow, which has let investors sort of ignore the process. If things start accelerating quickly, then markets may react very sharply.

(Washington)

In a widely expected move yesterday, Jerome Powell announced the first hike of his stint as the head of the Fed. The move was a quarter point higher to between 1.75% and 2%. Powell promised to be more open and transparent about the Fed’s outlook than in former times. Powell presented the rosiest outlook on the US economy in memory, repeatedly expressing strong optimism. He indicated that there were two more hikes planned for this year.

FINSUM: All the optimism comes across as quite hawkish despite Powell’s intentions to seem gradual. We appear to be on definite course higher.

(New York)

Before President Trump got elected, and immediately after, there was a great deal of excitement that financial firms were going to experience a flourishing as the US cut back heavily on financial regulation. 500 days in that hope has failed to significantly materialize. While small and medium sized banks have benefitted, and the DOL’s fiduciary rule is gone (great for wealth management), large banks have not seen gains. For instance, the Fed has made stress tests for large banks more stringent.

FINSUM: Banks had the prop trading rules (Volcker rule) weakened recently, so that is positive, but otherwise there hasn’t been much change.

(Chicago)

One of Elon Musk’s most promising and exciting ideas just won a major funding bid. A couple of years ago Musk divulged his idea for underground “hyperloop” travel that sent people whisking around at hundreds of miles an hour underground. Well, the idea is going to become a reality, as Chicago has just awarded Musk’s “Boring Company” a contract to build such a link between O’Hare airport and the city. The distance between the two is 18 miles and currently takes around 40 mins. Musk’s plan would cut the trip to 12 min. The deal will be privately funded.

FINSUM: This sounds like a great proof of concept for Musk, but we do worry it will take some of his focus away from executing on Tesla.

(Washington)

A week ago it didn’t seem like it was going to happen, but nonetheless it is. Trump plans to move ahead with imposing $50 bn worth of tariffs on China starting as soon as tomorrow. The move is expected to bring heavy retaliation from Beijing. Several days ago, China made a conciliatory offer to boost purchases of US goods by tens of billions of Dollars.

FINSUM: We think the US’ approach to link the trade situation to working with China on North Korea is not a very smart angle, as nuclear security and agricultural goods don’t sit comfortably.