(Washington)

US president Trump and North Korean leader Kim Jong Un have been planning a groundbreaking summit in the near future. The meeting has been touted for months as breakthrough in relations, especially following the friendly developments between North and South Korea recently. However, the whole meeting is now in doubt as North Korea has threatened to cancel. The country is angry over US-South Korea joint military training operations and does not want to be forced into a corner by the US over its nuclear program.

FINSUM: We are not foreign policy experts, but if the US wants to make progress with North Korea, we should make sure to keep them calm enough to meet with us. What happens thereafter is a separate decision.

(New York)

Over the last several years consumer credit markets have experienced a huge boom. As the economy started to pick up pace, consumers abandoned the deleveraging that characterized the Great Recession and started to use more credit. This led to a boom in profitability for credit card companies. However, that era has now come to an end. “The easy money has been made in card lending”, says a consumer finance analyst at Wells Fargo. Battles over ever lower rates for consumers as well as the cost of competing by offering rewards has challenged the landscape.

FINSUM: We definitely think the credit card boom as over as consumers have wisened up and have many more good options.

(New York)

We might have just reached an inflection point in the market-economy mechanism. For the first time since 2008, short-term Treasury yields have just reached the same level as equity dividend yields. It is not even the two-year Treasury we are talking about, but rather the three-month, whose yield is now about 1.9%, the same as equities’. The convergence of a number of different yield rates is a strong warning sign of a pending recession. JP Morgan comments that “What has been surprising this year has been the degree to which cross-asset performance has behaved as if the late cycle had already arrived, despite little material change in the growth outlook”.

FINSUM: This is an important indicator. Both bond and stock investors are moving ahead of the economy itself, but their actions seem likely to create the reality they fear.

(New York)

The bond market saw ten-year yields move higher yesterday, up over 3% in fact. Despite the rise, stock markets eked out a small gain. Some would consider this a positive sign. However, Barron’s is arguing the opposite, contending that the lack of market breadth lately may indicate that a recession is on the way.

FINSUM: We favor market breadth as a good indicator of sentiment. When investors think things are good, all sectors tend to rise, when they feel bearish, those gains tend to be isolated. Notice how the Nasdaq has risen considerably this year while other markets are flat. This is a good indication of how investors are feeling.

(New York)

There is a lot of consternation in the market about the direction of equities. Some fear for returns as higher rates and the possibility of a recession become clearer. However, the world’s largest asset manager has just come forth with position that sticks with US equities. The best way to summarize BlackRock’s view is that it thinks “fears of peaking earnings are overdone”. The manager believes that worries over macro concerns have overshadowed very strong fundamental performance.

FINSUM: So the question is how much of the great earning performance was simply because of the tax cut, and how much came from an improvement in the underlying businesses. That is key to understand before predicting where the market is headed.

(New York)

Despite the hopes of investors, yields moved higher yesterday, with ten-year Treasury yields now back above 3%. For a while the momentum higher had been stemmed, but yesterday saw yields move sharply upwards. The move got the Dollar back on track, but it left equities nervous about what may lay ahead. Some market watchers say the recent market moves are a preamble to a correction.

FINSUM: Markets (stock and bonds) are bouncing all around, essentially momentum-less. We think things are going to be this way until a strong narrative takes hold—either trade war and recession, or something that renews the bull market.

(New York)

Bank stocks have had somewhat of a rough time this year. Like the rest the of the market they have been subject to turbulence. However, Barron’s says that clear sailing might lay ahead, as the stocks are looking less risky and likely to have more gains. The reason why is that bank stocks have been showing less and less beta lately, meaning they are trading at less relative volatility to the market than previously. This will lower their cost of capital and keep things steadier as rates rise, which will be bullish for performance. According to one research analyst, “Higher rates will have a positive impact on earnings, loan growth appears to be picking up, and we expect further regulatory relief”.

FINSUM: Given that higher rates improve net interest margins for banks, and the fact that there is significant regulatory relief occurring, we are feeling optimistic.

(New York)

The Trump era of deregulation is really starting to play out for the financial services industry. On top of the collapse of the Volcker rule, banks might be about to enjoy a major concession from regulators: the assumption that short-term trades are automatically a violation of the rule. The Fed and other regulators are planning to drop the assumption that a position held by a bank for less than 60 days is a violation of the Volcker rule.

FINSUM: This would be a major development as banks would be left to comply with the rule on their own terms. That shifts the burden of proof onto regulators, who would now need to prove a trade was a violation.

(Washington)

Advisors have recently been feeling relieved about the fifth circuit court ruling that struck down the DOL’s version of the fiduciary rule. However, it may not be time to jump for joy yet. The fifth circuit is supposed to issue a mandate which vacates the rule, which takes it out of force. It is unclear why the fifth circuit court has not done so yet, but it is starting to make the industry nervous.

FINSUM: Most say the court simply has not gotten around to issuing the mandate yet, but that seems odd given it has been two months since the verdict. The next date to watch is May 16th, as that is the deadline for states and other entities to apply for appeals to the ruling.

(New York)

There is a lot of scuttlebutt in the wealth management industry about fee compression. The narrative is that there is much price competition across the industry and investment advisors are having to cut their fees and add services to stay relevant. Well, the reality is fees are actually moving higher. According to a new survey from FinancialAdvisor, many advisors are actually hiking fees between 10 to 25 basis points. The finding adds to another survey from Pershing which found that 84% of advisors had not changed fees in 2017, and those that did had hiked rather than cutting.

FINSUM: This is a very healthy sign for the industry, especially given the fee war going on in ETFs and the asset management industry.